REG - Arrow Exploration - Arrow Announces 2024 Year End and Q4 2024 Results
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RNS Number : 5189G Arrow Exploration Corp. 29 April 2025
NOT FOR RELEASE, DISTRIBUTION, PUBLICATION, DIRECTLY OR INDIRECTLY, IN WHOLE
OR IN PART, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, JAPAN, THE
REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO MIGHT
CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH
JURISDICTION.
ARROW ANNOUNCES 2024 AUDITED YEAR END AND Q4 2024 RESULTS, FILING OF AUDITED
FINANCIAL STATEMENTS, MD&A AND RESERVES REPORT
Significant growth across key metrics including 65% increase in total revenue,
increase in production of 63% and healthy cash position
CALGARY, April 29, 2025- Arrow Exploration Corp. (AIM: AXL; TSXV: AXL)
("Arrow" or the "Company"), the high-growth operator with a portfolio of
assets across key Colombian hydrocarbon basins, announces the filing of its
Annual Audited Financial Statements and Management's Discussion and Analysis
("MD&A") for the quarter and year ended December 31, 2024 and the filing
of its 2024 year-end reserves report, which are available on SEDAR
(www.sedar.com (http://www.sedar.com) ) and will also shortly be available on
Arrow's website at www.arrowexploration.ca (http://www.arrowexploration.ca) .
Full Year 2024 Highlights:
· Significant 65% growth in total oil and gas revenue to $73.7 million,
net of royalties (FY 2023: $44.7 million).
· Net income of $13.2 million inclusive of an impairment reversal of
$0.7 million (FY: 2023: net loss of $1.1 million).
· Adjusted EBITDA of $48 million, which is 78% greater than last year
(FY 2023: $27.1 million), with Q4 2024 EBITDA of $13.3 million compared to
$7.1 million in Q4 2023.
· Cash position of $18 million at the end of 2024.
· Annual average corporate production up 63% to 3,542 boe/d (FY 2023:
2,167 boe/d) with Q4 2024 average corporate production more than doubling to
4,738 boe/d compared with Q4 2023 2,335 boe/d.
· Funds flow from operations of $35.6 million (FY 2023: $19.9 million)
with Q4 2024 funds flow from operations of $12.5 million (FY 2023: $3.8
million).
· Increase in Proved Developed Producing reserves at year-end 2024 of
92% to 2.4 MMboe.
· Successfully drilled seven horizontal wells and five vertical
wells at Carrizales Norte (CN), which added significant production to the
Company.
· Drilled a successful exploratory well on the Alberta Llanos (AB
Llanos) field in the Tapir block.
· All operations delivered safely, with no accidents or environmental
incidents.
Post Period End Highlights:
· So far in 2025, the Company has drilled three development wells on
the CN field and two additional wells in the AB Llanos field in the Tapir
Block, The AB-2 well is being recompleted as a water disposal well, the other
new drills are all currently producing at restricted rates. Ramping production
up slowly prevents early water breakthrough in each well.
· Currently mobilizing the drilling rig to the Alberta Llanos (AB) pad
to start drilling horizontal development wells. A second rig will be
mobilized shortly to begin development drilling at the Rio Cravo Este (RCE)
pad.
· Completed seismic data acquisition of 90 km2 in the south east
section of the Tapir block. Seismic is currently being processed and will
later be analysed.
Outlook
· Arrow has a fully funded 2025 work program totaling $51 million
targeting up to 23 wells mainly in the Tapir block.
· The work program includes the Company's first horizontal wells in
Alberta Llanos and recently identified prospects in Mateguafa Attic.
Marshall Abbott, CEO of Arrow Exploration Corp., commented:
"2024 was the best year for the Company so far on all fronts. We
saw substantial growth in production, revenue and EBITDA and our healthy
balance sheet supports the aggressive capital program planned for 2025. Our
strategy remains to maintain a disciplined approach to capital allocation
which allows Arrow to grow production while maintaining positive cash flow and
a growing cash position, which today's results show clear success in doing.
With a significant portfolio of reserves at year end, Arrow is confident in
being able to replicate its strategy and continue to grow its production and
cash flow.
So far in 2025, Arrow has completed drilling of AB Llanos 2 and 3,
and horizontal wells CN HZ 9, CN HZ 10 and a directional well CN 11. Arrow
is now moving the drilling rig to the AB Llanos pad where two
horizontal wells are expected to be drilled in Q2 2025.
Arrow then plans to add an additional rig to drill at wells at the RCE pad
and additional development wells in CN. Additional operational updates will
be forthcoming.
The Arrow team continues to strive towards growth, operational excellence and
increasing shareholder value."
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended December 31, 2024 Year ended December 31, 2024 Three months ended December 31, 2023 Year ended December 31, 2023
(in United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 22,873,626 73,725,028 13,406,513 44,670,006
Funds flow from operations ((1)) 12,519,464 35,619,816 3,781,033 19,990,584
Funds flow from operations ((1)) per share -
Basic($) 0.04 0.12 0.01 0.08
Diluted ($) 0.04 0.12 0.01 0.07
Net income (loss) 2,081,956 13,175,001 (10,492,053) (1,106,613)
Net income (loss) per share -
Basic ($) 0.01 0.05 (0.04) (0.00)
Diluted ($) 0.01 0.05 (0.04) (0.00)
Adjusted EBITDA ((1)) 13,277,044 48,144,181 7,132,422 27,157,169
Weighted average shares outstanding:
Basic 285,864,348 285,864,348 278,144,305 242,537,228
Diluted 290,029,866 291,226,740 291,404,032 289,903,094
Common shares end of period 285,864,348 285,864,348 285,864,348 285,864,348
Capital expenditures 8,928,725 31,121,240 10,471,447 27,084,959
Cash and cash equivalents 18,837,784 18,837,784 12,135,376 12,135,376
Current assets 25,973,196 25,973,196 21,629,198 21,629,198
Current liabilities 14,327,027 14,327,027 12,960,084 12,960,084
Adjusted working capital((1)) 11,646,169 11,646,169 8,669,114 8,669,114
Non-current restricted cash and deposits((2)) 167,545 167,545 854,834 854,834
Total assets 81,268,734 81,268,734 62,275,023 62,275,023
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 1,332 1,119 1,819 2,150
Natural gas liquids (bbl/d) 5 5 4 4
Crude oil (bbl/d) 4,511 3,351 2,027 1,805
Total (boe/d) 4,738 3,542 2,335 2,167
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($0.71) ($0.68) ($0.21) ($0.13)
Crude oil ($/bbl) $42.80 $50.13 $45.91 $53.97
Total ($/boe) $40.63 $47.33 $40.49 $45.17
((1))Non-IFRS measures - see "Non-IFRS Measures" section within this MD&A
((2))Long term restricted cash not included in working capital
2024 Year-End Reserves
Arrow has also filed on SEDAR, the Company's Statement of Reserves Data and
Other Oil and Gas Information, Report on Reserves Data by Independent
Qualified Reserves Evaluator, and Report of Management and Directors on Oil
and Gas Disclosure for the year ended December 31, 2024, as required by
section 2.1 of National Instrument 51-101 - Standards of Disclosure for Oil
and Gas Activities (together, the "Reserve Report").
To recap, the Company's Year-End 2024 Company Working Interest Gross Reserves
Highlights include:
· 2,384 Mboe of Proved Developed Producing Reserves ("PDP Reserves")
· 5,805 Mboe of Proved Reserves ("1P Reserves");
· 13,618 Mboe of Proved plus Probable Reserves ("2P Reserves");
· 22,288 Mboe of Proved plus Probable plus Possible Reserves ("3P
Reserves")(1);
· 1P Reserves estimated net present value before income taxes of US$115
million calculated at a 10% discount rate;
· 2P Reserves estimated net present value before income taxes of US$285
million calculated at a 10% discount rate; and
· 3P Reserves estimated net present value before income taxes of US$524
million calculated at a 10% discount rate.
Arrow refers readers to the Company's press release of March 13, 2025 for
additional details, as well as to the Reserve Report filed on SEDAR.
Discussion of Operating Results
The Company increased its production during 2024 mostly from new horizontal
wells at the Carrizales Norte fields in the Tapir block. These have allowed
the Company to continue to improve its operating results and EBITDA. There
has also been a decrease in the Company's natural gas production in Canada due
to natural declines.
Average Production by Property
Average Production Boe/d YTD 2024 Q4 2024 Q3 2024 Q2 2024 Q1 2024 YTD 2023 Q4 2023
Oso Pardo 153 154 180 113 166 110 80
Ombu (Capella) - - - - - 20 -
Rio Cravo Este (Tapir) 1,294 1,178 1,078 1,283 1,644 1,342 1,326
Carrizales Norte (Tapir) 1,897 3,153 2,784 991 622 332 621
Alberta Llanos 7 26 - - - - -
Total Colombia 3,351 4,511 4,042 2,387 2,432 1,805 2,027
Fir, Alberta 81 88 82 77 78 78 80
Pepper, Alberta 110 139 - 82 220 284 228
TOTAL (Boe/d) 3,542 4,738 4,124 2,546 2,730 2,167 2,335
The Company's average production for the three months and year ended December
31, 2024 was 4,738 and 3,542 boe/d, respectively, which consisted of crude oil
production in Colombia of 4,511 and 3,351 bbl/d, respectively, natural gas
production of 1,332 and 1,119 Mcf/d, respectively, and minor amounts of
natural gas liquids. The Company's Q4 2024 production was 15% higher than its
Q3 2024 production and 103% higher than Q4 2023.
Discussion of Financial Results
During Q4 2024 the Company continued to realize strong oil and gas prices, as
summarized below.
Three months ended
December 31
2024 2023 Change
Benchmark Prices
AECO (C$/Mcf) $1.50 $2.34 (36%)
Brent ($/bbl) $73.13 $77.32 (5%)
West Texas Intermediate ($/bbl) $70.30 $78.35 (10%)
Realized Prices
Natural gas, net of transportation ($/Mcf) $1.21 $1.68 (28%)
Natural gas liquids ($/bbl) $65.73 $68.30 (4%)
Crude oil, net of transportation ($/bbl) $57.04 $69.61 (18%)
Corporate average, net of transport ($/boe)((1)) $54.73 $62.72 (13%)
((1)Non-IFRS measure)
As at December 31, 2024, the Company reviewed its cash-generating units
("CGU") for property and equipment and determined that there were indicators
of impairment reversal in its Canada CGU and recognized an income of $662,753.
Operating Netbacks
The Company also continued to realize positive operating netbacks, as
summarized below.
Three months ended Year ended
December 31 December 31
2024 2023 2024 2023
Natural Gas ($/Mcf)
Revenue, net of transportation expense $1.21 $1.68 $1.35 $1.94
Royalties ($0.05) (0.05) ($0.02) (0.02)
Operating expenses ($1.87) (1.84) ($2.01) (2.05)
Natural Gas operating netback((1)) ($0.71) ($0.21) ($0.68) ($0.13)
Crude oil ($/bbl)
Revenue, net of transportation expense $57.04 $69.61 $65.40 $72.05
Royalties ($2.61) (7.97) ($6.33) (8.69)
Operating expenses ($11.63) (15.73) ($8.94) (9.39)
Crude Oil operating netback((1)) $42.80 $45.91 $50.13 $53.97
Corporate ($/boe)
Revenue, net of transportation expense $54.73 $62.72 $62.41 $62.31
Royalties ($2.50) (7.07) ($5.99) (7.30)
Operating expenses ($11.60) (15.16) ($9.09) (9.84)
Corporate Operating netback((1)) $40.63 $40.49 $47.33 $45.17
( (1))Non-IFRS measure
The operating netbacks of the Company maintained healthy levels during 2024
due to increased production from its Colombian assets, notwithstanding lower
crude oil prices, which was offset by decreases in natural gas prices and
higher operating expenses for natural gas.
During 2024, the Company invested $31 million of capital expenditures,
primarily in connection with the drilling of 13 wells in the Tapir Block. This
acceleration in operational tempo is expected to continue in 2025, funded by
cash on hand and cashflow.
For further Information, contact:
Arrow Exploration
Marshall Abbott, CEO +1 403 651 5995
Joe McFarlane, CFO +1 403 818 1033
Canaccord Genuity (Nominated Advisor and Joint Broker)
Henry Fitzgerald-O'Connor +44 (0)20 7523 8000
James Asensio
George Grainger
Auctus Advisors (Joint Broker)
Jonathan Wright +44 (0)7711 627449
Rupert Holdsworth Hunt
Camarco (Financial PR)
Owen Roberts +44 (0)20 3781 8331
Rebecca Waterworth
About Arrow Exploration Corp.
Arrow Exploration Corp. (operating in Colombia via a branch of its 100% owned
subsidiary Carrao Energy S.A.) is a publicly traded company with a portfolio
of premier Colombian oil assets that are underexploited, under-explored and
offer high potential growth. The Company's business plan is to expand oil
production from some of Colombia's most active basins, including the Llanos,
Middle Magdalena Valley (MMV) and Putumayo Basin. The asset base is
predominantly operated with high working interests, and the Brent-linked light
oil pricing exposure combines with low royalties to yield attractive potential
operating margins. Arrow's 50% interest in the Tapir Block is contingent on
the assignment by Ecopetrol SA of such interest to Arrow. Arrow's seasoned
team is led by a hands-on executive team supported by an experienced board.
Arrow is listed on the AIM market of the London Stock Exchange and on TSX
Venture Exchange under the symbol "AXL".
Forward-looking Statements
This news release contains certain statements or disclosures relating to Arrow
that are based on the expectations of its management as well as assumptions
made by and information currently available to Arrow which may constitute
forward-looking statements or information ("forward-looking statements") under
applicable securities laws. All such statements and disclosures, other than
those of historical fact, which address activities, events, outcomes, results
or developments that Arrow anticipates or expects may, could or will occur in
the future (in whole or in part) should be considered forward-looking
statements. In some cases, forward-looking statements can be identified by the
use of the words "continue", "expect", "opportunity", "plan", "potential" and
"will" and similar expressions. The forward-looking statements contained in
this news release reflect several material factors and expectations and
assumptions of Arrow, including without limitation, Arrow's evaluation of the
impacts of COVID-19, the potential of Arrow's Colombian and/or Canadian assets
(or any of them individually), the prices of oil and/or natural gas, and
Arrow's business plan to expand oil and gas production and achieve attractive
potential operating margins. Arrow believes the expectations and assumptions
reflected in the forward-looking statements are reasonable at this time, but
no assurance can be given that these factors, expectations, and assumptions
will prove to be correct.
The forward-looking statements included in this news release are not
guarantees of future performance and should not be unduly relied upon. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ materially
from those anticipated in such forward-looking statements. The forward-looking
statements contained in this news release are made as of the date hereof and
the Company undertakes no obligations to update publicly or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, unless so required by applicable securities laws.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that
term is defined in policies of the TSX Venture Exchange) accepts
responsibility for the adequacy or accuracy of this release.
Glossary
Bbl/d or bop/d: Barrels per day
$/Bbl: Dollars per barrel
Mcf/d: Thousand cubic feet of gas per day
Mmcf/d: Million cubic feet of gas per day
$/Mcf: Dollars per thousand cubic feet of gas
Mboe: Thousands of barrels of oil equivalent
Boe/d: Barrels of oil equivalent per day
$/Boe: Dollars per barrel of oil equivalent
BOE's may be misleading particularly if used in isolation. A BOE conversion
ratio of 6 Mcf: 1 bblis based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.
Non‐IFRS Measures
The Company uses non-IFRS measures to evaluate its performance which are
measures not defined in IFRS. Working capital, funds flow from operations,
realized prices, operating netback, adjusted EBITDA, and net debt as presented
do not have any standardized meaning prescribed by IFRS and therefore may not
be comparable with the calculation of similar measures for other entities. The
Company considers these measures as key measures to demonstrate its ability to
generate the cash flow necessary to fund future growth through capital
investment, and to repay its debt, as the case may be. These measures should
not be considered as an alternative to, or more meaningful than net income
(loss) or cash provided by operating activities or net loss and comprehensive
loss as determined in accordance with IFRS as an indicator of the Company's
performance. The Company's determination of these measures may not be
comparable to that reported by other companies.
This Announcement contains inside information for the purposes of the UK
version of the market abuse regulation (EU No. 596/2014) as it forms part of
United Kingdom domestic law by virtue of the European Union (Withdrawal) Act
2018 ("UK MAR").
Arrow Exploration Corp.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ended DECEMBER 31, 2024 AND 2023
IN UNITED STATES DOLLARS
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Arrow Exploration Corp.
Opinion
We have audited the consolidated financial statements of Arrow Exploration
Corp. and its subsidiaries (the Company), which comprise the consolidated
statements of financial position as at December 31, 2024 and 2023, and the
consolidated statements of operations and comprehensive (loss) income, changes
in shareholders' equity and cash flows for the years then ended, and notes to
the consolidated financial statements, including material accounting policy
information.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects the consolidated financial position of the
Company as at December 31, 2024 and 2023, and its consolidated financial
performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards (IFRSs).
