REG - Arrow Exploration - ARROW ANNOUNCES SECOND QUARTER RESULTS
30/08/2022 07:16
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RNS Number : 4766X Arrow Exploration Corp. 30 August 2022
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JURISDICTION.
ARROW ANNOUNCES SECOND QUARTER RESULTS
CALGARY, August 29, 2022 - Arrow Exploration Corp. (AIM: AXL; TSXV: AXL)
("Arrow" or the "Company") announces the filing of its unaudited interim
Financial Statements and Management's Discussion and Analysis ("MD&A") for
the quarter ended June 30, 2022, which are available on SEDAR (www.sedar.com).
All dollar figures are in U.S. dollars, except as otherwise noted.
The first six months of 2022 saw the Company deploy the capital it raised at
the time of its Admission to AIM on a successful two well drilling campaign
at Rio Cravo on the Tapir Block. The better than forecasted results from this
drilling campaign and the subsequent generation of positive cashflows in Q3
means Arrow is pleased to be committing to a further drilling program.
Commencing in Q4 2022, the Company expects to drill up to three further wells
at Rio Cravo and plans a two well program on the Carrizales Norte Structure on
the Tapir Block. A letter of intent has been signed with a drilling contractor
to execute the planned five well program on the Tapir Block. Along with
workovers to other existing wells, the Company will seek to tie in the East
Pepper well in Q4 2022, confirming Arrow remains on target to increase
production to 3,000 boe/d within 18 months of AIM Admission. The Company
anticipates being able to support the planned 2023 CAPEX program with current
cash and cashflow from operations. Arrow continues to focus on growth and
improving its balance sheet and free cash flow.
2022 SECOND QUARTER INTERIM RESULTS
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended June 30, 2022 Six months Three months ended June 30, 2021
ended June 30, 2022
(In United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 5,024,604 8,427,566 941,620
Funds flow from (used in) operations ((1)) 2,613,843 2,926,795 (247,010)
Funds flow from (used in) operations ((1)) per share -
Basic ($) 0.01 0.01 (0.00)
Diluted ($) 0.00 0.00 (0.00)
Net income (loss) 768,318 (4,663,547) (734,317)
Net income (loss) per share -
Basic ($) 0.00 (0.02) (0.01)
Diluted ($) 0.00 (0.02) (0.01)
Adjusted EBITDA ((1)) 2,809,713 3,371,998 (529,784)
Weighted average shares outstanding -
Basic ($) 214,367,388 213,979,850 68,674,602
Diluted ($) 288,231,900 270,189,255 68,674,602
Common shares end of period 214,667,143 214,667,143 68,674,602
Capital expenditures 2,777,611 3,503,276 (15,378)
Cash and cash equivalents 7,368,252 7,368,252 4,559,231
Current Assets 12,190,063 12,190,063 8,773,936
Current liabilities 6,596,035 6,596,035 5,632,719
Working capital ((1)) 5,594,028 5,594,028 3,141,217
Long-term portion of restricted cash ((2)) 867,047 867,047 503,257
Total assets 42,670,153 42,670,153 25,948,551
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 2,398 3,329 373
Natural gas liquids (bbl/d) 5 6 4
Crude oil (bbl/d) 575 505 264
Total (boe/d) 980 1,066 331
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) $2.18 $1.26 $0.74
Crude oil ($/bbl) $80.04 $66.37 $27.31
Total ($/boe) $49.18 $33.27 $22.37
((1)) Non-IFRS measures - see "Non-IFRS Measures" section within the second
quarter 2022 MD&A
((2)) Long term restricted cash not included in working capital
Discussion of Operating Results
The Company's second quarter 2022 average corporate production decreased by
29% to 899 boe/d, compared to the first quarter 2022 average production of
1,144 boe/d. This decrease was largely attributable to the West Pepper well in
Alberta, Canada, which was brought on production in December 2021 and has been
recently affected by a third party's temporary processing facility
constraints. Arrow's production on a quarterly basis is summarized below.
Average Production Boe/d Q2 2022 Q1 2022 Q4 2021 Q3 2021 Q2 2021
Oso Pardo 112 121 123 137 20
Ombu (Capella) 97 177 190 193 97
Rio Cravo Este (Tapir) 366 136 142 151 147
Total Colombia 575 434 455 481 264
Fir, Alberta 86 73 82 94 67
Pepper, Alberta 319 636 181 - -
TOTAL (Boe/d) 980 1,144 719 575 331
For the three months ended June 30, 2022, the Company's average production mix
consisted of crude oil and natural gas production in Colombia of 575 bbl/d
(2021: 264 bbl/d) and 2,398 Mcf/d (2021: 373 Mcf/d), along with minor amounts
of natural gas liquids from Arrow's Canadian properties.
During the quarter, the Company successfully drilled the RCE-2 and RCS-1
wells, which were put into production and have contributed to the increase in
Colombia's crude oil production.
Discussion of Financial Results
During Q2 2022 the Company continued to realize good oil and gas prices, as
summarized below.
Three months ended June 30
2022 2021 Change
Benchmark Prices
AECO ($/Mcf) $5.42 $2.48 119%
Brent ($/bbl) $111.98 $69.08 62%
West Texas Intermediate ($/bbl) $108.40 $66.19 64%
Realized Prices
Natural gas, net of transportation ($/Mcf) $5.45 $3.05 78%
Natural gas liquids ($/bbl) $92.56 $48.26 92%
Crude oil, net of transportation ($/bbl) $104.66 $63.19 66%
Corporate average, net of transport ($/boe) ((1)) $71.35 $52.78 35%
((1)) Non-IFRS measures - see "Non-IFRS Measures" section within the MD&A
Operating Netbacks
The Company also continued to realize good operating netbacks, as summarized
below.