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Our responsibilities under those standards are further described in
the Auditor's responsibilities for the audit of the consolidated financial
statements section of our report. We are independent of the Company in
accordance with the ethical requirements that are relevant to our audit of the
consolidated financial statements in Canada, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Key audit matter
Key audit matters are those matters that, in our professional judgment, were
of most significance in the audit of the consolidated financial statements of
the current period. These matters were addressed in the context of the audit
of the consolidated financial statements as a whole, and in forming the
auditor's opinion thereon, and we do not provide a separate opinion on these
matters. For the matter below, our description of how our audit addressed the
matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor's
responsibilities for the audit of the consolidated financial statements
section of our report, including in relation to this matter. Accordingly,
our audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the consolidated financial
statements. The results of our audit procedures, including the procedures
performed to address the matter below, provide the basis for our audit opinion
on the accompanying consolidated financial statements.
Key audit matter How our audit addressed the key audit matter
The impact of estimated oil and gas reserves on property & equipment
We draw attention to notes 2, 3 and 8 of the consolidated financial
statements. The Company uses oil and gas reserves to deplete its development
and production assets included in property and equipment, and to assess for Our approach to addressing the matter included the following procedures:
indicators of impairment or impairment reversal in the Company's cash
generating units ("CGU's). If any such indicators exist, the Company uses oil · Tested how management determined reserves, which include the
and gas reserves to estimate the recoverable amount of the CGU. following:
The Company had $55.0 million of property and equipment at December 31, 2024. o The competence, capabilities and objectivity of management's expert was
Depletion and depreciation expense was $17.5 million for the year ended evaluated, the work performed was understood and the appropriateness of the
December 31, 2024. For the year ended December 31, 2024, an impairment work as audit evidence was evaluated. The procedures performed also included
reversal of $0.7 million was recorded with respect to the Canada CGU. evaluation of the methods and assumptions used by management's expert, tests
of data used by management's expert and an evaluation of their findings.
Reserves are evaluated by the Company's independent petroleum engineers
(management's expert). Key assumptions developed by management used to o Evaluated the reasonableness of key assumptions used, including expected
determine reserves include forward price estimates, expected future rates of future rates of production, future production costs and the timing and amount
production, future production costs and the timing and amount of future of future development expenditures by considering current and past performance
development expenditures. For purposes of estimating the recoverable amount of of the Company and whether these assumptions were consistent with evidence
the Canada CGU, management used a fair value less cost to dispose and also obtained in other areas of the audit, as applicable.
made assumptions with respect to market discount rates.
o Evaluated the reasonableness of forward price estimates by comparing those
We considered this a key audit matter due to the judgments by management, forecasts with third party industry forecasts.
including the use of management's expert and a high degree of auditor
judgment, subjectivity and effort in performing procedures relating to the key · Recalculated depletion and depreciation expense.
assumptions.
· Involved our internal valuation specialists to assess the
methodology applied in estimating the recoverable amount of the Canada CGU,
and the various inputs utilized in determining the discount rate by
referencing current industry, economic, and comparable company information, as
well as company and cash-flow specific risk premiums.
· Evaluated the adequacy of the impairment reversal note
disclosures included in note 8 of the accompanying consolidated financial
statements in relation to this matter.
Other information
Management is responsible for the other information. The other information
comprises:
· Management's Discussion and Analysis
Our opinion on the consolidated financial statements does not cover the other
information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information, and in doing so, consider
whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated.
We obtained Management's Discussion & Analysis prior to the date of this
auditor's report. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to
report that fact in this auditor's report. We have nothing to report in this
regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the
consolidated financial statements in accordance with IFRSs, and for such
internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible
for assessing the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to
liquidate the Company or to cease operations, or has no realistic alternative
but to do so.
Those charged with governance are responsible for overseeing the Company's
financial reporting process.
Auditor's responsibilities for the audit of the consolidated financial
statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report
that includes our opinion. Reasonable assurance is a high level of assurance
but is not a guarantee that an audit conducted in accordance with Canadian
generally accepted auditing standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing
standards, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
· Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal
control.
· Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control.
· Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.
· Conclude on the appropriateness of management's use of the going
concern basis of accounting and, based on the audit evidence obtained, whether
a material uncertainty exists related to events or conditions that may cast
significant doubt on the Company's ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor's report. However, future events or conditions
may cause the Company to cease to continue as a going concern.
· Evaluate the overall presentation, structure, and content of the
consolidated financial statements, including the disclosures, and whether the
consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
· Plan and perform the group audit to obtain sufficient appropriate
audit evidence regarding the financial information of the entities or business
units within the Company as a basis for forming an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and
review of the work performed for the purposes of the group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the consolidated
financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in
our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's
report is Beth Sanford.
Calgary,
Canada
April 28, 2025
Arrow Exploration Corp.
Consolidated Statements of Financial Position
In United States Dollars
As at Notes December 31, 2024 December 31, 2023
ASSETS
Current assets
Cash $ 18,837,784 $ 12,135,376
Restricted cash and deposits 4 238,141 611,753
Trade and other receivables 5 3,830,215 3,536,936
Taxes receivable 6 2,656,926 4,655,399
Deposits and prepaid expenses 232,730 197,402
Inventory 177,400 492,332
25,973,196 21,629,198
Non-current assets
Deferred income taxes 12 - 2,031,383
Restricted cash and deposits 4 167,545 243,081
Exploration and evaluation assets 7 142,995 -
Property and equipment 8 54,984,998 38,371,361
Total Assets $ 81,268,734 $ 62,275,023
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 8,504,332 $ 9,747,906
Lease obligation 9 44,639 103,674
Income taxes 12 4,294,109 3,108,504
Stock based compensation liability 11 1,483,947 -
14,327,027 12,960,084
Non-current liabilities
Lease obligations 9 174,767 216,919
Other liabilities 610,059 345,528
Deferred income taxes 12 6,832,229 3,269,894
Decommissioning liability 10 6,307,659 3,973,075
Total liabilities 28,251,741 20,765,500
Shareholders' equity
Share capital 11 73,829,795 73,829,795
Contributed surplus 856,093 2,161,945
Deficit (20,770,894) (33,945,895)
Accumulated other comprehensive loss (898,001) (536,322)
Total shareholders' equity 53,016,993 41,509,523
Total liabilities and shareholders' equity $ 81,268,734 $ 62,275,023
Commitments and contingencies (Note 13)
The accompanying notes are an integral part of these consolidated financial
statements.
On behalf of the Board:
signed "Gage Jull"
Director
signed "Ian Langley" Director
Gage
Jull
Ian Langley
Arrow Exploration Corp.
Consolidated Statements of Operations and Comprehensive (Loss) Income
In United States Dollars
For the years ended December 31, Notes 2024 2023
Revenue
Oil and natural gas 16 81,559,184 50,596,786
Royalties 16 (7,834,156) (5,926,780)
Total oil and natural gas revenue, net of royalties 73,725,028 44,670,006
Expenses
Operating 11,878,177 7,991,172
Environmental 127,890 113,991
Administrative 12,884,499 9,941,864
Share-based compensation expense 11 1,480,664 591,454
Financing costs:
Accretion 10 178,296 127,478
Interest 9 31,846 141,117
Other 330,450 424,427
Foreign exchange (gain) loss 690,281 (640,941)
Depletion and depreciation 8 17,535,815 12,186,777
Impairment (reversal) of oil and gas properties, net 8 (662,753) 11,799,740
Gain on derivative liability - (1,041,992)
Total expenses, net 44,475,165 41,635,087
Income before income tax 29,249,863 3,034,919
Income tax expense
Current 12 10,481,144 7,097,419
Deferred 12 5,593,718 (2,955,887)
16,074,862 4,141,532
Net income (loss) 13,175,001 (1,106,613)
Other comprehensive (loss) income
Foreign exchange (361,679) 109,050
Total other comprehensive (loss) income (361,679) 109,050
Total comprehensive income (loss) 12,813,322 (997,563)
Net income (loss) per share:
Basic $ 0.05 $ (0.00)
Diluted $ 0.05 $ (0.00)
Weighted average shares outstanding
Basic 285,864,348 242,537,228
Diluted 291,226,740 289,903,094
The accompanying notes are an integral part of these consolidated financial
statements.
Arrow Exploration Corp.
Statements of Changes in Shareholders' Equity
In United States Dollars
Accumulated other comprehensive loss
Contributed Surplus
Share Capital Deficit Total Equity
Balance January 1, 2024 $ 73,829,795 $ 2,161,945 $ (536,322) $ (33,945,895) $ 41,509,523
Net income - - - 13,175,001 13,175,001
Other comprehensive loss - - (361,679) - (361,679)
Total comprehensive income - - (361,679) 13,175,001 12,813,322
Share-based compensation - 136,752 - - 136,752
Reclassification of share-based compensation (Note 11)
(1,442,604) - - (1,442,604)
Balance December 31, 2024 $ 73,829,795 856,093 (898,001) (20,770,894) 53,016,993
Accumulated other comprehensive loss
Contributed Surplus
Share Capital Deficit Total Equity
Balance January 1, 2023 $ 57,810,735 $ 1,570,491 $ (645,372) $ (32,839,282) $ 25,896,572
Net loss - - - (1,106,613) (1,106,613)
Other comprehensive income - - 109,050 - 109,050
Total comprehensive loss - - 109,050 (1,106,613) (997,563)
Issuances of common shares, net 16,019,060 - - - 16,019,060
Share-based compensation - 591,454 - - 591,454
Balance December 31, 2023 $ 73,829,795 $ 2,161,945 $ (536,322) $ (33,945,895) $ 41,509,523
The accompanying notes are an integral part of these consolidated financial
statements.
Arrow Exploration Corp.
Consolidated Statements of Cash Flows
In United States Dollars
For the year ended December 31, Notes 2024 2023
Cash flows provided by operating activities:
Net (loss) income $ 13,175,001 $ (1,106,613)
Items not involving cash:
Deferred taxes 12 5,593,718 (2,955,887)
Share-based compensation 11 1,480,664 591,454
Depletion and depreciation 8 17,535,815 12,186,777
Impairment (reversal) of oil and gas properties 8 (662,753) 11,799,740
Interest on leases 9 31,846 22,011
Interest on promissory note - 119,106
Accretion 10 178,296 127,478
Unrealized foreign exchange (gain) loss (439,079) 154,064
Gain on derivative liability - (1,041,992)
Environmental 127,890 113,991
Payment of asset decommissioning obligations 10 (110,263) (19,545)
Payment of other liabilities (69,754) -
Payment of share-based compensation 11 (1,221,565) -
Changes in non‑cash working capital balances:
Restricted cash and deposits 449,148 (36,052)
Trade and other receivables (293,278) (1,001,992)
Taxes receivable 1,998,473 (3,854,222)
Deposits and prepaid expenses (35,328) (39,943)
Inventory 314,932 213,345
Income tax payable 1,185,605 1,619,588
Accounts payable and accrued liabilities 285,221 (414,757)
Cash provided by operating activities 39,524,589 16,476,551
Cash flows used in investing activities:
Additions to exploration and evaluation assets 7 (3,818,279) (3,212,808)
Additions to property and equipment 8 (27,302,961) (23,872,151)
Changes in non-cash working capital (1,528,797) 4,500,093
Cash flows used in investing activities (32,650,037) (22,584,866)
Cash flows (used in) provided by financing activities:
Issuances of common shares 11 - 7,479,802
Payment of promissory note - (2,018,577)
Lease payments 9 (57,807) (74,211)
Cash flows provided by (used in) financing activities (57,807) 5,387,014
Effect of changes in the exchange rate on cash (114,337) (204,291)
Increase (decrease) in cash 6,702,408 (925,592)
Cash, beginning of period 12,135,376 13,060,968
Cash, end of period 18,837,784 12,135,376
Supplemental information
Interest paid $ - $ 415,026
Taxes paid $ 6,065,043 $ 2,454,658
The accompanying notes are an integral part of these consolidated financial
statements.
1. Corporate Information
Arrow Exploration Corp. ("Arrow" or "the Company") is a public junior oil and
gas company engaged in the acquisition, exploration and development of oil and
gas properties in Colombia and in Western Canada. The Company's shares trade
on the TSX Venture Exchange and the AIM Market of the London Stock Exchange
plc under the symbol AXL. The head office of Arrow is located at 203, 2303 -
4th Street SW, Calgary, Alberta, Canada, T2S 2S7 and the registered office is
located at 600, 815 8th Avenue SW, Calgary, Alberta, Canada, T2P 3P2.
2. Basis of Presentation
Statement of compliance
The Company prepares its consolidated financial statements in accordance with
International Financial Reporting Standards ("IFRS") as issued by the
International Accounting Standards Board (IASB). The consolidated financial
statements have been approved and authorized for issuance by the Board of
Directors ("the Board") on April 28, 2025.
Basis of measurement
These consolidated financial statements have been prepared on a historical
cost basis except for certain financial instruments that have been measured at
fair value and specifically noted within the notes to these consolidated
financial statements.
Functional and presentation currency
These consolidated financial statements are presented in United States
Dollars. The Canadian Dollar is the functional currency of the Company and its
wholly owned subsidiary Arrow Holdings Ltd. (AHL). The functional currency of
the Company's subsidiaries operating in Colombia and Switzerland is the United
States Dollar.
Monetary assets and liabilities denominated in foreign currencies are
translated to the functional currency at the period-end exchange rate.
Non-monetary assets, liabilities, revenues and expenses are translated at
exchange rates at the transaction date. Exchange gains or losses are included
in the determination of net income or loss in the consolidated statements of
operations and comprehensive (loss) income.
Material accounting estimates and judgments
The preparation of consolidated financial statements requires management to
make estimates and use judgment regarding the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as at the
date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. By their nature, estimates are subject
to measurement uncertainty and changes in such estimates in future periods
could require a material change in the financial statements. Accordingly,
actual results may differ from the estimated amounts as future confirming
events occur. Material estimates and judgments made by management in the
preparation of these financial statements are as follows:
Exploration and evaluation assets
Exploration and evaluation assets require judgment as to whether future
economic benefits exist, including the existence of proven or probable
reserves and the ability to finance exploration and evaluation projects, where
technical feasibility and commercial viability has not yet been determined.
Depletion and depreciation
The amounts recorded for depletion and depreciation are based on estimates of
proved and probable reserves. Assumptions that are valid at the time of
reserve estimation may change materially as new information becomes
available.
Changes in forward price estimates, production and future development costs,
recovery rates or decommissioning costs may change the economic status of
reserves and may ultimately result in reserves used for measurement purposes
being removed from similar calculations in future reporting periods.
Cash Generating Unit ("CGU")
IFRS requires that the Company's oil and natural gas properties be aggregated
into CGUs, based on their ability to generate largely independent cash flows,
which are used to assess the properties for impairment. The determination of
the Company's CGUs is subject to management's judgment.
Impairment of Property, plant and equipment and exploration and evaluation
assets
Indicators of impairment are assessed by management using judgment,
considering future plans, market conditions and commodity prices. In assessing
the recoverability, each CGU's carrying value is compared to its recoverable
amount, defined as the greater of its fair value less costs of disposal and
value in use. Recoverable amounts calculated for impairment testing are based
on estimates of future commodity prices, expected volumes, quantity of
reserves and discount rates as well as future development costs, royalties,
and operating costs. In addition, the Company may identify value associated
with undeveloped land with recoverable amounts calculated based on precedent
land transactions as well as the application of a premium or discount to these
precedent transactions and assumptions regarding the ability to obtain
extensions on such land. These calculations require the use of estimates and
assumptions, which by their nature, are subject to measurement uncertainty. In
addition, judgment is exercised by management as to whether there have been
indicators of impairment or of impairment reversal. Indicators of impairment
or impairment reversal may include, but are not limited to a changes in:
market value of assets, asset performance, estimate of future prices,
royalties and costs, estimated quantity of reserves and appropriate discount
rates.
Decommissioning obligations
Measurement of the Company's decommissioning liability involves estimates as
to the cost and timing of incurrence of future decommissioning programs. It
also involves assessment of appropriate discount rates, rates of inflation
applicable to future costs and the rate used to measure the accretion charge
for each reporting period. Measurement of the liability also reflects
current engineering methodologies as well as current environmental legislation
and standards.
Income taxes
The Company recognises deferred tax assets to the extent that it is probable
that the deductible temporary differences will reverse in the foreseeable
future and that sufficient taxable income will be generated in the future to
recover such deferred tax assets. Assessing the recoverability of deferred tax
assets requires the Company to make significant estimates related to
expectations of future taxable income. Estimates of future taxable income are
based on forecast cash flows from operations and the application of existing
tax laws. To the extent that future cash flows and taxable income differ
significantly from estimates, the ability of the Company to realise the net
deferred tax assets recorded at the reporting date could be impacted. In
addition, future changes in tax laws could limit the ability of the Company to
obtain tax deductions in future periods.
3. Material Accounting Policies
Interests in joint arrangements
Certain of the Company's exploration and production activities are regarded as
joint operations and are conducted under joint operating agreements, whereby
two or more parties jointly control the assets. These consolidated financial
statements reflect only the Company's share of these jointly controlled
operations, and the Company's proportionate share of the relevant revenue and
costs.
Financial instruments
The Company considers whether a contract contains an embedded derivative when
it first becomes a party to it. Embedded derivatives are separated from the
host contract which is not measured at fair value through profit or loss when
the analysis shows that the economic characteristics and risks of embedded
derivatives are not closely related to those of the host contract. Financial
assets and financial liabilities are recognized in the Company's statement of
financial position when the Company becomes party to the contractual
provisions of the instrument. Financial assets are derecognized when the
contractual rights to the cash flows from the financial asset expire or when
the contractual rights to those assets are transferred. Financial
liabilities are derecognized when the obligation specified in the contract is
discharged, cancelled or expired.
Financial assets
The Company's financial assets are comprised of cash, restricted cash, trade
and other receivables and deposits. Cash and restricted cash are classified
as financial assets at fair value through profit or loss. Trade and other
receivables, and deposits are classified and measured at amortized cost using
the effective interest, less any impairment losses. The initial classification
of a financial asset depends upon the Company's business model for managing
its financial assets and the contractual terms of the cash flows. There are
three measurement categories into which the Company classified its financial
assets:
- Amortized Cost: Includes assets that are held within a business model
whose objective is to hold assets to collect contractual cash flows and its
contractual terms give rise on specified dates to cash flows that represent
solely payments of principal and interest;
- Fair Value Through Profit or Loss ("FVTPL"): Includes assets that do not
meet the criteria for amortized cost or FVOCI and are measured at fair value
through profit or loss. This includes all derivative financial instruments.
At initial recognition, the Company measures a financial asset at its fair
value and, in the case of a financial asset not at FVTPL, including
transaction costs that are directly attributable to the acquisition of the
financial asset. Transaction costs of financial assets carried at FVTPL are
recorded as an expense. Financial assets are reclassified subsequent to their
initial recognition only if the business model for managing those financial
assets changes. The affected financial assets will be reclassified on the
first day of the first reporting period following the change in the business
model. A financial asset is derecognized when the rights to receive cash flows
from the asset have expired or have been transferred and the Company has
transferred substantially all the risks and rewards of ownership.
Financial liabilities
Financial liabilities are classified as financial liabilities at fair value
through profit or loss or amortized cost. The Company's financial liabilities
are comprised of accounts payable and accrued liabilities, promissory note and
long-term debt. These are classified and measured at amortized cost using the
effective interest method.
Exploration and evaluation assets
Pre-license costs are recognized in the statement of operations and
comprehensive (loss) income as incurred. Exploration and evaluation costs
include the costs of acquiring undeveloped land and drilling costs are
initially capitalized until the drilling of the well is complete and the
results have been evaluated. The costs are accumulated in cost centers by
well, field or exploration area pending determination of technical feasibility
and commercial viability. The technical feasibility and commercial viability
of extracting a mineral resource is considered to be determinable when proved
or probable reserves are determined to exist.
If proved and/or probable reserves are found, the drilling costs and
associated undeveloped land are transferred to property and equipment after
performing an impairment assessment. When exploration and evaluation assets
are determined not to be technically feasible and commercially viable, or the
Company decides not to continue with its activity, the unrecoverable costs are
charged to the consolidated statements of operations and comprehensive (loss)
income as pre-license expense.
Property and equipment
Items of property and equipment, which include oil and gas development and
production assets, are measured at cost less accumulated depletion,
depreciation and accumulated impairment losses, net of reversals. The cost of
development and production assets includes: transfers from exploration and
evaluation assets, which generally include the cost to drill the well and the
cost of the associated land upon determination of technical feasibility and
commercial viability; the cost to complete and tie-in the wells; facility
costs; the cost of recognizing provisions for future restoration and
decommissioning; geological and geophysical costs; and directly attributable
overheads. Development and production assets are grouped into CGU's for
impairment testing. Gains and losses on disposal of an item of property and
equipment, including oil and natural gas interests, are determined by
comparing the proceeds from disposal with the carrying amount of property and
equipment and are recognized in the statement of operations and comprehensive
(loss) income.
Subsequent costs:
Costs incurred subsequent to the determination of technical feasibility and
commercial viability and the costs of replacing parts of property and
equipment are recognized as oil and gas assets only when they increase the
future economic benefits embodied in the specific asset to which they relate.
All other expenditures are expensed as incurred. Such capitalized oil and
natural gas assets generally represent costs incurred in developing proved
and/or probable reserves and bringing in or enhancing production from such
reserves, and are accumulated on a field or geotechnical area basis. The
carrying amount of any replaced or sold component is derecognized. The costs
of the day-to-day servicing of property and equipment are recognized in
operating expenses as incurred.
Depletion and depreciation:
The net carrying value of development and production assets is depleted using
the unit of production method by reference to the ratio of production in the
period to the related proved plus probable reserves, taking into account
estimated future development costs necessary to bring those reserves into
production and the estimated salvage value of the assets at the end of their
useful lives. Future development costs are estimated taking into account the
level of development required to produce the reserves. Proved plus probable
reserves are estimated annually by independent qualified reserve evaluators
and represent the estimated quantities of crude oil, natural gas and natural
gas liquids which geological, geophysical and engineering data demonstrate
with a specified degree of certainty to be recoverable in future years from
known reservoirs and which are considered commercially producible.
Depreciation methods, useful lives and residual values are reviewed at each
reporting date.
Impairment
Financial assets
The Company recognizes loss allowances for Expected Credit Losses ("ECLs") on
its financial assets measured at amortized cost. Due to the nature of its
financial assets, the Company measures loss allowances at an amount equal to
expected lifetime ECLs.
Lifetime ECLs are the anticipated ECLs that result from all possible default
events over the expected life of a financial asset. ECLs are a
probability-weighted estimate of credit losses. Credit losses are measured as
the present value of all cash shortfalls. ECLs are discounted at the effective
interest rate of the related financial asset. The Company does not have any
financial assets that contain a financing component.
Non-financial assets
The carrying amounts of the Company's non-financial assets are reviewed at
each reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the asset's recoverable amount
is estimated. Exploration and evaluation assets are also assessed for
impairment prior to being transferred to property and equipment. For the
purpose of impairment testing, assets are grouped together into the smallest
group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups of assets
(CGU).
The recoverable amount of an asset or a CGU is the greater of its value in use
and its fair value less costs of disposal. Fair value less cost to dispose is
determined as the amount that would be obtained from the sale of a CGU in an
arm's length transaction between knowledgeable and willing parties. The fair
value less cost to dispose of oil and gas assets is generally determined as
the net present value of the estimated future cash flows expected to arise
from the continued use of the CGU, including any expansion prospects, and its
eventual disposal, using assumptions that an independent market participant
may take into account. These cash flows are discounted by an appropriate
discount rate which would be applied by such a market participant to arrive at
a net present value of the CGU. In addition, the Company considers whether any
value may be separately attributed to undeveloped land.
Value in use is determined as the net present value of the estimated future
cash flows expected to arise from the continued use of the asset in its
present form and its eventual disposal. Value in use is determined by applying
assumptions specific to the Company's continued use and can only take into
account future development costs. Estimates of future cash flows used in the
evaluation of impairment of assets are made using management's forecasts of
commodity prices and expected production volumes. The latter takes into
account assessments of field reservoir performance and includes expectations
about proved and unproved volumes, which are risk-weighted utilizing
geological, production, recovery and economic projections.
An impairment loss is recognized if the carrying amount of a CGU exceeds its
estimated recoverable amount. Impairment losses are recognized in the
statement of operations and comprehensive (loss) income. Impairment losses
recognized in respect of CGU's are allocated to reduce the carrying amounts of
assets in the CGU on a pro rata basis. Impairment losses recognized in prior
years are assessed at each reporting date to determine if facts and
circumstances indicate that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used
to determine the recoverable amount. An impairment loss is reversed only to
the extent that the asset's carrying amount does not exceed the carrying
amount that would have been determined, net of depletion and depreciation, if
no impairment loss had been recognized.
Share based compensation
The Company has a share based compensation plan that allows holders to
exercise stock options in common shares or cash, at the holder's discretion.
The compensation cost attributed to stock options granted is measured at the
fair value at the grant date, and expensed over the vesting period. The equity
component of share based compensation cost increases contributed surplus and
the cash portion of the compensation cost is recorded as a liability.
Subsequent to initial recognition, the cash component of stock options is
measured at fair value through profit and loss, increasing or decreasing the
stock based compensation liability. Upon the settlement of the stock options
in common shares, the previously recognized value in contributed surplus is
recorded as an increase to share capital. In those cases when stock options
are settled in cash, the stock option fair value paid to holders is debited
from the stock based compensation liability.
Provisions
A provision is recognized if, as a result of a past event, the Company has a
present legal or constructive obligation that can be estimated reliably, and
it is probable that an outflow of economic benefits will be required to settle
the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax risk-free rate that reflects current market
assessments of the time value of money and the risks specific to the
liability. Provisions are not recognized for future operating losses.
Decommissioning obligations
The Company's activities give rise to dismantling, decommissioning and site
disturbance remediation activities. Provision is made for the estimated cost
of abandonment and site restoration and capitalized in the relevant asset
category. Decommissioning obligations are measured at the present value of
management's best estimate of the expenditure required to settle the present
obligation as at the reporting date.
Subsequent to the initial measurement, the obligation is adjusted at the end
of each period to reflect the passage of time and changes in the estimated
future cash flows underlying the obligation. The increase in the provision due
to the passage of time is recognized as accretion (within finance expense)
whereas increases/decreases due to changes in the estimated future cash flows
or changes in the discount rate are capitalized. Actual costs incurred upon
settlement of the decommissioning obligations are charged against the
provision.
Revenue
The Company's revenues are primarily derived from the production of petroleum
and natural gas. Revenue from contracts with customers is recognized when
the Company satisfies a performance obligation by physically transferring the
product and control to a customer. The Company satisfies its performance
obligations at the point of delivery of the product and not over a period of
time. Revenue is measured based on the consideration specified in contracts
with customers. Revenue is recorded net of any royalties when the amount of
revenue can be reliably measured and the costs incurred in respect of the
transaction can be measured reliably.
Income tax
Income tax expense is comprised of current and deferred tax. Income tax
expense is recognized in the statement of operations and comprehensive (loss)
income except to the extent that it relates to items recognized directly in
equity, in which case it is recognized in equity. Current tax is the expected
tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable
in respect of previous years. Deferred tax is recognized on the temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized on the initial recognition of assets or
liabilities in a transaction that is not a business combination. In addition,
deferred tax is not recognized for taxable temporary differences arising on
the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, based on the laws that have been
enacted or substantively enacted by the reporting date. Deferred tax assets
and liabilities are offset if there is a legally enforceable right to offset,
and they relate to income taxes levied by the same tax authority on the same
taxable entity, or on different tax entities, but they intend to settle
current tax liabilities and assets on a net basis or their tax assets and
liabilities will be realized simultaneously. A deferred tax asset is
recognized to the extent that it is probable that future taxable profits will
be available against which the temporary difference can be utilized. Deferred
tax assets are reviewed at each reporting date and are reduced to the extent
that it is no longer probable that the related tax benefit will be realized.
The Company's income tax provisions and income tax assets and liabilities are
based on interpretations of applicable tax laws, including income tax treaties
between various countries in which the Company operates, as well as underlying
rules and regulations with respect to transfer pricing. These interpretations
involve judgments and estimates and may be challenged through government
taxation audits that the Company is regularly subject to.
New information may become available that causes the Company to change its
judgment regarding the Company's income of applicable the adequacy of existing
income tax assets and liabilities, such changes will
impact net earnings in the period that such a determination is made.
Adopted Accounting Standards
The Company has adopted the following amendments to accounting standards,
issued by the IASB, that were effective for annual periods beginning on or
after January 1, 2024, and did not have a material impact on the Company's
consolidated financial statements.
Amendments to IAS 1 Presentation of Financial Statements: In January 2020, the
IASB issued amendments to IAS 1 Presentation of Financial Statements, to
clarify its requirements for the presentation of liabilities as current or
non-current in the statements of financial position. In October 2022, the IASB
issued amendments to IAS 1, which specify the classification and disclosure of
a liability with covenants.
Future Accounting Standards
The Company plans to adopt the following amendments to accounting standards,
issued by the IASB, that are effective in future periods. The pronouncements
will be adopted on their respective effective dates and their impact to the
consolidated financial statements is currently under assessment.
In April 2024, the IASB issued new IFRS 18 - Presentation and Disclosure in
Financial Statements ("IFRS 18")
replacing IAS 1. The new guidance is expected to improve the usefulness of
information presented and disclosed in the financial statements of companies.
IFRS 18 is effective for annual reporting periods beginning on or after
January 1, 2027, with early adoption permitted. The Company is currently
assessing the impact of this new IFRS accounting standard on its consolidated
financial statements.
In May 2024, the IASB issued amendments to IFRS 9 - Financial Instruments and
IFRS - 7 Financial Instruments: Disclosures related to settling financial
liabilities using an electronic payment system and assessing contractual cash
flow characteristics of financial assets. The amendments will be effective
January 1, 2026, and the Company is currently assessing the impact of this new
IFRS accounting standard on its consolidated financial statements.
4. Restricted Cash and deposits
December 31, 2024 December 31, 2023
Colombia (i) $ 275,949 $ 312,530
Canada (ii) 129,737 542,304
Sub-total 405,686 854,834
Long-term portion (167,545) (243,081)
Current portion of restricted cash and deposits $ 238,141 $ 611,753
(i) This balance is comprised of a deposit held as
collateral to guarantee abandonment expenditures related to the Tapir and
Santa Isabel blocks.
(ii) During 2024, the Company recovered its $337,031
(CAD $445,749) deposit related to the Company's liability rating management
("LMR"). The remaining $136,286 (2023: $205,273) pertain to other deposits
held in Canada.
5. Trade and other receivables
December 31, 2024 December 31, 2023
Trade receivables, net of advances $ 1,926,176 $ 2,238,918
Other accounts receivable 1,904,039 1,298,018
$ 3,830,215 $ 3,536,936
As at December 31, 2024, other accounts receivable include $699,880 (December
31, 2023 - $682,197) receivable from on demand loans with executives and
directors (Note 15).
6. Taxes receivable
December 31, 2024 December 31, 2023
Value-added tax (VAT) credits recoverable $ 1,738,536 $ 1,703,260
Income tax withholdings and advances, net 918,390 2,952,139
$ 2,656,926 $ 4,655,399
The VAT recoverable balance pertains to non-compensated value-added tax
credits originated in Colombia as operational and capital expenditures are
incurred. The Company is entitled to compensate or claim for the reimbursement
of these VAT credits.
7. Exploration and Evaluation
December 31, 2024 December 31,
2023
Balance, beginning of the period $ $ -
Additions, net 3,818,279 3,212,808
Reclassification to Property and Equipment (Note 8) (3,675,284) (3,212,808)
Balance, end of the period $ 142,995 $ -
During 2024, the Company incurred in exploration and development costs
associated to its Alberta prospect in the Tapir block, and determined the
technical feasibility and commercial viability of these assets, transferring
$3,675,284 to its property and equipment. An impairment test on these assets
was prepared and no losses were identified as a result of such tests. During
2023, the Company incurred geological and geophysical costs in its Carrizales
Norte prospect located in its Tapir block, which were transferred to property
and equipment in 2023.
8. Property and Equipment
Oil and Gas Properties Right of Use and Other Assets
Cost Total
Balance, December 31, 2022 $ 47,545,026 $ 234,156 $ 47,779,182
Additions 23,907,357 310,061 24,217,418
Dispositions (111,151) - (111,151)
Transfers from exploration and evaluation assets 3,212,808 - 3,212,808
Decommissioning adjustment 738,825 - 738,825
Balance, December 31, 2023 $ 75,292,865 $ 544,217 $ 75,837,082
Additions 27,295,956 6,908 27,302,864
Adjustment to ROU assets - (53,543) (53,543)
Transfers from exploration of evaluation assets 3,675,284 - 3,675,284
Decommissioning adjustment 2,702,058 - 2,702,058
Balance, December 31, 2024 $108,966,163 $ 497,582 $109,463,745
Accumulated depletion and depreciation and impairment Oil and Gas Properties Right of Use and Other Assets
Total
Balance, December 31, 2022 $ 13,153,709 $ 161,236 $ 13,314,945
Depletion and depreciation 12,120,871 65,906 12,186,777
Impairment loss of oil and gas properties 11,799,740 - 11,799,740
Balance, December 31, 2023 $ 37,074,320 $ 227,142 $ 37,301,462
Depletion and depreciation 17,448,880 86,935 17,535,815
Impairment reversal (662,753) - (662,753)
Balance, December 31, 2024 $ 53,860,447 $ 314,077 $ 54,174,524
Foreign exchange
Balance December 31, 2022 $ (249,908) $ (8,719) $ (258,627)
Effects of movements in foreign
exchange rates 88,671 5,697 94,368
Balance December 31, 2023 $ (161,237) $ (3,022) $ (164,259)
Effects of movements in foreign
exchange rates (122,332) (17,632) (139,964)
Balance, December 31, 2024 $ (283,569) $ (20,654) $ (304,223)
Net Book Value
Balance December 31, 2023 $ 38,057,308 $ 314,053 $ 37,371,361
Balance December 31, 2024 $ 54,822,147 $ 162,851 $ 54,984,998
Canada
As at December 31, 2024, the Company determined there were indicators of
impairment reversal in its Canada CGU, mainly due to increased reserve
quantities arising as a result of an increase in future development capital
expenditures. Management determined the recoverable amount of its Canada CGU
using the fair value less costs of disposal approach. As the recoverable
amount exceeded the carrying value of the CGU, an impairment reversal of
$662,753 was included in the consolidated statements of operations for the
year ended December 31, 2024. The following table outlines forecast benchmark
prices and exchange rates used in the Company's impairment test as at December
31, 2024:
Exchange rate AECO Spot Gas
Year $US / $Cdn C$/MMBtu
2025 0.73 2.49
2026 0.73 3.47
2027 0.74 3.64
2028 0.75 3.90
2029 0.75 4.03
Thereafter (inflation %) 2.0%/yr
The recoverable amount was estimated at their fair value less costs of
disposal, based on the net present value of the future cash flows from oil and
gas reserves as estimated by the Company's independent reserve evaluator at
December 31, 2024 and an internal valuation of undeveloped land. The fair
value less costs of disposal used to determine the recoverable amounts are
classified as Level 3 fair value measurements as certain key assumptions are
not based on observable market data but rather, the Company's best estimate.