Three months ended June 30
2022 2021
Natural Gas ($/Mcf)
Revenue, net of transportation expense $5.45 $3.05
Royalties (0.62) (0.22)
Operating expenses (2.65) (2.09)
Natural Gas operating netback ((1)) $2.18 $0.74
Crude oil ($/bbl)
Revenue, net of transportation expense $104.66 $63.19
Royalties (13.31) (7.28)
Operating expenses (11.31) (28.60)
Crude Oil operating netback ((1)) $80.04 $27.31
Corporate ($/boe)
Revenue, net of transportation expense $71.35 $52.78
Royalties (8.80) (5.83)
Operating expenses (13.38) (24.58)
Corporate Operating netback ((1)) $49.18 $22.37
((1)) Non-IFRS measure
Arrow realized better operating netbacks quarter-over-quarter, increasing to
$49.18/boe in the second quarter of 2022 from $20.16/boe in the first quarter
of 2022. This increase is due to higher crude oil production and better
netbacks from natural gas.
During Q2 2022, the Company incurred capital expenditures in connection with
the drilling of the RCE-2 and RCS-1 wells. At the end of the quarter, Arrow
had a positive working capital position of $5.6 million and a cash position of
$7.4 million, which are expected to fund the Company's expenditure plan for
the foreseeable future.
For further Information, contact:
Arrow Exploration
Marshall Abbott, CEO +1 403 651 5995
Joe McFarlane, CFO +1 403 818 1033
Brookline Public Relations, Inc.
Shauna MacDonald +1 403 538 5645
Canaccord Genuity (Nominated Advisor and Joint Broker)
Henry Fitzgerald-O'Connor +44 (0)20 7523 8000
James Asensio
Gordon Hamilton
Auctus Advisors (Joint Broker)
Jonathan Wright (Corporate) +44 (0)7711 627449
Rupert Holdsworth Hunt (Broking)
Camarco (Financial PR)
James Crothers +44 (0)20 3781 8331
Rebecca Waterworth
Billy Clegg
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.
Glossary
Bbl/d: Barrels per day
$/Bbl: Dollars per barrel
Mcf/d: Thousand cubic feet of gas per day
$/Mcf: Dollars per thousand cubic feet of gas
Boe/d: Barrels of oil equivalent per day
$/Boe: Dollars per barrel of oil equivalent
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.
Arrow Exploration Corp.
MANAGEMENT's DISCUSSION AND ANALYSIS
THREE AND SIX MONTHS ended JUNE 30, 2022
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 August 26, 2022 and should be read in conjunction with Arrow's condensed
consolidated financial statements (unaudited) and related notes for the three
and six months ended June 30, 2022 and 2021. Additional information relating
to Arrow is available under Arrow's profile on www.sedar.com
(http://www.sedar.com) , including Arrow's Audited Consolidated Financial
Statements (the "Annual Financial Statements") for the year ended December 31,
2021 and 2020.
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: the COVID-19 pandemic
and its impact; tax liability; capital management strategy; capital structure;
credit facilities and other debt; performance by Canacol (as defined herein)
and the Company in connection with the Note (as defined herein) and letters of
credit; Arrow's costless collar structure; Arrow's interest in the OBC
Pipeline (as defined herein) and the consequences thereof; 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 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 and duration of the COVID-19 pandemic; 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; 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 and duration of the COVID-19 pandemic; 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
(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.
Working capital is calculated as current assets minus current liabilities;
funds from operations is calculated as cash flows from (used in) operating
activities adjusted to exclude settlement of decommissioning obligations and
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 loss adjusted for interest, income taxes,
depreciation, depletion, amortization and other similar non-recurring or
non-cash charges; and net debt is defined as the principal amount of its
outstanding debt, less working capital items.
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 loss and comprehensive loss per share.
A reconciliation of the non-IFRS measures is included as follows:
Three months ended June 30, 2022 Six months ended June 30, 2022 Three months ended June 30, 2021
(in United States dollars)
Net income (loss) 768,318 (4,663,547) (734,317)
Add/(subtract):
Share based payments 40,917 103,836 (278,254)
Financing costs:
Accretion on decommissioning obligations 45,644 89,975 32,906
Interest 123,741 244,519 115,883
Other 134,981 244,029 716
Depreciation and depletion 971,353 1,840,592 333,282
Derivative loss 724,758 5,512,593 -
Adjusted EBITDA ((1)) 2,809,713 3,371,998 (529,784)
Cash flows used in operating activities (99,185) (196,893) (1,762,640)
Minus - Changes in non‑cash working capital balances:
Trade and other receivables 2,185,670 2,350,855 50,628
Restricted cash 157,481 157,481 (3,099)
Taxes receivable (4,560) 303,003 143,500
Deposits and prepaid expenses (81,506) 11,182 123,288
Inventory 150,459 228,776 182,695
Accounts payable and accrued liabilities 305,484 72,391 1,018,618
Funds flow from (used in) operations ((1)) 2,613,843 2,926,795 (247,010)
( (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 June 30, 2022 Six months Three months ended June 30, 2021
ended June 30, 2022
(in United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 5,024,604 8,427,566 941,620
Funds flow from (used in) operations ((1)) 2,613,843 2,926,795 (247,010)
Funds flow from (used in) operations ((1)) per share -
Basic($) 0.01 0.01 (0.00)
Diluted ($) 0.00 0.00 (0.00)
Net income (loss) 768,318 (4,663,547) (734,317)
Net income (loss) per share -
Basic ($) 0.00 (0.02) (0.01)
Diluted ($) 0.00 (0.02) (0.01)
Adjusted EBITDA ((1)) 2,809,713 3,371,998 (529,784)
Weighted average shares outstanding -
Basic ($) 214,367,388 213,979,850 68,674,602
Diluted ($) 288,231,900 270,189,255 68,674,602
Common shares end of period 214,667,143 214,667,143 68,674,602
Capital expenditures 2,777,611 3,503,276 (15,378)
Cash and cash equivalents 7,368,252 7,368,252 4,559,231
Current Assets 12,190,063 12,190,063 8,773,936
Current liabilities 6,596,035 6,596,035 5,632,719
Working capital ((1)) 5,594,028 5,594,028 3,141,217
Long-term portion of restricted cash ((2)) 867,047 867,047 503,257
Total assets 42,670,153 42,670,153 25,948,551
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 2,398 3,329 373
Natural gas liquids (bbl/d) 5 6 4
Crude oil (bbl/d) 575 505 264
Total (boe/d) 980 1,066 331
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) $2.18 $1.26 $0.74
Crude oil ($/bbl) $80.04 $66.37 $27.31
Total ($/boe) $49.18 $33.27 $22.37
((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.