The Company used a 17.95% (2023: 18.3%) post-tax discount rate, which took
into account risks specific to the CGU. The key assumptions in the internal
valuation of undeveloped land were the determination of comparable market
transactions and the probability of obtaining extensions on related lands. The
Company utilized an average value per acre of C$84.20 in the impairment test
as at December 31, 2024.
As at December 31, 2023, the Company determined there were indicators of
impairment in its Canada CGU, mainly due to decreases in forward gas prices
and revision of reserves, and prepared estimates of its fair value less costs
of disposal of its Canada CGU. It was determined that carrying value of its
Canada CGU exceeded its recoverable amount and, therefore, an impairment loss
of $1,248,400 was included in the consolidated statements of operations and
comprehensive income for the year ended December 31, 2023.
Colombia
During 2023, the Agencia Nacional de Hidrocarburos ("ANH") approved the
suspension of the obligations and operations of the OMBU contract due to force
majeure circumstances generated by the blockades and social unrest around the
Capella field. The suspension was for an initial term of three months and has
been extended until August 2025. The Company determined there were indicators
of impairment in the Capella CGU and recorded an impairment loss of
$10,551,340 corresponding to the full carrying value of the Capella CGU as at
December 31, 2023. There were no other indicators of impairment in the
Colombian CGUs as at December 31, 2024.
2024 2023
Recoverable Impairment Recoverable Impairment
CGU Amount (Reversal) Amount Loss (Reversal)
Canada 2,770,919 (662,753) 2,108,166 1,248,400
Capella - - - 10,551,340
(662,753) 11,799,740
9. Lease Obligations
A reconciliation of the discounted lease obligation is set forth below:
2024 2023
Obligation, beginning of the period $ 320,593 $ 63,751
Additions - 302,930
Changes to leases (53,543) -
Lease payments (57,807) (74,211)
Interest 31,846 22,011
Effects of movements in foreign exchange rates (21,683) 6,112
Obligation, end of the period 219,406 320,593
Current portion (44,639) (103,674)
Long-term portion 174,767 216,919
During 2024, the Company recognized the impact of a change in payment terms of
its office lease and recognized a decrease in lease liabilities and ROU assets
for $ 53,543. As at December 31, 2024, the Company has the following future
lease obligations:
Less than one year $ 71,790
2 - 5 years 215,045
Total lease payments 286,835
Amounts representing interest over the term (67,429)
Present value of the net obligation 219,406
10. Decommissioning Liability
The following table presents the reconciliation of the beginning and ending
aggregate carrying amount of the obligation associated with the
decommissioning of oil and gas properties:
December 31, December 31,
2024 2023
Obligation, beginning of the period 3,973,075 $ 3,303,301
Additions 1,467,282 1,000,889
Change in estimated cash flows 843,978 (262,066)
Payments or settlements (110,263) (19,545)
Dispositions - (191,081)
Accretion expense 178,296 127,478
Effects of movements in foreign exchange rates (44,709) 14,099
6,307,659 3,973,075
Obligation, end of the period
The obligation was calculated using a risk-free discount rate range of 1.25%
to 4.50% in Canada (2023: 1.25% to 4.50%) and between 4.30% and 4.60% in
Colombia (2023: 4.00% and 4.29%) with an inflation rate of 2.0% and 1.90%,
respectively (2023: 2.5% and 2.6%). The majority of costs are expected to
occur between 2026 and 2038. The undiscounted amount of cash flows, required
over the estimated reserve life of the underlying assets, to settle the
obligation, adjusted for inflation, is estimated at $8,155,704 (2023:
$5,686,938).
11. Share Capital
(a) Authorized: Unlimited number of common shares without par value
(b) Issued:
December 31, 2024 December 31, 2023
Common shares Shares Amounts Shares Amounts
Balance beginning of the period 285,864,348 73,829,795 218,401,931 57,810,735
Issued from warrants exercised - - 67,462,417 16,019,060
Balance at end of the period 285,864,348 73,829,795 285,864,348 73,829,795
(c) Warrants:
During 2023, the Company issued 67,462,417 common shares from exercising of
warrants outstanding from the Company's shares admission to trade on the AIM
Market of the London Stock Exchange in 2021. Each warrant was exercisable at
£0.09 per new common share for 24 months from the issuance date and were
measured at fair value quarterly using the Black-Scholes options pricing
model.
(d) Stock options:
The Company has a stock option plan that provides for the issuance to its
directors, officers, employees and consultants options to purchase a number of
non-transferable common shares not exceeding 10% of the outstanding common
shares. The exercise price is based on the closing price of the Company's
common shares on the day prior to the day of the grant. A summary of the
Company stock option plan as at December 31, 2024 and December 31, 2023 and
changes during the periods ended on those dates is presented below:
December 31, 2024 December 31, 2023
Stock Options Number of options Weighted average Number of options Weighted average
exercise price exercise price
(CAD $) (CAD $)
Beginning of period 20,531,668 $0.24 20,590,000 $0.18
Granted 14,176,108 $0.41 1,650,000 $0.27
Expired/Forfeited (2,433,333) - (1,375,000) $0.12
Exercised (7,479,441) $0.20 (333,332) $0.11
End of period 25,795,002 $0.32 20,531,668 $0.24
Exercisable, end of period 8,442,778 $0.19 9,879,441 $0.42
Date of Grant Number Outstanding Exercise Price Weighted Date of Number
(CAD $) Average Remaining Contractual Life Expiry Exercisable
June 30, 2024
October 22, 2018 250,000 $1.15 3.81 Oct. 22, 2028 250,000
May 3, 2019 100,000 $0.31 4.34 May 3, 2029 100,000
March 20, 2020 1,200,000 $0.05 5.22 Mar. 20, 2030 1,200,000
April 13, 2020 1,200,000 $0.05 5.28 April 13, 2030 1,200,000
December 13, 2021 2,983,336 $0.13 0.45 June 13, 2024 and 2025 2,983,336
June 9, 2022 600,001 $0.28 0.74 Dec. 9, 2023, 2024 and 2025 133,333
September 7, 2022 833,334 $0.26 0.68 Mar. 7, 2024, 2025 and 2026 416,666
December 21, 2022 3,652,222 $0.28 1.94 June 21, 2024, 2025 and 2026 1,826,110
January 23, 2023 100,000 $0.32 1.06 July 23, 2024, 2025 and 2026 -
September 21, 2023 1,000,000 $0.33 1.22 Mar. 21, 2025, 2026 and 2027 333,333
April 29, 2024 8,543,888 $0.38 1.83 Oct.29 2025, 2026 and 2027 -
September 11, 2024 4,332,221 $0.48 2.19 Mar.11 2026, 2027 and 2028 -
Total 25,795,002 $0.32 1.87 years 8,442,778
During the year ended December 31, 2024, and due to an amendment in the stock
option plan that allows stock option holders to select an equity or cash
settlement, the Company started recognition of its stock based compensation
plan as a liability plan, with no equity component, and recognized $1,480,664
(2023: $591,454) as share-based compensation expense, with a corresponding
effect in stock based compensation liability. As part of this change, there
was also a reclassification of $1,442,604 from contributed surplus to stock
based compensation liability to recognize the opening balance of this
liability.
The following table summarizes the assumptions used with the Black-Scholes
valuation model for the determination of the share-based compensation expense
for the stock options granted during the years ended December 31 2024 and
2023:
2024 2023
Number of stock options granted 14,176,108 1,650,000
Weighted-average risk free interest rate (%) 3.78 4.08
Weighted-average expected life (years) 2.50 2.50
Weighted-average volatility (%) 81.06 154.85
Forfeiture rate (%) 5.69 4.84
12. Income taxes
The provision for income taxes varies from the amount that would be computed
by applying the expected tax rate to income (loss) before income taxes. The
principal reasons for differences between such expected income tax expense and
the amount actually recorded are as follows:
2024 2023
Income before income taxes $ 29,249,864 $ 3,034,919
Corporate income tax rate 23% 23%
Computed expected tax expense 6,727,469 698,031
Increase (decrease) in income taxes resulting from:
Share-based compensation 340,553 136,034
(Recognized)/unrecognized deferred tax benefits 1,292,303 1,062,373
Tax rate difference on foreign jurisdictions 7,799,540 2,776,675
Other permanent difference 110,146 235,092
Foreign exchange and others (195,149) (766,673)
Income tax expense $ 16,074,862 $ 4,141,532
During 2024, the Company realized a deferred income tax asset of $2,031,384
that was recognized during 2023 related to non-capital losses available in
Colombia. As at December 31, 2024, the Company recognized a deferred tax
liability of $7,631,536 (2023: $3,269,894) which represents the tax impact of
temporary differences in another Colombian legal entity. In Colombia, the
enacted tax rate is 35% with an additional tax rate of 5%, 10% or 15% for oil
producers, subject to international oil prices. The current and deferred tax
rate applied in Colombia was 45% in 2024 (2023: 45%). The components of the
Company's deferred income tax assets and liabilities are as follows:
As at December 31 2024 2023
Property and equipment $ (8,166,457) $ (2,784,879)
Decommissioning liabilities and other provisions 2,544,440 1,530,755
Carryforward non-capital losses - 1,019,383
Net deferred tax balance $ (5,622,017) $ (234,741)
Deferred tax liability 6,832,229 3,269,894
Unrecognized deferred tax asset (1,210,212) (1,003,770)
Deferred tax asset balance $ - $ 2,031,383
At December 31, 2024, the Company had non-capital losses carried forward of
approximately $50,241,304 (2023 - $48,458,462) available to reduce future
years taxable income. These losses commence expiring in 2029. At December
31, 2024, the Company had income tax credits and benefits, including
non-capital losses, of approximately $60,093,726 (2023 - $59,964,309) related
to Canada that were not recognized in the financial statements due to
uncertainties associated with its ability to utilize these balances in the
future.
13. Commitments and Contingencies
Exploration and Production Contracts
The Company has entered into a number of exploration contracts in Colombia
which require the Company to fulfill work program commitments and issue
financial guarantees related thereto (see Letters of Credit section below). In
aggregate, the Company has outstanding exploration commitments at December 31,
2024 of $12 million. Presented below are the Company's exploration and
production contractual commitments at December 31, 2024:
Block Less than 1 year 1-3 years Thereafter Total
COR-39 - 12,000,000 - 12,000,000
Total - - 12,000,000
12,000,000
Contingencies
From time to time, the Company may be involved in litigation or has claims
sought against it in the normal course of business operations. Management of
the Company is not currently aware of any claims or actions that would
materially affect the Company's reported financial position or results from
operations. Under the terms of certain agreements and the Company's by-laws
the Company indemnifies individuals who have acted at the Company's request to
be a director and/or officer of the Company, to the extent permitted by law,
against any and all damages, liabilities, costs, charges or expenses suffered
by or incurred by those individuals.
Letters of Credit
At December 31, 2024, the Company had obligations under Letters of Credit
("LC's") outstanding totaling $3.1 million to guarantee work commitments on
exploration blocks and other contractual commitments. In the event the Company
fails to secure the renewal of the letters of credit underlying the ANH
guarantees, the ANH could decide to cancel the underlying exploration and
production contract, as applicable.
Current Outstanding Letters of Credit
Contract Beneficiary Issuer Type Amount Renewal Date
(US $)
SANTA ISABEL ANH Carrao Energy Abandonment 621,158 April 14, 2026
ANH Carrao Energy Financial Capacity 1,672,162 June 30, 2025
COR - 39 ANH Carrao Energy Compliance 100,000 June 30, 2025
OMBU ANH Carrao Energy Financial Capacity 436,300 October 14, 2025
OMBU ANH Carrao Energy Abandonment 265,782 August 28, 2025
Total 3,095,402
14. Risk Management
The Company holds various forms of financial instruments. The nature of these
instruments and the Company's operations expose the Company to commodity
price, credit and foreign exchange risks. The Company manages its exposure to
these risks by operating in a manner that minimizes its exposure to the extent
practical.
(a) Commodity price risk
The Company's principal operation is the production and sale of crude oil
and natural gas. Fluctuations in prices of these commodities directly impact
the Company's financial performance. Commodity price risk is the risk that the
fair value or future cash flows of a financial instrument will fluctuate as a
result of changes in commodity prices. Lower commodity prices can also
impact the Company's ability to raise capital. Commodity prices for crude
oil are impacted by world economic events that dictate the levels of supply
and demand. There were no derivative contracts during 2024.
(b) Credit Risk
Credit risk reflects the risk of financial loss to the Company if a customer
or counterparty to a contract fails to fulfill their contractual obligations.
It arises mostly from the Company's cash balances and accounts receivable. The
Company's cash balances are held with six counterparties, large reputable
financial institutions, and management has therefore concluded that credit
associated is low. The majority of the Company's account receivable balances
relate to petroleum and natural gas sales. The Company's policy is to enter
into agreements with customers that are well established entities in the oil
and gas industry such that the level of risk is mitigated.
In Colombia, a significant portion of the sales is with producing companies
and commodities trader under existing sale/offtake agreements with prepayment
provisions and priced using the Brent benchmark. The Company's trade account
receivables primarily relate to sales of crude oil and natural gas, which are
normally collected within 25 days (in Canada) and up to 15 days (in Colombia)
after the month of production. Other accounts receivable mainly relate to
balances owed by the Company's partner in one of its blocks, and are mainly
recoverable through join billings. The Company has historically not
experienced any significant collection issues with its customers and partners.
(c) Market Risk
Market risk is comprised of two components: foreign currency exchange risk and
interest rate risk.
i) Foreign Currency Exchange Risk
The Company operates on an international basis and therefore foreign exchange
risk exposures arise from transactions denominated in currencies other than
the United States dollar. The Company is exposed to foreign currency
fluctuations as it holds cash and incurs expenditures in exploration and
evaluation and administrative costs in foreign currencies.
The Company incurs expenditures in Canadian dollars, United States dollars,
British Pounds and the Colombian peso and is exposed to fluctuations in
exchange rates in these currencies. There are no exchange rate contracts in
place.
ii) Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a
result of changes in market interest rates. The Company is not currently
exposed to interest rate risk.
(d) Liquidity Risk
Liquidity risk includes the risk that, as a result of the Company's
operational liquidity requirements:
· The Company will not have sufficient funds to settle a
transaction on the due date;
· The Company will be forced to sell financial assets at a value
which is less than what they are worth; or
· The Company may be unable to settle or recover a financial asset.
The Company's approach to managing its liquidity risk is to ensure, within
reasonable means, sufficient liquidity to meet its liabilities when due, under
both normal and unusual conditions, without incurring unacceptable losses or
jeopardizing the Company's business objectives. The Company prepares annual
capital expenditure budgets which are monitored regularly and updated as
considered necessary. Petroleum and natural gas production is monitored
daily to provide current cash flow estimates and the Company utilizes
authorizations for expenditures on projects to manage capital expenditures.
Any funding shortfall may be met in a number of ways, including, but not
limited to, the issuance of new debt or equity instruments, further
expenditure reductions and/or the introduction of joint venture partners.
(e) Capital Management
The Company's objective is to maintain a capital base sufficient to provide
flexibility in the future development of the business and maintain investor,
creditor and market confidence. The Company manages its capital structure
and makes adjustments in response to changes in economic conditions and the
risk characteristics of the underlying assets. The Company considers its
capital structure to include share capital, bank debt (when available),
promissory notes and working capital, defined as current assets less current
liabilities. From time to time the Company may issue common shares or other
securities, sell assets or adjust its capital spending to manage current and
projected debt levels. The Company adjusts its capital structure based on its
net debt level. Net debt is a non-GAAP measure and is defined as the
principal amount of its outstanding debt, less working capital items. The
Company prepares annual budgets, which are updated as necessary including
current and forecast crude oil prices, changes in capital structure, execution
of the Company's business plan and general industry conditions. The annual
budget is approved by the Board of Directors. The Company's capital includes
the following:
December 31, 2024 December 31, 2023
Working capital $ 11,646,169 $ 8,669,114
15. Key Management Personnel
The Company has determined that key management personnel consists of its
executive management and its Board of Directors. In addition to the salaries
and fees paid to key management, the Company also provides compensation to
both groups under its share-based compensation plans. Compensation expenses
paid to key management personnel were as follows:
Years ended December 31
2024 2023
Salaries, severances and director fees $ 5,291,118 $ 2,945,303
Share-based compensation 854,605 373,093
$ 6,145,723 $ 3,318,396
During 2023, the Company granted loans to some of its executives and Directors
in the form of promissory notes, which are due on demand and bear interest at
the average Bank of Canada Interbank Rate (currently 5%). The current
aggregate balance receivable of these loans is $699,880, including interest of
$57,413 (2023: $9,650), and is included as other account receivables.
16. Segmented Information
The Company has two reportable operating segments: Colombia and Canada. The
Canada segment is also considered the corporate segment. The following tables
show information regarding the Company's segments for the years ended as at
December 31:
Years ended December 31, 2024 Colombia Canada Total
Revenue from oil and natural gas $ 80,899,199 $ 659,985 $ 81,559,184
Royalties (7,827,627) (6,529) (7,834,156)
Expenses (37,619,118) (7,518,800) (45,137,918)
Impairment reversal - 662,753 662,753
Income taxes (16,074,862) - (16,074,862)
Net income (loss) $ 19,377,592 $ (6,202,591) $ 13,175,001
Capital expenditures for the year 2024 $ 31,085,161 $ 36,079 $ 31,121,240
Total Assets as at December 31, 2024 $ 75,650,729 $ 5,618,005 $ 81,268,734
Total liabilities as at December 31, 2024 $ 24,125,685 $ 4,126,056 $ 28,251,741
Year ended December 31, 2023 Colombia Canada Total
Revenue from oil and natural gas sales $ 48,979,764 $ 1,617,022 $ 50,596,786
Royalties (5,909,659) (17,121) (5,926,780)
Expenses (23,278,021) (6,557,326) (29,835,347)
Impairment loss of oil and gas properties (10,551,340) (1,248,400) (11,799,740)
Income taxes (4,141,532) - (4,141,532)
Net income (loss) $ 5,099,212 $ (6,205,825) $ (1,106,613)
Capital expenditures for the year 2024 $ 27,034,939 $ 50,020 $ 27,084,959
Total Assets as at December 31, 2023 $ 54,095,574 $ 8,179,449 $ 62,275,023
Total liabilities as at December 31, 2023 $ 18,438,675 $ 2,326,825 $ 20,765,500
Arrow Exploration Corp.
MANAGEMENT's DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2024
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") as provided by the
management of Arrow Exploration Corp. ("Arrow" or the "Company"), is dated as
of April 28, 2025 and should be read in conjunction with Arrow's annual
consolidated financial statements and related notes as at and for years ended
December 31, 2024 and 2023. Additional information relating to Arrow is
available under Arrow's profile on www.sedar.com (http://www.sedar.com) .
Advisories
Basis of Presentation
The condensed consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS"), and all
amounts herein are expressed in United States dollars, unless otherwise noted,
and all tabular amounts are expressed in United States dollars, unless
otherwise noted. Additional information for the Company may be found on
SEDAR at www.sedar.com.
Advisory Regarding Forward‐Looking Statements
This MD&A contains certain statements or disclosures relating to Arrow
that are based on the expectations of its management as well as assumptions
made by and information currently available to Arrow which may constitute
forward-looking statements or information ("forward-looking statements") under
applicable securities laws. All such statements and disclosures, other than
those of historical fact, which address activities, events, outcomes, results
or developments that Arrow anticipates or expects may, could or will occur in
the future (in whole or in part) should be considered forward-looking
statements. In some cases, forward-looking statements can be identified by the
use of the words "believe", "continue", "could", "expect", "likely", "may",
"outlook", "plan", "potential", "will", "would" and similar expressions. In
particular, but without limiting the foregoing, this MD&A contains
forward-looking statements pertaining to the following: global pandemics and
their impact; tax liability; capital management strategy; capital structure;
credit facilities and other debt; letters of credit; Arrow's costless collar
structure; cost reduction initiatives; potential drilling on the Tapir block;
capital requirements; expenditures associated with asset retirement
obligations; future drilling activity and the development of the Rio Cravo
Este or Carrizales Norte structure on the Tapir Block. Statements relating to
"reserves" and "resources" are deemed to be forward-looking information, as
they involve the implied assessment, based on certain estimates and
assumptions, that the reserves and resources described exist in the quantities
predicted or estimated and can be profitably produced in the future.
The forward-looking statements contained in this MD&A reflect several
material factors and expectations and assumptions of Arrow including, without
limitation: current and anticipated commodity prices and royalty regimes; the
impact of the global pandemics; the financial impact of Arrow's costless
collar structure; availability of skilled labour; timing and amount of capital
expenditures; future exchange rates; commodity prices; the impact of
increasing competition; general economic conditions; availability of drilling
and related equipment; receipt of partner, regulatory and community approvals;
royalty rates; changes in income tax laws or changes in tax laws and incentive
programs; future operating costs; effects of regulation by governmental
agencies; uninterrupted access to areas of Arrow's operations and
infrastructure; recoverability of reserves; future production rates; timing of
drilling and completion of wells; pipeline capacity; that Arrow will have
sufficient cash flow, debt or equity sources or other financial resources
required to fund its capital and operating expenditures and requirements as
needed; that Arrow's conduct and results of operations will be consistent with
its expectations; that Arrow will have the ability to develop its oil and gas
properties in the manner currently contemplated; current or, where applicable,
proposed industry conditions, laws and regulations will continue in effect or
as anticipated; that the estimates of Arrow's reserves and production volumes
and the assumptions related thereto (including commodity prices and
development costs) are accurate in all material respects; that Arrow will be
able to obtain contract extensions or fulfil the contractual obligations
required to retain its rights to explore, develop and exploit any of its
undeveloped properties; and other matters.
Arrow believes the material factors, expectations and assumptions reflected in
the forward-looking statements are reasonable at this time but no assurance
can be given that these factors, expectations and assumptions will prove to be
correct. The forward-looking statements included in this MD&A are not
guarantees of future performance and should not be unduly relied upon.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause actual results or events to differ materially
from those anticipated in such forward-looking statements including, without
limitation: the impact of general economic conditions; volatility in commodity
prices; industry conditions including changes in laws and regulations
including adoption of new environmental laws and regulations, and changes in
how they are interpreted and enforced; competition; lack of availability of
qualified personnel; the results of exploration and development drilling and
related activities; obtaining required approvals of regulatory authorities;
counterparty risk; risks associated with negotiating with foreign governments
as well as country risk associated with conducting international activities;
commodity price volatility; fluctuations in foreign exchange or interest
rates; environmental risks; changes in income tax laws or changes in tax laws
and incentive programs; changes to pipeline capacity; ability to secure a
credit facility; ability to access sufficient capital from internal and
external sources; risk that Arrow's evaluation of its existing portfolio of
development and exploration opportunities is not consistent with future
results; that production may not necessarily be indicative of long term
performance or of ultimate recovery; and certain other risks detailed from
time to time in Arrow's public disclosure documents including, without
limitation, those risks identified in Arrow's 2018 AIF, a copy of which is
available on Arrow's SEDAR profile at www.sedar.com. Readers are cautioned
that the foregoing list of factors is not exhaustive and are cautioned not to
place undue reliance on these forward-looking statements.
Non‐IFRS Measures
The Company uses non-IFRS measures to evaluate its performance which are
measures not defined in IFRS. Working capital, funds flow from operations,
realized prices, operating netback, adjusted EBITDA, and net debt as presented
do not have any standardized meaning prescribed by IFRS and therefore may not
be comparable with the calculation of similar measures for other entities. The
Company considers these measures as key measures to demonstrate its ability to
generate the cash flow necessary to fund future growth through capital
investment, and to repay its debt, as the case may be. These measures should
not be considered as an alternative to, or more meaningful than net income or
cash provided by (used in) operating activities or net income and
comprehensive income as determined in accordance with IFRS as an indicator of
the Company's performance. The Company's determination of these measures may
not be comparable to that reported by other companies.
Adjusted working capital is calculated as current assets minus current
liabilities, excluding non-cash liabilities; funds from operations is
calculated as cash flows provided by operating activities adjusted to exclude
changes in non-cash working capital balances; realized price is calculated by
dividing gross revenue by gross production, by product, in the applicable
period; operating netback is calculated as total natural gas and crude
revenues minus royalties, transportation costs and operating expenditures;
adjusted EBITDA is calculated as net income adjusted for interest, income
taxes, depreciation, depletion, amortization and other similar non-recurring
or non-cash charges; and net debt (net cash) is defined as the principal
amount of its outstanding debt, less working capital items excluding non-cash
liabilities.
The Company also presents funds from operations per share, whereby per share
amounts are calculated using weighted- average shares outstanding consistent
with the calculation of net income per share.
A reconciliation of the non-IFRS measures is included as follows:
Three months ended December 31, 2024 Year ended December 31, 2024 Three months ended December 31, 2023 Year ended December 31, 2023
(in United States dollars)
Net (loss) income 2,081,956 13,175,001 (10,492,053) (1,106,613)
Add/(subtract):
Share based payments 925,491 1,480,664 151,094 591,454
Financing costs:
Accretion on decommissioning obligations 53,414 178,296 31,840 127,478
Interest 7,242 31,846 9,420 141,117
Other (82,799) 330,450 79,540 317,676
Depreciation and depletion 6,060,557 17,535,815 2,119,374 12,186,777
(Gain) loss on derivative liability - - (932,379) (1,041,992)
Impairment (reversal) of oil and gas properties (2,204,753) (662,753) 11,799,740 11,799,740
Income tax expense, current and deferred 6,435,936 16,074,862 4,365,846 4,141,532
Adjusted EBITDA ((1)) 13,277,044 48,144,181 7,132,422 27,157,169
Cash flows provided by operating activities 10,312,230 39,524,589 2,581,686 16,476,551
Minus - Changes in non‑cash working capital balances:
Trade and other receivables (81,499) 293,278 772,704 1,001,992
Restricted cash (22,557) (449,148) (1,138) 36,052
Taxes receivable 410,640 (1,998,473) 2,920,256 3,854,222
Deposits and prepaid expenses 54 35,328 72,504 39,943
Inventory 126,783 (314,932) (393,185) (213,345)
Accounts payable and accrued liabilities 325,475 (285,221) (239,606) 414,757
Income tax payable 1,448,338 (1,185,605) (1,932,188) (1,619,588)
Funds flow from operations ((1)) 12,519,464 35,619,816 3,781,033 19,990,584
( (1))Non-IFRS measures
The term barrel of oil equivalent ("boe") is used in this MD&A. Boe may
be misleading, particularly if used in isolation. A boe conversion ratio of
6 thousand cubic feet ("Mcf") of natural gas to one barrel of oil ("bbl") is
used in the MD&A. This conversion ratio of 6:1 is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended December 31, 2024 Year ended December 31, 2024 Three months ended December 31, 2023 Year ended December 31, 2023
(in United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 22,873,626 73,725,028 13,406,513 44,670,006
Funds flow from operations ((1)) 12,519,464 35,619,816 3,781,033 19,990,584
Funds flow from operations ((1)) per share -
Basic($) 0.04 0.12 0.01 0.08
Diluted ($) 0.04 0.12 0.01 0.07
Net income (loss) 2,081,956 13,175,001 (10,492,053) (1,106,613)
Net income (loss) per share -
Basic ($) 0.01 0.05 (0.04) (0.00)
Diluted ($) 0.01 0.05 (0.04) (0.00)
Adjusted EBITDA ((1)) 13,277,044 48,144,181 7,132,422 27,157,169
Weighted average shares outstanding:
Basic 285,864,348 285,864,348 278,144,305 242,537,228
Diluted 290,029,866 291,226,740 291,404,032 289,903,094
Common shares end of period 285,864,348 285,864,348 285,864,348 285,864,348
Capital expenditures 8,928,725 31,121,240 10,471,447 27,084,959
Cash and cash equivalents 18,837,784 18,837,784 12,135,376 12,135,376
Current assets 25,973,196 25,973,196 21,629,198 21,629,198
Current liabilities 14,327,027 14,327,027 12,960,084 12,960,084
Adjusted working capital((1)) 11,646,169 11,646,169 8,669,114 8,669,114
Non-current restricted cash and deposits((2)) 167,545 167,545 854,834 854,834
Total assets 81,268,734 81,268,734 62,275,023 62,275,023
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 1,332 1,119 1,819 2,150
Natural gas liquids (bbl/d) 5 5 4 4
Crude oil (bbl/d) 4,511 3,351 2,027 1,805
Total (boe/d) 4,738 3,542 2,335 2,167
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($0.71) ($0.68) ($0.21) ($0.13)
Crude oil ($/bbl) $42.80 $50.13 $45.91 $53.97
Total ($/boe) $40.63 $47.33 $40.49 $45.17
((1))Non-IFRS measures - see "Non-IFRS Measures" section within this MD&A
((2))Long term restricted cash not included in working capital
The Company
Arrow is a junior oil and gas company engaged in the acquisition, exploration
and development of oil and gas properties in Colombia and Western Canada. The
Company's shares trade on the TSX Venture Exchange and the London AIM exchange
under the symbol AXL.
The Company and Arrow Exploration Ltd. entered into an arrangement agreement
dated June 1, 2018, as amended, whereby the parties completed a business
combination pursuant to a plan of arrangement under the Business Corporations
Act (Alberta) ("ABCA") on September 28, 2018. Arrow Exploration Ltd. and Front
Range's then wholly-owned subsidiary, 2118295 Alberta Ltd., were amalgamated
to form Arrow Holdings Ltd., a wholly-owned subsidiary of the Company (the
"Arrangement"). On May 31, 2018, Arrow Exploration Ltd. entered in a share
purchase agreement, as amended, with Canacol Energy Ltd. ("Canacol"), to
acquire Canacol's Colombian oil properties held by its wholly-owned subsidiary
Carrao Energy S.A. ("Carrao"). On September 27, 2018, Arrow Exploration Ltd.
closed the agreement with Canacol, and during 2024 Carrao changed its name to
Arrow Exploration Switzerland GmbH.
On May 31, 2018, Arrow Exploration Ltd., entered into a purchase and sale
agreement to acquire a 50% beneficial interest in a contract entered into with
Ecopetrol S.A. pertaining to the exploration and production of hydrocarbons in
the Tapir block from Samaria Exploration & Production S.A. ("Samaria"). On
September 27, 2018, Arrow Exploration Ltd. closed the agreement with Samaria.
As at December 31, 2024 the Company held an interest in four oil blocks in
Colombia and oil and natural gas leases in five areas in Canada as follows:
Gross Acres Working Interest Net Acres
COLOMBIA
Tapir Operated(1) 65,125 50% 32,563
Oso Pardo Operated 672 100% 672
Ombu Non-operated 56,482 10% 5,648
COR-39 Operated 95,111 100% 95,111
Total Colombia 217,390 133,994
CANADA
Fir Non operated 7,680 32% 2,458
Penhold Non-operated 480 13% 61
Pepper Operated 19,200 100% 19,200
Wapiti Non-operated 1,280 13% 160
Ante Creek Operated 2,560 100% 2,560
Total Canada 31,200 24,439
TOTAL 248,590 158,433
The Company's primary producing assets are located in Colombia in the Tapir,
Oso Pardo and Ombu blocks, with natural gas production in Canada at Fir and
Pepper, Alberta.
Llanos Basin
Within the Llanos Basin, the Company is engaged in the exploration,
development and production of oil within the Tapir block. In the Llanos Basin
most oil accumulations are associated with three-way dip closure against
NNE-SSW trending normal faults and can have pay within multiple reservoirs.
The Tapir block contain large areas not yet covered by 3D seismic, and in
Management's opinion offer substantial exploration upside.
(1)The Company's interest in the Tapir block is held through a private
contract with Petrolco, who holds a 50% participating interest in, and is the
named operator of, the Tapir contract with Ecopetrol. The formal assignment to
the Company is subject to Ecopetrol's consent. The Company is the de facto
operator pursuant to certain agreements with Petrolco (details of which are
set out in Paragraph 16.13 of the Company's AIM Admission Document dated
October 20, 2021).
Middle Magdalena Valley ("MMV") Basin
Oso Pardo Field
The Oso Pardo Field is located in the Santa Isabel Block in the MMV Basin.
It is a 100% owned property operated by the Company. The Oso Pardo field is
located within a Production Licence covering 672 acres. Three wells have been
drilled to date within the licensed area.
Ombu E&P Contract - Capella Conventional Heavy Oil Discovery
The Caguan Basin covers an area of approximately 60,000 km(2) and lies between
the Putumayo and Llanos Basins. The primary reservoir target is the Upper
Eocene aged Mirador formation. The Capella structure is a large, elongated
northeast-southwest fault-related anticline, with approximately 17,500 acres
in closure at the Mirador level. The field is located approximately 250 km
away from the nearest offloading station at Neiva, where production from
Capella is trucked.