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 June 30, 2022 the Company held an interest in six oil blocks in Colombia
and oil and natural gas leases in seven areas in Canada as follows:
Gross Acres Working Interest Net Acres
COLOMBIA
Tapir Operated 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
Los Picachos Non-operated 52,772 37.5% 19,790
Macaya Non-operated 195,255 37.5% 73,221
Total Colombia 465,417 227,005
CANADA
Ansell Operated 640 100% 640
Fir Non operated 7,680 32% 2,457
Penhold Non-operated 480 13% 61
Pepper Operated 23,643 100% 23,643
Wapiti Non-operated 1,280 13% 160
Total Canada 33,723 26,961
TOTAL 499,140 253,966
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.
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 License 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.
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 Motney P&NG rights
at Pepper. The 06-26 well (West Pepper) is a horizontal Upper Motney
exploration well that produces natural gas into the Galloway gas plant where
it is processed.
Three months ended June 30, 2022 Financial and Operational Highlights
· Arrow recorded $5,024,604 in revenues (net of royalties) on crude
oil sales of 42,763 bbls, 458 bbls of natural gas liquids ("NGL's") and
222,642 Mcf of natural gas sales;
· Generated funds flow from operations of $2,613,843;
· Adjusted EBITDA was $2,809,713;
· The Company recorded a net income of $768,318;
· Drilled and completed the Rio Cravo Este -2 (RCE-2) and Rio Cravo
Sur-1 (RCS-1) wells in the Tapir block, increasing oil production in Colombia
Results of Operations
The Company has significantly recovered its production and improved its
operations despite the challenges from the Covid-19 pandemic, combined with
improved pricing of energy commodities. During the three and six months ended
June 30, 2022, the Company increased production at its Tapir block from the
drilling of the RCE-2 and RCS-1 wells, offset by a decrease in production at
the Ombu blocks, and consistent production in the Oso Pardo field. Also, the
West Pepper Well decrease its production during the three months ended June
30, 2022 due to third party's temporary processing facility constraints.
Average Production by Property
Average Production Boe/d Q2 2022 Q1 2022 Q4 2021 Q3 2021 Q2 2021
Oso Pardo 112 121 123 137 20
Ombu (Capella) 97 177 190 193 97
Rio Cravo Este (Tapir) 366 136 142 151 147
Total Colombia 575 434 455 481 264
Fir, Alberta 86 73 82 94 67
Pepper, Alberta 319 636 181 - -
TOTAL (Boe/d) 980 1,144 719 575 331
For the three months ended June 30, 2022, the Company's average production was
980 boe/d (2021: 331 boe/d), which consisted of crude oil production in
Colombia at 575 bbl/d (2021: 264 bbl/d), and natural gas production of 2,398
Mcf/d (2021: 373 Mcf/d) and minor amounts of natural gas liquids from the
Company's Canadian properties.
Average Daily Natural Gas and Oil Production and Sales Volumes
Three months ended Six months ended
June 30 June 30
2022 2021 2022 2021
Natural Gas (Mcf/d)
Natural gas production 2,398 373 3,329 378
Natural gas sales 2,398 373 3,329 378
Realized Contractual Natural Gas Sales 2,398 373 3,329 378
Crude Oil (bbl/d)
Crude oil production 575 264 505 220
Inventory movements and other (105) (101) (142) (51)
Crude Oil Sales 470 163 364 169
Corporate
Natural gas production (boe/d) 400 63 555 63
Natural gas liquids(bbl/d) 5 4 6 4
Crude oil production (bbl/d) 575 264 505 220
Total production (boe/d) 980 331 1,066 287
Inventory movements and other (boe/d) (105) (101) (142) (51)
Total Corporate Sales (boe/d) 874 230 924 236
During the three months ended June 30, 2022 the majority of production was
attributed to Colombia, where the Company has two operated properties: Oso
Pardo and Rio Cravo Este, and one non-operated property, Ombu. Production has
also increased in Canada where the Company has one operated (Pepper) and one
non-operated (Fir) producing properties.
Natural Gas and Oil Revenues
Three months ended Six months ended
June 30 June 30
2022 2021 2022 2021
Natural Gas
Natural gas revenues 1,218,731 103,520 2,599,851 207,784
NGL revenues 42,528 21,993 86,145 39,702
Royalties (138,491) (9,500) (436,155) (22,331)
Revenues, net of royalties 1,122,768 116,013 2,249,841 225,155
Oil
Oil revenues 4,475,645 933,103 6,956,442 1,799,933
Royalties (569,224) (107,497) (778,717) (236,036)
Revenues, net of royalties 3,906,421 825,606 6,177,725 1,563,897
Corporate
Natural gas revenues 1,218,731 103,520 2,599,851 207,784
NGL revenues 42,528 21,993 86,145 39,702
Oil revenues 4,475,645 933,103 6,956,442 1,799,933
Total revenues 5,736,905 1,058,616 9,642,438 2,047,419
Royalties (707,716) (116,997) (1,214,871) (258,367)
Natural gas and crude oil revenues, net of royalties, as reported 5,029,189 941,619 8,427,566 1,789,052
Revenue for the three and six months ended June 30, 2022 was $5.0 and $8.4
million, respectively, net of royalties, which represents an increase of 371%
and 434%, respectively, when compared to the same periods in 2021. This
significant increase is mainly due to having all Colombian wells back in
production, additional wells drilled and producing, and the additional natural
gas production from the West Pepper well in Canada.
Average Benchmark and Realized Prices
Three months ended June 30 Six months ended June 30
2022 2021 Change 2022 2021 Change
Benchmark Prices
AECO ($/Mcf) $5.42 $2.48 119% $4.55 $2.39 90%
Brent ($/bbl) $111.98 $69.08 62% $104.59 $65.23 60%
West Texas Intermediate ($/bbl) $108.40 $66.19 64% $101.45 $62.22 63%
Realized Prices
Natural gas, net of transportation ($/Mcf) $5.45 $3.05 78% $4.32 $3.04 42%
Natural gas liquids ($/bbl) $92.56 $48.26 92% $83.87 $48.86 72%
Crude oil, net of transportation ($/bbl) $104.66 $63.19 66% $91.12 $59.10 54%
Corporate average, net of transport ($/boe)((1)) $71.35 $52.78 35% $54.23 $48.92 11%
The Company realized prices of $71.35 and $54.23 per boe during the three and
six months ended June 30, 2022 (2021: $52.78 and $48.92 per boe). This
increase is a reflection of improved oil and natural gas prices during 2022.
Operating Expenses
Three months ended June 30 Six months ended June 30
2022 2021 2022 2021
Natural gas & NGL's 590,932 70,745 1,401,777 128,864
Crude oil 483,503 422,283 1,111,139 606,309
Total operating expenses 1,074,435 493,028 2,512,916 735,173
Natural gas ($/Mcf) $2.65 $2.09 $2.33 $1.88
Crude oil ($/bbl) $11.31 $28.60 $14.55 $19.91
Corporate ($/boe)((1)) $13.38 $24.58 $14.13 $17.56
( (1)Non-IFRS measure)
During the three and six months ended June 30, 2022, Arrow incurred operating
expenses of $1,074,435 and $2,512,916, respectively, at an average cost of
$13.38 and $14.13 per boe, respectively. Operating expenses per boe have
improved due to increases in production of both crude oil and natural gas.
Operating Netbacks
Three months ended June 30 Six months ended June 30
2022 2021 2022 2021
Natural Gas ($/Mcf)
Revenue, net of transportation expense $5.45 $3.05 $4.32 $3.04
Royalties (0.62) (0.22) (0.72) (0.27)
Operating expenses (2.65) (2.09) (2.33) (1.89)
Natural Gas operating netback((1)) $2.18 $0.74 $1.26 $0.88
Crude oil ($/bbl)
Revenue, net of transportation expense $104.66 $63.19 $91.12 $59.10
Royalties (13.31) (7.28) (10.20) (7.75)
Operating expenses (11.31) (28.60) (14.55) (19.91)
Crude Oil operating netback((1)) $80.04 $27.31 $66.37 $31.44
Corporate ($/boe)
Revenue, net of transportation expense $71.35 $52.78 $54.23 $48.92
Royalties (8.80) (5.83) (6.83) (6.17)
Operating expenses (13.38) (24.58) (14.13) (17.56)
Corporate Operating netback((1)) $49.18 $22.37 $33.27 $25.19
( (1))Non-IFRS measure
General and Administrative Expenses (G&A)
Three months ended June 30 Six months ended June 30
2022 2021 2022 2021
General & administrative expenses 1,275,915 913,069 2,649,021 2,291,697
Less: G&A capitalized - - - -
G&A recovered from 3(rd) parties (147,030) - (167,030) -
Total operating overhead recovery (147,030) 913,069 (167,030) 2,291,697
Total G&A 1,128,885 913,069 2,481,991 2,291,697
Cost per boe $15.30 $45.52 $13.96 $54.75
For the three and six months ended June 30, 2022, G&A expenses, before
recoveries totaled $1,275,915 and $2,649,021, respectively, which indicates
stable G&A spending.
Share-based Payments Expense
Three months ended June 30 Six months ended June 30
2022 2021 2022 2021
Share-based Payments 40,917 (278,254) 103,836 (550,310)
Share-based payments expense for the three and six months ended June 30, 2022
totalled $40,917 and $103,836, respectively (201: shared-based payment income
of $278,254 and $550,310, respectively). The share-based payments expense is
the result of the progressive vesting of the options granted to the Company's
employees and consultants, net of cancellations and forfeitures, according to
the company's stock-based compensation plan.
Financing Costs
Three months ended June 30 Six months ended June 30
2021 2021 2021 2021
Financing expense paid or payable 258,723 116,599 488,549 424,150
Non-cash financing costs 45,644 32,906 89,975 64,969
Net financing costs $304,367 149,505 $578,524 489,119
The finance expense paid or payable represents interest on the promissory note
due to Canacol, as partial payment for the acquisition of Carrao which bears
interest at 15% per annum. The decrease on this financing expense is due to a
reduced outstanding balance outstanding in Canacol's promissory note. In
addition, financing expense includes fees and interest associated with
financing standby letters of credit on certain of the Company's Colombian
blocks. The non-cash finance cost represents an increase in the present value
of the decommissioning obligation for the current periods.