The Capella No. 1 discovery well was drilled in July 2008 and was followed by
a series of development wells. The Company earned a 10% working interest in
the Ombu E&P Contract by paying 100% of all activities associated with the
drilling, completion, and testing of the Capella No. 1 well. The Capella field
is currently suspended and temporarily shut in.
Fir, Alberta
The Company has an average non-operated 32% WI in 12 gross (3.84 net) sections
of oil and natural gas rights and 17 gross (4.5 net) producing natural gas
wells at Fir. The wells produce raw natural gas into the Cecilia natural gas
plant where it is processed.
Pepper, Alberta
The Company holds a 100% operated WI in 37 sections of Montney P&NG rights
on its Pepper asset in West Central Alberta. The 6-26-53-23W5M Montney gas
well (West Pepper) is tied into the Galloway gas plant for processing. The
3-21-52-22W5M Montney gas well (East Pepper) is currently tied into the
Sundance gas plant for processing. The majority of lands have tenure extending
into 2025. Both West Pepper and East Pepper have been in intermittent
production during 2024.
Year ended December 31, 2024 Financial and Operational Highlights
· Arrow recorded $73,725,028 in revenues, net of royalties, on
crude oil sales of 1,236,940 bbls, 1,655 bbls of natural gas liquids ("NGL's")
and 409,410 Mcf of natural gas sales;
· Funds flow from operations of $35,619,816;
· Net income of $13,175,001 and adjusted EBITDA was $48,144,480;
Three Months Ended December 31, 2024 Financial and Operational Highlights
· Arrow recorded $22,873,626 in revenues, net of royalties, on
crude oil sales of 417,034 bbls, 453 bbls of natural gas liquids ("NGL's") and
122,574 Mcf of natural gas sales;
· Funds flow from operations of $12,519,464;
· Net income of $2,081,956 and adjusted EBITDA was $13,277,044;
Annual 2024 Reserve Highlights
· 2,384 Mboe of Proved Developed Producing Reserves, net increase
of 92% when compared to 2023;
· 5,805 Mboe of Proved Reserves, net increase of 10% when compared
to 2023;
· 13,618 Mboe of Proved plus Probable Reserves, net increase of 15%
when compared to 2023;
· Proved reserves estimated net present value, before income taxes,
of US$115 million using a 10% discount rate;
· Proved plus Probable Reserves estimated net present value, before
income taxes, of US$285 million using a 10% discount rate
Results of Operations
The Company increased its production from its new wells at its Carrizales
Norte and Alberta Llanos fields in the Tapir block. These have allowed the
Company to continue to improve its operating results and EBITDA. There has
also been a decrease in the Company's natural gas production in Canada due to
shut ins in some wells and natural declines.
Average Production by Property
Average Production Boe/d YTD 2024 Q4 2024 Q3 2024 Q2 2024 Q1 2024 YTD 2023 Q4 2023
Oso Pardo 153 154 180 113 166 110 80
Ombu (Capella) - - - - - 20 -
Rio Cravo Este (Tapir) 1,294 1,178 1,078 1,283 1,644 1,342 1,326
Carrizales Norte (Tapir) 1,897 3,153 2,784 991 622 332 621
Alberta Llanos 7 26 - - - - -
Total Colombia 3,351 4,511 4,042 2,387 2,432 1,805 2,027
Fir, Alberta 81 88 82 77 78 78 80
Pepper, Alberta 110 139 - 82 220 284 228
TOTAL (Boe/d) 3,542 4,738 4,124 2,546 2,730 2,167 2,335
The Company's average production for the three months and year ended December
31, 2024 was 4,738 and 3,542 boe/d, respectively, which consisted of crude oil
production in Colombia of 4,511 and 3,351 bbl/d, respectively, natural gas
production of 1,332 and 1,119 Mcf/d, respectively, and minor amounts of
natural gas liquids. The Company's Q4 2024 production was 15% higher than its
Q3 2024 production and 103% higher than Q4 2023.
Average Daily Natural Gas and Oil Production and Sales Volumes
Three months ended Year ended
December 31 December 31
2024 2023 2024 2023
Natural Gas (Mcf/d)
Natural gas production 1,332 1,819 1,119 2,150
Natural gas sales 1,332 1,819 1,119 2,150
Realized Contractual Natural Gas Sales 1,332 1,819 1,119 2,150
Three months ended Year ended
December 31 December 31
2024 2023 2024 2023
Crude Oil (bbl/d)
Crude oil production 4,511 2,027 3,351 1,805
Inventory movements and other 22 284 38 58
Crude Oil Sales((1)) 4,533 2,311 3,389 1,862
Corporate
Natural gas production (boe/d) 222 303 186 358
Natural gas liquids(bbl/d) 5 4 5 4
Crude oil production (bbl/d) 4,511 2,027 3,351 1,805
Total production (boe/d) 4,738 2,335 3,542 2,167
Inventory movements and other (boe/d) 22 284 38 58
Total Corporate Sales (boe/d) 4,760 2,619 3,580 2,225
((1) Royalties paid in kind reduce the Company's crude oil sales volumes)
During the three months and year ended December 31, 2024 the majority of
production was attributed to Colombia, where all of Company's blocks were
producing, except for Capella. During Q4 2024, the Company started to pay in
kind its Tapir Block royalties payable to the ANH. The volumes reported as
inventory movements during the year ended December 31, 2024 correspond mostly
to the sale of 18,990 barrels of oil stored at the non-operated Capella field
in the OMBU block.
Natural Gas and Oil Revenues
Three months ended Year ended
December 31 December 31
2024 2023 2024 2023
Natural Gas
Natural gas revenues 148,255 280,797 551,419 1,523,686
NGL revenues 29,791 25,964 108,566 93,336
Royalties (6,138) (7,751) (6,529) (17,121)
Revenues, net of royalties 171,908 299,010 653,456 1,599,901
Oil
Oil revenues 23,788,524 14,802,541 80,899,199 48,979,764
Royalties (1,086,806) (1,695,037) (7,827,627) (5,909,659)
Revenues, net of royalties 22,701,718 13,107,504 73,071,572 43,070,105
Corporate
Natural gas revenues 148,255 280,797 551,419 1,523,686
NGL revenues 29,791 25,964 108,566 93,336
Oil revenues 23,788,524 14,802,541 80,899,199 48,979,764
Total revenues 23,966,570 15,109,301 81,559,184 50,596,786
Royalties (1,092,944) (1,702,788) (7,834,156) (5,926,780)
Natural gas and crude oil revenues, net of royalties 22,873,626 13,406,513 73,725,028 44,670,006
Natural gas and crude oil revenues, net of royalties, for the three months and
year ended December 31, 2024 were $22,873,626 and $73,725,028, respectively
(2023: $13,406,513 and $44,670,006), which represents an increase of 71% and
65%, respectively, when compared to the same 2023 periods, and 8% higher than
Q3 2024. These significant increases are mainly due to increased oil
production in Colombia, despite decreased oil prices, offset by decrease in
revenue in Canada.
Average Benchmark and Realized Prices
Three months ended Year ended
December 31 December 31
2024 2023 Change 2024 2023 Change
Benchmark Prices
AECO (C$/Mcf) $1.50 $2.34 (36%) $1.48 $2.68 (45%)
Brent ($/bbl) $73.13 $77.32 (5%) $78.42 $81.03 (3%)
West Texas Intermediate ($/bbl) $70.30 $78.35 (10%) $75.70 $77.60 (2%)
Realized Prices
Natural gas, net of transportation ($/Mcf) $1.21 $1.68 (28%) $1.35 $1.94 (31%)
Natural gas liquids ($/bbl) $65.73 $68.30 (4%) $65.60 $64.61 2%
Crude oil, net of transportation ($/bbl) $57.04 $69.61 (18%) $65.40 $72.05 (9%)
Corporate average, net of transport ($/boe)((1)) $54.73 $62.72 (13%) $62.41 $62.31 0%
((1)Non-IFRS measure)
The Company realized prices of $54.73 and $62.41 per boe during the three
months and year ended December 31, 2024, respectively (2023: $62.72 and
$62.31), due to overall decrease in oil and natural gas prices during 2024 and
increase production of heavier oil which is sold at larger discounts when
compared to lighter oil. This elements were partially offset by increases in
natural gas liquids during some 2024 periods.
Operating Expenses
Three months ended Year ended
December 31 December 31
2024 2023 2024 2023
Natural gas & NGL's 229,574 308,311 822,409 1,610,557
Crude oil 4,851,408 3,343,948 11,055,768 6,380,615
Total operating expenses 5,080,982 3,652,259 11,878,177 7,991,172
Natural gas ($/Mcf) $1.87 $1.84 $2.01 $2.05
Crude oil ($/bbl) $11.63 $15.73 $8.94 $9.39
Corporate ($/boe)((1)) $11.60 $15.16 $9.09 $9.84
((1)Non-IFRS measure)
During the three months and year ended December 31, 2024, Arrow incurred
operating expenses of $5,080,982 and $11,878,177, respectively (2023:
$3,652,259 and $7,991,172). This increase in operating costs is mainly due to
increased production in the Company's Carrizales Norte and Alberta Llanos
fields, including production of heavier oil, workovers and $464,900 of
additional operating costs corresponding to the Capella inventory volumes sold
during Q2 2024.
Operating Netbacks
Three months ended Year ended
December 31 December 31
2024 2023 2024 2023
Natural Gas ($/Mcf)
Revenue, net of transportation expense $1.21 $1.68 $1.35 $1.94
Royalties ($0.05) (0.05) ($0.02) (0.02)
Operating expenses ($1.87) (1.84) ($2.01) (2.05)
Natural Gas operating netback((1)) ($0.71) ($0.21) ($0.68) ($0.13)
Crude oil ($/bbl)
Revenue, net of transportation expense $57.04 $69.61 $65.40 $72.05
Royalties ($2.61) (7.97) ($6.33) (8.69)
Operating expenses ($11.63) (15.73) ($8.94) (9.39)
Crude Oil operating netback((1)) $42.80 $45.91 $50.13 $53.97
Corporate ($/boe)
Revenue, net of transportation expense $54.73 $62.72 $62.41 $62.31
Royalties ($2.50) (7.07) ($5.99) (7.30)
Operating expenses ($11.60) (15.16) ($9.09) (9.84)
Corporate Operating netback((1)) $40.63 $40.49 $47.33 $45.17
( (1))Non-IFRS measure
The operating netbacks of the Company continued within healthy levels during
2024 due increasing production from its Colombian assets, which were offset by
decreases in crude oil and natural gas prices.
General and Administrative Expenses (G&A)
Three months ended Year ended
December 31 December 31
2024 2023 2024 2023
General & administrative expenses 4,000,268 3,347,336 13,870,102 10,607,275
G&A recovered from 3(rd) parties (373,888) (196,436) (985,603) (665,411)
Total G&A 3,626,380 3,150,900 12,884,499 9,941,864
Cost per boe $8.28 $13.08 $9.86 $12.24
For the three months and year ended December 31, 2024, G&A expenses before
recoveries totaled $4,000,268 and $13,870,102, respectively (2023: $3,347,336
and $10,607,275). This increase is mainly due to additional personnel and
payment of performance bonuses to employees. Despite these increased expenses,
due to the Company's increased production, G&A expenses were reduced, on a
per barrel basis, when compared to 2023.
Share-based Compensation
Three months ended Year ended
December 31 December 31
2024 2023 2024 2023
Share-based Payments 925,491 151,094 1,480,664 591,454
Share-based compensation expense for the three months and year ended December
31, 2024 totaled $925,491 and $1,480,664, respectively (2023: $151,094 and
$591.454), and due to an amendment in the stock option plan that allows stock
option holders to select an equity or cash settlement, the Company started
recognition of its stock based compensation plan as a liability plan,
recognizing $1,480,664 (2023: $591,454) as share-based compensation expense,
with a corresponding effect in stock based compensation liability.
Financing Costs
Three months ended Year ended
December 31 December 31
2024 2023 2024 2023
Financing expense paid or payable (75,557) (155,820) 362,296 565,544
Non-cash financing costs 53,414 31,840 178,296 127,478
Net financing costs ($22,143) $123,980 $540,592 $693,022
The finance expense for 2024 is mostly related to financial transactions tax
paid in Colombia. Finance expense for 2023 is mostly related to interest on
the promissory note due to Canacol, offset by interest income generated by
time deposits. The non-cash finance cost represents an increase in the present
value of the decommissioning obligation for the current periods. The amount of
this expense will fluctuate commensurate with the asset retirement obligation
as new wells are drilled or properties are acquired or disposed.
Depletion and Depreciation
Three months ended Year ended
December 31 December 31
2024 2023 2024 2023
Depletion and depreciation 6,060,556 2,119,374 17,535,815 12,186,777
Depletion and depreciation expense for the three months and year ended
December 31, 2024 totaled $6,060,556 and $17,835,815, respectively (2023:
$2,119,374 and $12,186,777). The increase is due to higher carrying value of
depletable property and equipment, and increased production. The Company uses
the unit of production method and proved plus probable reserves to calculate
its depletion and depreciation expense.
Impairment (reversal) of oil and gas properties, net
Three months ended Year ended
December 31 December 31
2024 2023 2024 2023
Impairment (reversal) of oil and gas properties, net
(2,204,753) 11,799,740 (662,753) 11,799,740
As at December 31, 2024, the Company reviewed its cash-generating units
("CGU") for property and equipment and determined that there were indicators
of impairment reversal in its Canada CGU and recognized a gain of $662,753
(2023: there were indicators of impairment in its Canada CGU and recognized
loss of $11,799,740). This impairment reversal was mainly caused by increases
in the Company's natural gas reserves. As of June 2024, the Company recognized
an impairment loss of $1,542,000 associated with its Canada CGU due to
significant decreases in natural gas prices.
Income Taxes
Three months ended Years ended
December 31 December 31
2024 2023 2024 2023
Current income tax expense (665,259) 3,392,115 10,481,144 7,097,419
Deferred income tax expense (recovery) 7,101,195 973,731 5,593,718 (2,955,887)
Total income tax expense 6,435,936 4,365,846 16,074,862 4,141,532
During 2024, the Company recognized a total income tax expense of $16,074,862
(2023: $4,141,532) which consisted on $10,481,144 of current income tax
expense (2023: $7,097,419) and an expense of $5,593,718 of deferred income tax
(2023: recovery of $2,955,887). This increase is mainly caused by the
continuous increase of the Company's net taxable income, especially in
Colombia, and realization of previously recognized deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Capital Management
The Company's objective is to maintain a capital base sufficient to provide
flexibility in the future development of the business and maintain investor,
creditor and market confidence. The Company manages its capital structure
and makes adjustments in response to changes in economic conditions and the
risk characteristics of the underlying assets. The Company considers its
capital structure to include share capital, debt and adjusted working capital.
In order to maintain or adjust the capital structure, from time to time the
Company may issue common shares or other securities, sell assets or adjust its
capital spending to manage current and projected debt levels.
As at December 31, 2024 the Company has a working capital of $11,646,169. The
Company has maintained a healthy working capital, using its operational cash
flows to settle its obligations and to continue growing its operations. The
stability in energy commodity prices has allowed the Company's capacity to
generate sufficient financial resources to sustain its operations and growth.
As at December 31, 2024 the Company's net debt (net cash) was calculated as
follows:
December 31, 2024
Current assets $ 25,973,196
Less:
Accounts payable and accrued liabilities (8,504,332)
Income taxes payable (4,294,109)
Net debt (Net cash) ((1)) $ (13,174,755)
((1))Non-IFRS measure
Working Capital
As at December 31, 2024 the Company's adjusted working capital was calculated
as follows:
December 31, 2024
Current assets:
Cash $ 18,837,784
Restricted cash and deposits 238,141
Trade and other receivables 3,830,215
Taxes receivable 2,656,926
Other current assets 410,130
Less:
Accounts payable and accrued liabilities 8,504,332
Lease obligation 44,639
Income tax payable 4,294,109
Stock based compensation liability 1,483,947
Working capital((1)) $ 11,646,169
((1))Non-IFRS measure
Debt Capital
As at December 31, 2024 the Company does not have any outstanding debt
balance.
Letters of Credit
As at December 31, 2024, the Company had obligations under Letters of Credit
("LC's") outstanding totaling $3 million to guarantee work commitments on
exploration blocks and other contractual commitments. In the event the Company
fails to secure the renewal of the letters of credit underlying the ANH
guarantees, or any of them, the ANH could decide to cancel the underlying
exploration and production contract for a particular block, as applicable.
Current Outstanding Letters of Credit
Contract Beneficiary Issuer Type Amount Renewal Date
(US $)
SANTA ISABEL ANH Carrao Energy Abandonment 621,158 April 14, 2026
ANH Carrao Energy Financial Capacity 1,672,162 June 30, 2025
CORE - 39 ANH Carrao Energy Compliance 100,000 June 30, 2025
OMBU ANH Carrao Energy Financial Capacity 436,300 October 14, 2025
ANH Carrao Energy Abandonment 265,782 August 28, 2025
Total $3,095,402
Share Capital
As at December 31, 2024, the Company had 285,864,348 common shares and
25,795,002 stock options outstanding.