Loss on Derivative Liability
Three months ended June 30 Six months ended June 30
2022 2021 2022 2021
Loss on Derivative Liability 724,758 - 5,512,593 -
During the three and six months ended June 30, 2022, the Company recorded a
loss in derivative liability of $724,758 and $5,512,593, respectively, related
to the valuation of its outstanding warrants issued during its AIM listing and
private placement completed in 2021. These warrants provide the right to
holders to convert them into common shares at a fixed price set in a currency
different to the Company's functional currency and, therefore, they are
considered a liability and measured at fair value with changes recognized in
the statements of operations and comprehensive loss.
Depletion and Depreciation
Three months ended Six months ended
June 30 June 30
2021 2021 2021 2021
Depletion and depreciation 371,353 333,282 1,840,592 603,712
Depletion and depreciation expense in the three and six months ended June 30,
2022 totalled $371,353 and $1,840,592, respectively (2021: $333,282 and
$603,712, respectively). The Company uses the unit of production method and
proved plus probable reserves to calculate depletion expense and this increase
is directly related to an increase in depletable values and production of
crude and natural gas during Q2 2022 compared with 2021.
Other Income
Three months ended Six months ended
June 30 June 30
2022 2021 2021 2021
Other expense (income) (20,204) 46,341 (12,094) (494,924)
The Company reported other income of $20,204 and $541,266 for the three and
six months ended June 30, 2022, respectively (2021: $46,341 expense and
$494,934 income, respectively). The 2021 amount was generated from the
Company's ongoing negotiations of accounts payable and debts with vendors,
both in Colombia and Canada, which have resulted in reductions of amounts
actually paid in cash to settle its liabilities.
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 working capital,
excluding non-cash items. 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.
On October 2021, the Company raised approximately $12 million (C$15.0
million), through a placing and subscription for new common shares with new
investors and executive management as part of the Company's shares admission
to trade on the AIM Market of the London Stock Exchange plc. This fundraising
consisted on placement and subscription of 140,949,565 new common shares, at
an issue price of £0.0625 (C$0.106125) per new common share, and one
warrant for every two new common shares, exercisable at £0.09 per new common
share for 24 months from the AIM admission date (October 25, 2021). On
November 24, 2021, the Company closed a private placement of C$395,375 for
issuance of 3,765,476 new common shares and 1,999,938 warrants.
As at June 30, 2022, the Company's working capital is $5,594,028. During 2021
and 2022, the Company has been favorably impacted by the overall improvement
in energy commodity prices, which has also impacted the Company's capacity to
generate sufficient financial resources to sustain its operations. This has
contributed to the Company's ability to complete financing transactions in
2021, in the form of fundraisings, from its existing and new investors and
management is confident that additional resources would be available to the
Company to close similar transactions. As at June 30, 2022 the Company's net
debt was calculated as follows:
June 30, 2022
Current assets $ 12,190,063
Less:
Accounts payable and accrued liabilities 3,000,160
Promissory Note - short term portion 3,557,792
Net debt ((1)) $ 5,632,111
((1))Non-IFRS measure
Working Capital
As at June 30, 2022 the Company's working capital was calculated as follows:
June 30, 2022
Current assets:
Cash $ 7,368,252
Trade and other receivables 2,990,437
Taxes receivable 1,022,052
Other current assets 809,321
Less:
Accounts payable and accrued liabilities 3,000,160
Lease obligation 38,084
Promissory note - short term portion 3,557,792
Working capital((1)) $ 5,594,027
((1))Non-IFRS measure
Debt Capital
The Company currently has $3.5 million in outstanding debt in the form of a
promissory note payable to Canacol and a long-term debt of $31,040. On October
18, 2021, Arrow and Canacol entered into a Seventh Amended and Restated
Promissory Note. The principal amendments are the following:
- The new principal amount of the promissory note is $6,026,166
- On or before October 31, 2021, the Company shall make a payment
of C$ 3,900,000 plus all Canacol's expenses incurred in connection with this
amendment and related matters, which has already occurred;
- On or before December 31, 2022, the Company shall make a payment
equal to 50% of the total amount outstanding of interest and principal; and
- The remaining balance of principal and interest shall be paid no
later than June 30, 2023
The total balance of this promissory note and its interest of $3,557,792 is
presented as a current liability in the interim condensed consolidated
statement of financial position as at June 30, 2022. This amendment also
provided that, in the event that the Company made the payment due on October
31, 2021, Canacol agreed to forgive $658,654 for excess pipeline shipping
costs, as a result of the settlement of the OBC pipeline dispute.
Letters of Credit
As at June 30, 2022, the Company had obligations under Letters of Credit
("LC's") outstanding totaling $5.3 million to guarantee work commitments on
exploration blocks and other contractual commitments. Of the total,
approximately $4 million has been guaranteed by Canacol. Under an agreement
with Canacol, Canacol will continue to provide security for the LC's providing
that Arrow uses all reasonable efforts to replace the LC's. In the event the
Company fails to secure the renewal of the LC's underlying the Company's
Agencia Nacional de Hidrocarburos ("ANH") guarantees, or any of them, the ANH
could decide to cancel the underlying E&P contract for a particular block,
as applicable. In this instance, the Company could risk losing its entire
interest in the applicable block, including all capital expended to date, and
could possibly also incur additional abandonment and reclamation costs if
applied by the ANH.
Current Outstanding Letters of Credit
Contract Beneficiary Issuer Type Amount Renewal Date
(US $)
SANTA ISABEL ANH Carrao Energy Abandonment $563,894 April 14, 2023
ANH Canacol and Carrao Financial Capacity $1,672,162 December 31, 2022
COR - 39 ANH Canacol Compliance $2,400,000 December 31, 2022
OMBU ANH Carrao Energy Financial Capacity $436,300 April 14, 2023
Total $5,072,356
Share Capital
As at June 30, 2022, the Company had 214,667,143 common shares, 71,572,206
warrants and 15,845,000 stock options outstanding.
CONTRACTUAL OBLIGATIONS
The following table provides a summary of the Company's cash requirements to
meet its financial liabilities and contractual obligations existing at June
30, 2022:
Less than 1 year 1-3 years Thereafter Total
Promissory Note $ 3,557,792 $ - - $ 3,557,792
Long term debt - 31,040 - 31,040
Exploration and production contracts - 17,800,000 - 17,800,000
$ 3,557,792 $ 17,831,040 - $ 21,388,832
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. In aggregate, the Company has
outstanding exploration commitments at June 30, 2022 of $17.8 million. The
Company, in conjunction with its partners, have made applications to cancel
$15.5 million ($5.79 million Arrow's share) in commitments on the Macaya and
Los Picachos blocks. The remaining commitments are expected to be satisfied by
means of seismic work, exploration drilling and farm-outs.
SUMMARY OF THREE MONTHS RESULTS
2022 2021 2020
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
Oil and natural gas sales, net of royalties 3,911,329 3,038,832 1,684,609 941,620 847,432 368,140 207,934
5,024,604
Net income (loss) 768,318 (5,431,865) 6,960,035 (21,782) (734,317) (510,405) (7,953,001) (1,390,746)
Income (loss) per share -
basic 0.00 (0.03) 0.04 (0.00) (0.01) (0.01) (0.12) (0.02)
diluted 0.00 (0.02) 0.04 (0.00) (0.01) (0.01) (0.12) (0.02)
Working capital (deficit) 5,594,027 7,657,938 8,006,074 783,707 3,141,217 (2,659,690) (1,932,940) (11,086,377)
Total assets 42,670,153 39,914,240 41,195,798 25,362,323 25,948,551 27,684,920 33,532,299 46,702,911
Net capital expenditures 2,777,611 725,665 1,991,163 148,528 (15,378) 97,330 89,198 146,584
Average daily production (boe/d) 980 1,144 712 575 331 242 140 105
Over the past quarters, the Company's oil and natural gas sales have
fluctuated due to changes in production, movements in the Brent benchmark oil
price and fluctuations in realized oil price differentials. The Company's
production levels in Colombia have been variable, with increases driven by
additional crude oil from the Tapir wells, partially offset by the sale of the
Company's interest in the LLA-23 blocks and natural declines on mature blocks.
Trends in the Company's net income (loss) are also impacted most significantly
by commodity prices, increase in production, financing costs, income taxes,
depletion, depreciation and impairment of oil and gas properties, gains and
losses from risk management activities.
OUTSTANDING SHARE DATA
At August 26, 2022, the Company had the following securities issued and
outstanding:
Number Exercise Price Expiry Date
Common shares 216,175,741 n/a n/a
Warrants 70,063,607 GBP 0.09 Oct. and Nov, 2023
Stock options 1,050,000 CAD$ 1.15 October 22, 2028
Stock options 345,000 CAD$ 0.31 May 3, 2029
Stock options 1,200,000 CAD$ 0.05 March 20, 2030
Stock options 2,000,000 CAD$ 0.05 April 13, 2030
Stock options 2,983,332 GBP 0.07625 June 13, 2023
Stock options 2,983,332 GBP 0.07625 June 13, 2024
Stock options 2,983,336 GBP 0.07625 June 13, 2025
Stock options 766,665 CAD$ 0.28 December 9, 2023
Stock options 766,667 CAD$ 0.28 December 9, 2023
Stock options 766,668 CAD$ 0.28 December 9, 2023
OUTLOOK
The first six months of 2022 saw the Company deploy the capital it raised at
the time of its Admission to AIM on a successful two well drilling campaign
at Rio Cravo on the Tapir Block. The better than forecasted results from this
drilling campaign and the subsequent generation of positive cashflows in Q3
means Arrow is pleased to be committing to a further drilling programme. In
Q4 2022, the Company expects to drill up to three further wells at Rio Cravo
and plans a two well program on the Carrizales Norte Structure on the Tapir
Block. A letter of intent has been signed with a drilling contractor to
execute the planned five well program on the Colombian Tapir Block. Along with
workovers to other existing wells, the Company will seek to tie in the East
Pepper well in Q4 2022, confirming Arrow remains on target to increase
production to 3,000 boe/d within 18 months of AIM Admission. The Company is
able to support the planned 2023 CAPEX program with current cash and cashflow
from operations. Arrow continues to focus on growth and improving its
balance sheet and free cash flow.
On January 30, 2020, the World Health Organization declared the Coronavirus
disease (COVID-19) outbreak a Public Health Emergency of International Concern
and, on March 10, 2020, declared it to be a pandemic. Actions taken around
the world to mitigate the spread of COVID-19, combined with OPEC's initial
plan to increase global supply resulted in significant weakness and volatility
in commodity prices in early 2020. Commodity prices began to recover in late
2020 and continued that recovery in 2021 and 2022. Although it is
impossible to reliably estimate the continuous impact of COVID-19, and OPEC's
policies and the volatile commodities market, both are anticipated to have
material effects on the Company's 2022 financial results relative to 2021.
CRITICAL ACCOUNTING ESTIMATES
A summary of the Company's significant accounting policies is contained in
Note 3 of the audited consolidated financial statements as at and for the
years ended December 31, 2021 and 2020. These accounting policies are subject
to estimates and key judgements about future events, many of which are beyond
Arrow's control.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is included in of
the audited consolidated financial statements as at and for the years ended
December 31, 2021 and 2020. These accounting policies are consistent with
those of the previous financial year.