RELATED PARTIES
The following table summarizes the Company's Directors and executives
compensation paid during the year ended December 31, 2024:
Salary or Annual Fee Other Stock-Based
Director Bonus Benefits Compensation Total
G. Jull 455,400 1,222,500 17,699 260,845 1,956,444
M. Abbott 455,400 1,312,500 15,010 290,000 2,072,910
J. McFarlane 455,400 1,222,500 15,382 260,845 1,954,127
G. Carnie 72,600 - - 34,075 106,675
R. Sharma 72,600 - - 8,519 81,119
A. Zaidi 72,600 - - - 72,600
Ian Langley 72,600 - - - 72,600
Total 1,656,600 3,757,500 48,091 854,284 6,316,475
Performance bonuses to executives totaled in aggregate $3,757,000 and were
payable on meeting a number of operational performance criteria. During 2023,
the Company granted loans to some of its executives and Directors in the form
of promissory notes, which are due on demand and bear interest at the average
Bank of Canada Interbank Rate (currently 5%). The current aggregate balance
receivable of these loans is $699,880, including interest of $57,413 (2023:
$9,650) as other account receivables.
As of December 31, 2024, Directors and officers of the Company have the
following outstanding stock options:
Stock Options
Director Available
G. Jull 5,415,000
M. Abbott 5,615,001
J. McFarlane 5,415,000
G. Carnie 1,300,000
R. Sharma 1,965,001
A. Zaidi 1,400,000
Ian Langley 1,300,000
Total 22,410,002
CONTRACTUAL OBLIGATIONS
The following table provides a summary of the Company's cash requirements to
meet its financial liabilities and contractual obligations existing at
December 31, 2024:
Less than 1 year 1-3 years Thereafter Total
Exploration and production contracts - 12,000,000 - 12,000,000
The Company has entered into a number of exploration contracts in Colombia
which require the Company to fulfill work program commitments. In aggregate,
the Company has outstanding commitments of $12 million. The Company have made
an application to cancel its commitments on the COR-39.
SUMMARY OF THREE MONTHS RESULTS
2024 2023
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Oil and natural gas sales, net of royalties
22,873,626 21,300,115 15,146,366 14,404,921 13,406,513 13,990,353 10,280,280 6,992,860
Net income (loss) 2,081,956 6,668,493 1,247,825 3,176,727 (10,492,053) 7,153,120 (757,416) 2,989,735
Income (loss) per share -
basic 0.01 0.02 0.00 0.01 (0.04) 0.03 (0.00) 0.01
diluted 0.01 0.02 0.00 0.01 (0.04) 0.02 (0.00) 0.01
Working capital (deficit) 11,646,169 9,622,125 6,657,117 9,520,829 8,669,114 10,822,475 (2,363,388) 2,619,715
Total assets 81,268,734 73,535,397 67,864,633 64,579,940 62,275,023 62,755,250 56,305,530 53,719,944
Net capital expenditures 8,928,725 6,945,779 8,965,408 6,281,329 10,471,447 5,471,561 6,870,258 4,271,693
Average daily production (boe/d) 4,738 4,124 2,638 2,730 2,666 2,518 2,169 1,635
The Company's oil and natural gas sales have increased 71% in Q4 2024 when
compared to Q4 2023 due to increased production in its existing assets and
stable commodity prices. The Company's production levels in Colombia continue
growing. Trends in the Company's net income are also impacted most
significantly by operating expenses, financing costs, income taxes, depletion,
depreciation and impairment of oil and gas properties, and other income.
OUTSTANDING SHARE DATA
At April 28, 2025 the Company had the following securities issued and
outstanding:
Number Exercise Price Expiry Date
Common shares 285,864,348 n/a n/a
Stock options 250,000 CAD$ 1.15 October 22, 2028
Stock options 100,000 CAD$ 0.31 May 3, 2029
Stock options 1,200,000 CAD$ 0.05 March 20, 2030
Stock options 1,200,000 CAD$ 0.05 April 13, 2030
Stock options 2,983,336 GBP 0.07625 June 13, 2024 and 2025
Stock options 600,001 CAD$0.28 Dec. 9, 2024 and 2025
Stock options 833,334 CAD$0.26 Mar. 7, 2025 and 2026
Stock options 3,652,222 GBP 0.1675 June 21, 2024, 2025 and 2026
Stock options 100,000 GBP 0.1925 July 23, 2024, 2025 and 2026
Stock options 1,000,000 CAD $0.33 Mar. 21, 2025, 2026 and 2027
Stock options 8,543,888 CAD $0.375 Oct. 29 2025, 2026 and 2027
Stock options 4,332,221 CAD $0.475 Mar. 11 2026, 2027 and 2028
OUTLOOK
The Company has efficiently deployed the capital raised and generated on
successful drilling campaigns at Rio Cravo, Carrizales Norte and a discovery
at Alberta Llanos on the Tapir Block. These successful campaigns have
translated into production growth and positive cashflows, providing Arrow with
the funds required to expand its capital program for 2025. In 2025 the
Company plans another year of production growth with a balanced program of
both development and low risk exploration drilling on the Tapir Block. The
Company has a strong balance sheet, with no debt and cash flow from operations
which will fund the 2025 program.
During 2024, the Company drilled 11 oil wells at Carrizales Norte, including
six horizontals, a discovery well at the new Alberta Llanos field, which have
increased corporate production. Arrow remains committed to growth and
increasing shareholder value.
CRITICAL ACCOUNTING ESTIMATES
A summary of the Company's critical accounting estimates is contained in Note
3 Annual Financial Statements. These accounting policies are subject to
estimates and key judgements about future events, many of which are beyond
Arrow's control. The following is a discussion of the accounting estimates
that are critical to the consolidated financial statements.
Crude oil and natural gas assets - reserves estimates - Arrow retained
independent third-party petroleum engineers to evaluate its crude oil and
natural gas reserves, prepare an evaluation report, and report to the Reserves
Committee of the Board of Directors. The process of estimating crude oil and
natural gas reserves is subjective and involves a significant number of
decisions and assumptions in evaluating available geological, geophysical,
engineering and economic data. These estimates will change over time as
additional data from ongoing development and production activities becomes
available and as economic conditions affecting crude oil and natural gas
prices and costs change. Reserves can be classified as proved, probable or
possible with decreasing levels of likelihood that the reserves will be
ultimately produced. Reserve estimates are a key input to the Company's
depletion calculations and impairment tests. Property, plant and equipment
within each area are depleted using the unit-of-production method based on
proved and probable reserves using estimated future prices and costs. In
addition, the costs subject to depletion include an estimate of future costs
to be incurred in developing proved and probable reserves. A revision in
reserve estimates or future development costs could result in the recognition
of higher depletion charged to net income.
Under the IFRS, the carrying amounts of property, plant and equipment are
reviewed at each reporting date to determine whether there is any indication
of impairment or impairment reversal. If any such indication exists, the
estimated recoverable amount is calculated. For the purpose of impairment
testing, assets are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets (the "cash-generating unit"
or "CGU").
The recoverable amount of an asset or a CGU is the greater of its value in use
and its fair value less costs to sell. In assessing value in use, the
estimated future cash flows are discounted to their present value using a
post-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. Value in use is generally
computed by reference to the present value of the future cash flows expected
to be derived from production of proven and probable reserves. Exploration and
evaluation ("E&E") assets will be allocated to the related CGU's to assess
for impairment, both at the time of any triggering facts and circumstances as
well as upon their eventual reclassification to producing assets (oil and
natural gas interests in property, plant and equipment). An impairment loss is
recognized in income if the carrying amount of an asset or its CGU exceeds its
estimated recoverable amount. Reserve, revenue, royalty and operating cost
estimates and the timing of future cash flows are all critical components of
the impairment test. Revisions of these estimates could result in a write-down
of the carrying amount of crude oil and natural gas properties.
Decommissioning obligations - The Company recognizes the estimated fair value
of the decommission liability in the period in which it is incurred and
records a corresponding increase in the carrying value of the related asset.
The future asset retirement obligation is an estimate based on the Company's
ownership interest in wells and facilities and reflects estimated costs to
complete the abandonment and reclamation as well as the estimated timing of
the costs to be incurred in future periods. Estimates of the costs associated
with abandonment and reclamation activities require judgement concerning the
method, timing and extent of future retirement activities. The capitalized
amount is depleted on a unit-of-production method over the life of the proved
and probable reserves. The liability amount is increased each reporting period
due to the passage of time and this accretion amount is charged to earnings in
the period, which is included as a financing expense. Actual costs incurred on
settlement of the decommissioning liability are charged against the liability.
Judgements affecting current and annual expense are subject to future
revisions based on changes in technology, abandonment timing, costs, discount
rates and the regulatory environment.
Income taxes - Arrow follows the balance sheet method, providing for temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Current tax is the expect tax payable on the taxable income for the year,
using tax rates enacted or substantially enacted at the reporting period, and
any adjustment to tax payable in respect to previous periods.
Tax interpretations and legislation in which the Company operates are subject
to change. As such, income taxes are subject to measurement uncertainty and
interpretations can impact net income through current tax arising from the
changes in the deferred income tax asset and liabilities.
Provisions and contingencies - The Company recognizes provisions based on an
assessment of its obligations and available information. Any matters not
included as provisions are uncertain in nature and cannot be reasonably
estimated. The Company makes assumptions to determine whether obligations
exist and to estimate the amount of obligations that we believe exist. In
estimating the final outcome of litigation, assumptions are made about factors
including experience with similar matters, past history, precedents, relevant
financial, scientific, and other evidence and facts specific to the matter.
This determines whether a provision or disclosure in the financial statements
is needed.
SUMMARY OF MATERIAL ACCOUNTING POLICIES
A summary of the Company's material accounting policies is included in note 3
of the Annual Financial Statements. These accounting policies are consistent
with those of the previous financial year as described in Note 3 of the Annual
Financial Statements.
RISKS AND UNCERTAINTIES
The Company is subject to financial, business and other risks, many of which
are beyond its control and which could have a material adverse effect on the
business and operations of the Company. A summary of certain risk factors
relating to our business are disclosed below.
Unstable Oil and Gas Industry
Recent market events and conditions, constant changes oil and natural gas
supply, actions taken by the Organization of Petroleum Exporting Countries
(OPEC), slowing growth in China and other emerging economies, market
volatility and disruptions in Asia, and sovereign debt levels in various
countries, have caused significant weakness and volatility in commodity
prices. These events and conditions have caused a significant volatility in
the valuation of oil and gas companies and a variable confidence in the oil
and gas industry. Lower commodity prices may also affect the volume and value
of the Company's reserves especially as certain reserves become uneconomic. In
addition, in a low commodity prices environment might affect the Company's
cash flow. As a result, the Company may not be able to replace its production
with additional reserves and both the Company's production and reserves could
be reduced on a year over year basis. Given the current market conditions, the
Company may have difficulty raising additional funds or if it is able to do
so, it may be on unfavourable and highly dilutive terms.
Prices, Markets and Marketing of Crude Oil and Natural Gas
Oil and natural gas are commodities whose prices are determined based on world
demand, supply and other factors, all of which are beyond the control of
Arrow. World prices for oil and natural gas have fluctuated widely in recent
years. Any material decline in prices could result in a reduction of net
production revenue. Certain wells or other projects may become uneconomic as a
result of a decline in world oil prices and natural gas prices, leading to a
reduction in the volume of Arrow's oil and gas reserves. Arrow might also
elect not to produce from certain wells at lower prices. All of these factors
could result in a material decrease in Arrow's future net production revenue,
causing a reduction in its oil and gas acquisition and development activities.
In addition to establishing markets for its oil and natural gas, Arrow must
also successfully market its oil and natural gas to prospective buyers. The
marketability and price of oil and natural gas which may be acquired or
discovered by Arrow will be affected by numerous factors beyond its control.
Arrow will be affected by the differential between the price paid by refiners
for light quality oil and the grades of oil produced by Arrow. The ability of
Arrow to market its natural gas may depend upon its ability to acquire space
on pipelines which deliver natural gas to commercial markets. Arrow will also
likely be affected by deliverability uncertainties related to the proximity of
its reserves to pipelines and processing facilities and related to operational
problems with such pipelines and facilities and extensive government
regulation relating to price, taxes, royalties, land tenure, allowable
production, the export of oil and natural gas and many other aspects of the
oil and natural gas business.
Substantial Capital Requirements; Liquidity
Arrow's cash flow from its production and sales of petroleum and natural gas
may not, at all times be sufficient to fund its ongoing activities. From time
to time, Arrow may require additional financing in order to carry out its oil
and gas acquisition, exploration and development activities. Failure to obtain
such financing on a timely basis could cause Arrow to forfeit its interest in
certain properties, miss certain acquisition opportunities and reduce or
terminate its operations. If Arrow's revenues from its production of petroleum
and natural gas decrease as a result of lower oil and natural gas prices or
otherwise, it may affect Arrow's ability to expend the necessary capital to
replace its reserves or to maintain its production. If Arrow's funds from
operations are not sufficient to satisfy its capital expenditure requirements,
there can be no assurance that additional financing will be available to meet
these requirements or available on terms acceptable to Arrow.
Arrow's lenders will be provided with security over substantially all of the
assets of Arrow. If Arrow becomes unable to pay its debt service charges or
otherwise commits an event of default, such as bankruptcy, these lenders may
foreclose on or sell Arrow's properties. The proceeds of any such sale would
be applied to satisfy amounts owed to Arrow's lenders and other creditors and
only the remainder, if any, would be available to Arrow shareholders. Arrow
monitors and updates its cash projection models on a regular basis which
assists in the timing decision of capital expenditures. Farm-outs of projects
may be arranged if capital constraints are an issue or if the risk profile
dictates that the Company wishes to hold a lesser working interest position.
Equity, if available and if on reasonable terms, may be utilized to help fund
Arrow's capital program.
Access to Capital
Access to capital has become limited during these times of economic
uncertainty. To the extent the external sources of capital become limited or
unavailable. Arrow's ability to make the necessary capital investments to
maintain or expand oil and gas reserves may be impaired.
Risks of Foreign Operations Generally
Most of Arrow's oil and gas properties and operations are located in a foreign
jurisdiction. As such, Arrow's operations may be adversely affected by changes
in foreign government policies and legislation or social instability and other
factors which are not within the control of Arrow, including, but not limited
to, nationalization, expropriation of property without fair compensation,
renegotiation or nullification of existing concessions and contracts, the
imposition of specific drilling obligations and the development and
abandonment of fields, changes in energy policies or the personnel
administering them, changes in oil and natural gas pricing policies, the
actions of national labour unions, currency fluctuations and devaluations,
exchange controls, economic sanctions and royalty and tax increases and other
risks arising out of foreign governmental sovereignty over the areas in which
Arrow's operations are conducted, as well as risks of loss due to civil
strife, acts of war, terrorism, guerrilla activities and insurrections.
Arrow's operations may also be adversely affected by laws and policies of
Colombia and Canada affecting foreign trade, taxation and investment. If
Arrow's operations are disrupted and/or the economic integrity of its projects
is threatened for unexpected reasons, its business may be harmed. Prolonged
problems may threaten the commercial viability of its operations. In addition,
there can be no assurance that contracts, licenses, license applications or
other legal arrangements will not be adversely affected by changes in
governments in foreign jurisdictions, the actions of government authorities or
others, or the effectiveness and enforcement of such arrangements. In the
event of a dispute arising in connection with Arrow's operations in Colombia,
Arrow may be subject to the exclusive jurisdiction of foreign courts or may
not be successful in subjecting foreign persons to the jurisdictions of the
courts of Canada or enforcing Canadian judgments in such other jurisdictions.
Arrow may also be hindered or prevented from enforcing its rights with respect
to a governmental instrumentality because of the doctrine of sovereign
immunity. Accordingly, Arrow's exploration, development and production
activities in Colombia could be substantially affected by factors beyond the
Company's control, any of which could have a material adverse effect on Arrow.
Acquiring interests and conducting exploration and development operations in
foreign jurisdictions often require compliance with numerous and extensive
procedures and formalities. These procedures and formalities may result in
unexpected or lengthy delays in commencing important business activities. In
some cases, failure to follow such formalities or obtain relevant evidence may
call into question the validity of the entity or the actions taken. Management
is unable to predict the effect of additional corporate and regulatory
formalities which may be adopted in the future including whether any such laws
or regulations would materially increase Arrow's cost of doing business or
affect its operations in any area. Arrow believes that management's experience
operating both in Colombia and in other international jurisdictions helps
reduce these risks. In Colombia, the government has a long history of
democracy and an established legal framework that, in Arrow's opinion,
minimizes political risks.
Social risks
The Company's activities are subject to social risks, including protests or
blockades by groups located near some of the Company's operations. Despite the
fact that the Company is committed to operating in a socially responsible
manner, the Company may face opposition from local communities and
non-governmental organizations with respect to its current and future
projects, which could adversely affect the Company's business, results of
operations and financial condition. No certainty can be given that the Company
will be able to reach an agreement with the different communities or special
interest groups, such as environmentalists and ethnic communities. Reaching
such an agreement may also incur unanticipated costs. The Company could also
be exposed to similar delays due to opposition from local communities in other
countries where the Company carries out its activities.