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. Please refer to "Risk Factors" in the
MD&A for the year ended December 31, 2021 for a description of the
financial, business and other risk factors affecting the Company which are
available on SEDAR at www.sedar.com
Arrow Exploration Corp.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ended JUNE 30, 2022 AND 2021
IN UNITED STATES DOLLARS
(UNAUDITED)
Notice of No Auditor Review of the Interim Condensed Consolidated Financial
Statements
as at and for the three and six months ended June 30, 2022
Under National Instrument 51-102, Part 4, subsection 4.3 (3)(a), if an auditor
has not performed a review of the interim condensed consolidated financial
statements, they must be accompanied by a notice indicating that an auditor
has not reviewed the financial statements.
The accompanying unaudited interim condensed consolidated financial statements
of the Company have been prepared by and are the responsibility of the
Company's management.
The Company's independent auditor has not performed a review of these
financial statements in accordance with standards established by the Chartered
Professional Accountants of Canada for a review of interim financial
statements by an entity's auditor.
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Financial Position
In United States Dollars
(Unaudited)
As at Notes June 30, 2022 December 31, 2021
ASSETS
Current assets
Cash $ 7,368,252 $ 10,878,508
Trade and other receivables 4 2,990,437 639,582
Taxes receivable 5 1,022,052 719,049
Deposits and prepaid expenses 333,481 322,300
Inventory 475,841 247,063
12,190,063 12,806,502
Non-current assets
Deferred income taxes 4,839,785 4,839,785
Restricted cash 3 867,047 732,553
Exploration and evaluation 6 6,964,506 6,964,506
Property and equipment 7 17,808,752 15,852,452
Total Assets $ 42,670,153 $ 41,195,798
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 3,000,160 $ 3,120,777
Lease obligation 9 38,084 20,258
Promissory note 8 3,557,792 1,659,393
6,596,036 4,800,428
Non-current liabilities
Long-term debt 31,040 31,552
Lease obligation 9 45,773 34,434
Other liabilities 10 177,500 177,500
Deferred income taxes 3,371,935 3,371,936
Decommissioning liability 11 2,799,579 2,470,239
Promissory note 8 - 1,659,393
Derivative liability 12 9,941,498 4,692,203
Total liabilities 22,963,361 17,237,685
Shareholders' equity
Share capital 13 56,932,670 56,698,237
Contributed surplus 1,346,633 1,249,418
Deficit (37,849,353) (33,185,806)
Accumulated other comprehensive loss (723,158) (803,736)
Total shareholders' equity 19,706,792 23,958,113
Total liabilities and shareholders' equity $ 42,670,153 $ 41,195,798
Commitments and contingencies (Note 14)
The accompanying notes are an integral part of these interim condensed
consolidated financial statements.
On behalf of the Board:
signed "Gage Jull"
Director
signed "Maria Charash" Director
Gage
Jull
Maria Charash
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Operations and Comprehensive Loss
In United States Dollars
(Unaudited)
For the three months ended June 30 For the six months ended June 30
Notes 2022 2021 2022 2021
Revenue
Oil and natural gas $ 5,731,109 $ 1,058,616 $ 9,642,438 $ 2,047,419
Royalties (706,505) (116,997) (1,214,872) (258,367)
5,024,604 941,619 8,427,566 1,789,052
Expenses
Operating 1,074,435 493,028 2,512,916 735,173
Administrative 1,128,885 913,069 2,481,991 2,291,697
Listing costs 44,958 - 76,323 -
Share based payments 14 40,917 (278,254) 103,836 (550,311)
Financing costs:
Accretion 13 45,644 32,906 89,975 64,969
Interest 123,741 115,883 244,519 377,687
Other 134,981 716 244,029 46,463
Derivative loss (gain) 724,758 - 5,512,593 -
Foreign exchange loss (21,292) 18,965 4,543 (40,692)
Depletion and depreciation 971,353 333,282 1,840,592 603,712
Other expense (income) (12,094) 46,341 (20,204) (494,924)
4,256,286 1,675,936 13,091,113 3,033,774
Income (loss) before taxes 768,318 (734,317) (4,663,547) (1,244,722)
Income taxes (recovery)
Current - - - -
Deferred - - - -
- - - -
Net income (loss) for the period 768,318 (734,317) (4,663,547) (1,244,722)
Other comprehensive income (loss)
Foreign exchange 35,925 277,028 80,578 263,557
Net income (loss) and comprehensive income (loss) for the period
$ 804,243 $ (457,289) $ (4,582,969) $ (981,165)
Net income (loss) per share
- basic $ 0.00 $ (0.01) $ (0.02) $ (0.02)
- diluted $ 0.00 $ (0.01) $ (0.02) $ (0.02)
Weighted average shares outstanding
- basic 214,367,388 68,674,602 213,979,850 68,674,602
- diluted 288,231,900 68,674,602 270,189,255 68,674,602
The accompanying notes are an integral part of these interim condensed
consolidated financial statements.
Arrow Exploration Corp.
Interim Condensed Statements of Changes in Shareholders' Equity
In United States Dollars
(Unaudited)
Accumulated other comprehensive loss
Contributed Surplus
Share Capital Deficit Total Equity
Balance January 1, 2022 $ 56,698,237 $ 1,249,418 $ (803,736) $ (33,185,806) $ 23,958,113
Subscription of common shares, net 234,433 - - - 234,433
Options settled in cash - (6,622) - - (6,622)
Net loss for the period - - - (4,663,547) (4,663,547)
Comprehensive income for the period - - 80,578 - 80,578
Share based payments - 103,837 - - 103,837
Balance June 30, 2022 $ 56,932,670 $ 1,346,633 $ (723,158) $ (37,849,353) $ 19,706,792
Accumulated other comprehensive loss
Share Capital Contributed Surplus
Deficit Total Equity
Balance January 1, 2021 $ 50,740,292 $ 1,521,845 $ (589,478) $ (38,879,338) $ 12,793,321
Net loss for the period - - - (1,244,722) (1,244,722)
Comprehensive income for the period
- - 263,557 - 263,557
Share based payments - (550,311) - - (550,311)
Balance June 30, 2021 $ 50,740,292 $ 971,534 $ (325,921) $ (40,124,060) $ 11,261,845
The accompanying notes are an integral part of these interim condensed
consolidated financial statements.