Russia-Ukraine Conflict
On February 24, 2022, Russian military forces launched a full-scale military
invasion of Ukraine. In response, Ukrainian military personal and civilians
are actively resisting the invasion. Many countries throughout the world have
provided aid to the Ukraine in the form of financial aid and in some cases
military equipment and weapons to assist in their resistance to the Russian
invasion. The North Atlantic Treaty Organization ("NATO") has also mobilized
forces to NATO member countries that are close to the conflict as deterrence
to further Russian aggression in the region. The outcome of the conflict is
uncertain and is likely to have wide ranging consequences on the peace and
stability of the region and the world economy. Certain countries including
Canada and the United States, have imposed strict financial and trade
sanctions against Russia and such sanctions may have far reaching effects on
the global economy. In addition, the German government paused the
certification process for the 1,200 km Nord Stream 2 natural gas pipeline that
was built to carry natural gas from Russia to Germany. As Russia is a major
exporter of oil and natural gas, the disruption of supplies of oil and natural
gas from Russia could cause a significant worldwide supply shortage of oil and
natural gas and significantly impact pricing of oil and gas worldwide. A lack
of supply and high prices of oil and natural gas could have a significant
adverse impact on the world economy. The long-term impacts of the conflict and
the sanctions imposed on Russia remain uncertain.
Alternatives to/Changing Demand for Petroleum Products
Fuel conservation measures, alternative fuel requirements, increasing consumer
demand for alternatives to oil and natural gas, and technological advances in
fuel economy and energy generation devices will reduce the demand for crude
oil, natural gas and other liquid hydrocarbons.
The Company cannot predict the impact of changing demand for oil and natural
gas products and any major changes would have a material adverse effect on the
Company's business, financial condition, results of operations and cash flow.
Exploration, Development and Production Risks
Oil and natural gas exploration involves a high degree of risk, for which even
a combination of experience, knowledge and careful evaluation may not be able
to overcome. There is no assurance that expenditures made on future
exploration by Arrow will result in new discoveries of oil or natural gas in
commercial quantities. It is difficult to project the costs of implementing an
exploratory drilling program due to the inherent uncertainties of drilling in
unknown formations, the costs associated with encountering various drilling
conditions such as over-pressured zones, tools lost in the hole and changes in
drilling plans and locations as a result of prior exploratory wells or
additional seismic data and interpretations thereof. The long-term commercial
success of Arrow will depend on its ability to find, acquire, develop and
commercially produce oil and natural gas reserves. No assurance can be given
that Arrow will be able to locate satisfactory properties for acquisition or
participation. Moreover, if such acquisitions or participations are
identified, Arrow may determine that current markets, terms of acquisition and
participation or pricing conditions make such acquisitions or participations
uneconomic.
Future oil and gas exploration may involve unprofitable efforts, not only from
dry wells, but from wells that are productive but do not produce sufficient
net revenues to return a profit after drilling, operating and other costs.
Completion of a well does not assure a profit on the investment or recovery of
drilling, completion and operating costs. In addition, drilling hazards or
environmental damage could greatly increase the cost of operations, and
various field operating conditions may adversely affect the production from
successful wells. These conditions include delays in obtaining governmental
approvals or consents, shut-ins of connected wells resulting from extreme
weather conditions, insufficient storage or transportation capacity or other
geological and mechanical conditions. While diligent well supervision and
effective maintenance operations can contribute to maximizing production rates
over time, production delays and natural reservoir performance declines cannot
be eliminated and can be expected to adversely affect revenue and cash flow
levels to varying degrees.
In addition, oil and gas operations are subject to the risks of exploration,
development and production of oil and natural gas properties, including
encountering unexpected formations or pressures, premature declines of
reservoirs, blow-outs, sour gas releases, fires and spills. Losses resulting
from the occurrence of any of these risks could have a materially adverse
effect on future results of operations, liquidity and financial condition.
Arrow attempts to minimize exploration, development and production risks by
utilizing a technical team with extensive experience to assure the highest
probability of success in its drilling efforts.
The collaboration of a team of seasoned veterans in the oil and gas business,
each with a unique expertise in the various upstream to downstream technical
disciplines of prospect generation to operations, provides the best assurance
of competency, risk management and drilling success. A full cycle economic
model is utilized to evaluate all hydrocarbon prospects. Detailed geological
and geophysical techniques are regularly employed including 3D seismic,
petrography, sedimentology, petrophysical log analysis and regional geological
evaluation.
Governmental Regulation
The oil and gas business is subject to regulation and intervention by
governments in such matters as the awarding of exploration and production
interests, the imposition of specific drilling obligations, environmental
protection controls, control over the development and abandonment of fields
(including restrictions on production) and possible expropriation or
cancellation of contract rights, as well as with respect to prices, taxes,
export quotas, royalties and the exportation of oil and natural gas. Such
regulations may be changed from time to time in response to economic or
political conditions. The implementation of new regulations or the
modification of existing regulations affecting the oil and gas industry could
reduce demand for oil and natural gas, increase Arrow's costs and have a
material adverse effect on Arrow.
Global Pandemic
Arrow's business, financial condition and results of operations could be
materially and adversely affected by the outbreak of epidemics, pandemics and
other public health crises in geographic areas in which we have operations,
suppliers, customers or employees.
The past COVID-19 pandemic, and actions that may be taken by governmental
authorities in response thereto, has resulted, and may continue to result in,
among other things: increased volatility in financial markets and foreign
currency exchange rates; disruptions to global supply chains; labour
shortages; reductions in trade volumes; temporary operational restrictions and
restrictions on gatherings greater than a certain number of individuals,
shelter-in- place declarations and quarantine orders, business closures and
travel bans; an overall slowdown in the global economy; political and economic
instability; and civil unrest. A prolonged period of affected demand for, and
prices of, these commodities, and any applicable storage constraints, could
also result in us voluntarily curtailing or shutting in production and a
decrease in our refined product volumes and refinery utilization rates, which
could adversely impact our business, financial condition and results of
operations. Arrow is also subject to risks relating to the health and safety
of our people, as well as the potential for a slowdown or temporary suspension
of our operations in locations impacted by an outbreak, increased labour and
fuel costs, and regulatory changes. Such a suspension in operations could also
be mandated by governmental authorities in response to a pandemic. This could
negatively impact Arrow's production volumes and revenues for a sustained
period of time, which would adversely impact our business, financial condition
and results of operations.
Credit Exposure
Recent economic conditions have increased the risk that certain counterparties
for the Company's oil and gas sales and our joint venture partners may fail to
pay. Arrow mitigates these increased risks through diversification and a
review process of the credit worthiness of our counterparties. Arrow's policy
to mitigate credit risk associated with product sales is to maintain marketing
relationships with large, established and reputable purchasers that are
considered creditworthy. Arrow has not experienced any collection issues with
its petroleum and natural gas marketers. Joint venture receivables are
typically collected within two to three months of the joint venture bill being
issued to the partner. Arrow attempts to mitigate the risk from joint venture
receivables by obtaining partner approval of significant capital and operating
expenditures prior to expenditure and in certain circumstances may require
cash deposits in advance of incurring financial obligations on behalf of joint
venture partners.
Health, Safety and Environment
All phases of the oil and natural gas business present environmental risks and
hazards and are subject to environmental regulation pursuant to a variety of
federal, provincial/state and local laws and regulations. Environmental
legislation provides for, among other things, restrictions and prohibitions on
spills, releases or emissions of various substances produced in association
with oil and natural gas operations. The legislation also requires that wells
and facility sites be operated, maintained, abandoned and reclaimed to the
satisfaction of applicable regulatory authorities.
Compliance with such legislation can require significant expenditures and a
breach of applicable environmental legislation may result in the imposition of
fines and penalties, some of which may be material. Environmental legislation
is evolving in a manner expected to result in stricter standards and
enforcement, larger fines and liability and potentially increased capital
expenditures and operating costs. The discharge of oil, natural gas or other
pollutants into the air, soil or water may give rise to liabilities to
governments and third parties and may require the Company to incur costs to
remedy such discharge. There are potential risks to the environment inherent
in the business activities of the Company. Arrow has developed and implemented
policies and procedures to mitigate health, safety and environment (HS&E)
risks. Arrow mitigates HS&E risks by maintaining its wells and complying
with all regulations. Regular field inspections are also carried out to ensure
that all field personnel and third party contractors comply with all company
and regulatory guidelines. An action plan has been developed to ensure
inactive wells are suspended properly and abandoned in a timely fashion. The
above noted policies and procedures are designed to protect and maintain the
environment and to ensure that the employees, contractors, subcontractors and
the public at large are kept safe at all times.
Foreign Exchange and Currency Risks
The Company is exposed to foreign exchange and currency risk as a result of
fluctuations in exchange rates between Colombian peso and the Canadian dollar.
Most of the Company's revenues and funds from financing activities are
expected to be received in reference to US dollar denominated prices while a
portion of its operating, capital, and general and administrative costs are
denominated in the Colombian peso and the Canadian dollar.
Sanctions by the United States on Colombia
Colombia is among several nations whose eligibility to receive foreign aid
from the United States is dependent on its progress in stemming the production
and transit of illegal drugs, which is subject to an annual certification by
the President of the United States of America. Although Colombia has received
a current certification, there can be no assurance that, in the future,
Colombia will receive certification or a national interest waiver. The failure
to receive certification or a national interest waiver may result in any of
the following: all bilateral aid, except anti-narcotics and humanitarian aid,
would be suspended; the Export-Import Bank of the United States and the
Overseas Private Investment Company would not approve financing for new
projects in Colombia; United States representatives at multilateral lending
institutions would be required to vote against all loan requests from
Colombia, although such votes would not constitute vetoes, and the President
of the United States and Congress would retain the right to apply future
economic and trade sanctions. Each of these outcomes could result in adverse
economic consequences in Colombia, could further heighten the political and
economic risks associated with operations there, and could threaten the
Company's ability to obtain any necessary financing to develop its Colombian
properties. There can be no assurance that the United States will not impose
sanctions on Colombia in the future, nor can the effect in Colombia that these
sanctions might cause be accurately predicted.
Economic and Political Developments in Colombia
The Company's core properties and projects are located in Colombia. As such,
it is subject to certain risks, including currency fluctuations, possible
political or economic instability. The quality of the Company's assets,
financial condition and results of operations significantly depend on
macroeconomic and political conditions prevailing in Colombia (such as price
instabilities, currency fluctuations, inflation, interest rates, regulation,
taxation, social instabilities, political unrest and other developments in or
affecting Colombia) over which the Company has no control. In addition, the
Company's exploration and production activities may be affected in varying
degrees by political stability and government regulations relating to the
natural gas industry. Decreases in the growth rate of the Colombian economy,
periods of negative growth, material increases in inflation or interest rates
or significant fluctuations in the exchange rate could result in lower demand
for, or affect the pricing of, the Company's services and products.
In the past, Colombia has experienced periods of weak economic activity and
deterioration in economic conditions. There is no assurance that such
conditions will not return or that such conditions will not have a material
adverse effect on the Company's business, financial condition or results of
operations. The Company's financial condition and results of operations may
also be affected by changes in the political climate in Colombia to the extent
that such changes affect the nation's economic policies, growth, stability or
regulatory environment, including any changes in Colombian tax regulations.
Exploration may be affected in varying degrees by government regulations with
respect to restrictions on future exploitation and production, price controls,
export controls, foreign exchange controls, income taxes, wealth taxes,
expropriation of property, environmental legislation and site safety. There
can be no assurance that the government of Colombia will continue to pursue
business friendly and open-market economic policies or policies that stimulate
economic growth and social stability. Any changes in Colombia's economy or the
government's economic policies, in particular as they relate to the oil and
gas industry, may have a negative impact on the Company's business, financial
condition and results of operations.
Violence and Instability in Colombia
Colombia has experienced periods of violence over the past five decades,
primarily due to armed conflict between government forces, guerrillas,
paramilitary groups and drug cartels. Insurgents activity continues in many
parts of the country, despite the Colombian government efforts and security
policies. Any possible escalation of the violence associated with these
activities may have a negative impact on the Colombian economy and the
Company's operations. Within the framework of total peace, the Colombian
government has been attempting to advance peace dialogues with different armed
groups to achieve peace in the territories through the solution of the armed
conflict in Colombia. Among the organized armed structures of high impact
crime with which the Government has been attempting to advance peace talks
and/or dialogue approaches are: Ejército de Liberación Nacional (ELN),
Disidencias de las FARC, Estado Mayor Central, Segunda Marquetalia,
Autodefensas Gaitanistas de Colombia (AGC), Autodefensas Conquistadoras de la
Sierra Nevada, Criminal Gangs of Medellin, Quibdó and Buenaventura. President
Petro has promoted several cease fires with most of the aforementioned groups
which have not achieved reduction of violence or actual progress in peace
dialogues. Currently most of the cease fires have been ended by the government
and in some cases criminal judiciary processes against outlaw peace
negotiators have been reactivated. In January 2025, intensified combats
between ELN and FARC dissidents related to territorial and drug trafficking
control, increased exponentially homicide and internal displacement in the
northeastern Catatumbo region resulting in a humanitarian crisis. President
Gustavo Petro declared an internal state of emergency in the affected
northeastern Catatumbo region and suspended peace negotiations with ELN.
This state of emergency enabled the Executive to issue legislative decrees
including special and temporary taxes, all of which are being reviewed by the
Constitutional Court. The Colombian government's biggest challenge is
perceived to be ensuring that the negotiations lead to a long-lasting peace
and that demobilized members of the FARC and ELN rejoin civilian life, rather
than regrouping in criminal bands. Continuing attempts to reduce or prevent
guerrilla activity may not be successful and guerrilla activity may disrupt
the Company's operations in the future. The Company may not be able to
establish or maintain the safety of its operations and personnel in Colombia
and this violence may affect its operations in the future. Continued or
heightened security concerns in Colombia could also result in a significant
loss to Arrow and/or costs exceeding current expectations.
Competition
Arrow actively competes for reserve acquisitions, exploration leases, licenses
and concessions and skilled industry personnel with a substantial number of
other oil and gas companies, many of which have significantly greater
financial and personnel resources than Arrow. Arrow's competitors include
major integrated oil and natural gas companies and numerous other independent
oil and natural gas companies and individual producers and operators. Certain
of Arrow's customers and potential customers are themselves exploring for oil
and natural gas, and the results of such exploration efforts could affect
Arrow's ability to sell or supply oil or gas to these customers in the future.
Arrow's ability to successfully bid on and acquire additional property rights,
to discover reserves, to participate in drilling opportunities and to identify
and enter into commercial arrangements with customers will be dependent upon
developing and maintaining close working relationships with its future
industry partners and joint operators and its ability to select and evaluate
suitable properties and to consummate transactions in a highly competitive
environment.
Climate Change
There is growing international concern regarding climate change and there has
been a significant increase in focus on the timing and pace of the transition
to a lower-carbon economy. Governments, financial institutions, insurance
companies, environmental and governance organizations, institutional
investors, social and environmental activists, and individuals, are
increasingly seeking to implement, among other things, regulatory and policy
changes, changes in investment patterns, and modifications in energy
consumption habits and trends which, individually and collectively are
intended to or have the effect of accelerating the reduction in the global
consumption of carbon based energy, the conversion of energy usage to less
carbon-intensive forms and the general migration of energy usage away from
carbon-based forms of energy. Climate change and its associated impacts may
increase the Company's exposure to, and magnitude of, each of the risks
identified in this MD&A. Overall, the Company is not able to estimate at
this time the degree to which climate change related regulatory, climatic
conditions, and climate-related transition risks could impact the Company's
financial and operating results. The Company's business, financial condition,
results of operations, cash flows, reputation, access to capital, access to
insurance, cost of borrowing, access to liquidity and ability to fund business
plans may, in particular, without limitation, be adversely impacted as a
result of climate change and its associated impacts.
Social License to Operate
Heightened public monitoring and regulation of hydrocarbon resource producers,
refiners, distributors and commercial/retail sellers, especially where their
activities carry the potential for having negative impacts on communities and
the environment, involves varying degrees of risk to the Company's reputation,
relations with landowners and regulators, and in extreme cases even the
ability to operate. Arrow maintains an active website that complies with
Exchange requirements for timely disclosure and together with its press
releases and other SEDAR filings, is the primary means of communicating to the
general public. While media attention and public perception remains largely
beyond the control of Arrow's executive, employees, contractors and directors,
the Company makes every effort in its corporate and field operations to engage
all stakeholders in a respectful and transparent manner.
Internal Controls over Financial Reporting
The CEO and CFO, along with participation from other members of management,
are responsible for establishing and maintaining adequate Internal Control
over Financial Reporting ("ICFR") to provide reasonable assurance regarding
the reliability of financial statements prepared in accordance with IFRS. The
Company's CEO and CFO, with support of management have assessed the design and
operating effectiveness of the Company's ICFR as at December 31, 2024 based on
criteria described in "Internal Control - Integrated Framework" issued in 2013
by the Committee of Sponsoring Organization of the Treadway Commission. Based
on this assessment, it was concluded that the design and operation of the
Company's ICFR are effective as at December 31, 2024. During the three months
ended December 31, 2024, there has been no change in the Company's ICFR that
has materially affected, or is reasonably likely to materially affect, the
Company's ICFR.
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