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Cash Flows
In United States Dollars
(Unaudited)
For six months ended June 30, 2022 2021
Cash flows used in operating activities
Net loss $ (4,663,547) $ (1,244,722)
Items not involving cash:
Share based payment 103,836 (550,311)
Depletion and depreciation 1,840,592 603,712
Interest on leases 5,946 3,440
Interest on promissory note, net of forgiveness 238,573 318,099
Accretion 89,975 64,969
Foreign exchange loss (gain) (111,604) 186,696
Loss on derivative liability 5,512,593 -
Settlement of decommissioning obligations (89,569) -
Changes in non‑cash working capital balances:
Restricted cash (157,481) 256,113
Trade and other receivables (2,350,855) 410,909
Taxes receivable (303,003) (78,537)
Deposits and prepaid expenses (11,182) (135,047)
Inventory (228,776) (182,695)
Accounts payable and accrued liabilities (72,391) (4,351,550)
Cash used in operating activities (196,893) (4,698,924)
Cash flows provided by (used in) investing activities
Additions to property and equipment (3,503,276) (81,952)
Changes in non-cash working capital (48,227) (2,136,379)
Cash flows provided by (used in) investing activities (3,551,503) (2,218,331)
Cash flows used in financing activities
Common shares issued 118,260 -
Lease payments (19,544) (12,047)
Cash flows used in financing activities 98,716 (12,047)
Effect of changes in the exchange rate on cash 139,424 15,329
Decrease in cash (3,510,256) (6,913,973)
Cash, beginning of period 10,878,508 11,473,204
Cash, end of period 7,368,252 4,559,231
Supplemental information
Interest paid $ - $ -
Taxes paid $ - $ -
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 550, 333 -
11th Ave SW, Calgary, Alberta, Canada, T2R 1L9 and the registered office is
located at 1600, 421 - 7th Avenue SW, Calgary, Alberta, Canada, T2P 4K9.
2. Basis of Presentation
Statement of compliance
These interim condensed consolidated financial statements (the "Financial
Statements") have been prepared in accordance with International Accounting
Standard ("IAS") 34 Interim Financial Reporting. These Financial Statements
were authorised for issue by the board of directors of the Company on August
26, 2022. They do not contain all disclosures required by International
Financial Reporting Standards ("IFRS") for annual financial statements and,
accordingly, should be read in conjunction with the audited consolidated
financial statements as at December 31, 2021.
These Financial Statements have been prepared on the historical cost basis,
except for financial assets and liabilities recorded in accordance with IFRS
9. The Financial Statements have been prepared using the same accounting
policies and methods as the consolidated financial statements for the year
ended December 31, 2021. In preparing these condensed consolidated financial
statements, the significant judgements made by management in applying the
group's accounting policies and the key sources of estimation uncertainty were
the same as those that applied to the consolidated financial statements for
the year ended December 31, 2021.
3. Restricted Cash
June 30, December 31, 2021
2022
Colombia (i) $ 195,289 $ 53,726
Canada (ii) 671,758 678,827
$ 867,047 $ 732,553
(i) Restricted cash is comprised of a deposit held as
collateral to guarantee abandonment expenditures related to wells in the Tapir
and Oso Pardo blocks.
(ii) Pursuant to Alberta government regulations, the
Company was required to keep a $324,501 (CAD $418,171; 2021: $415,557) deposit
with respect to the Company's liability rating management ("LMR"). The deposit
is held by a Canadian chartered bank with interest paid to the Company on a
monthly basis based on the bank's deposit rate. The remaining $347,257 pertain
to commercial deposits with customers, lease and other deposits held in
Canada.
4. Trade and other receivables
June 30, December 31, 2021
2022
Trade receivables, net of advances $ 1,735,605 $ 252,141
Other accounts receivable 1,254,832 387,441
$ 2,990,437 $ 639,582
5. Taxes receivable
June 30, December 31, 2021
2022
Value-added tax (VAT) credits recoverable $ 227,989 $ 105,827
Income tax withholdings and advances, net 794,063 613,222
$ 1,022,052 $ 719,049
The VAT recoverable pertains to non-compensated value-added tax credits
originated in Colombia as operational and capital expenditures are incurred.
The Company is entitled to claim for the reimbursement of these VAT credits.
6. Exploration and Evaluation
June 30, December 31, 2021
2022
Balance, beginning of the period $ 6,964,506 $ 6,961,667
Additions, net - 2,839
Balance, end of the period $ 6,964,506 $ 6,964,506
7. Property and Equipment
Oil and Gas Properties Right of Use and Other Assets
Cost Total
Balance, December 31, 2020 $ 30,436,344 $ 182,105 $ 30,618,449
Additions 1,734,746 1,380 1,736,126
Decommissioning adjustment (10,173) - (10,173)
Balance, December 31, 2021 $ 32,160,917 $ 183,485 $ 32,344,402
Additions 3,835,617 50,046 3,885,663
Balance, June 30, 2022 $ 35,996,534 $ 233,531 $ 36,230,065
Accumulated depletion and depreciation and impairment Oil and Gas Properties Right of Use and Other Assets
Total
Balance, December 31, 2020 $ 20,718,742 $ 83,207 $ 20,801,949
Depletion and depreciation 1,591,179 31,758 1,622,937
Reversal of impairment losses of oil and gas properties
(5,617,776) - (5,617,776)
Balance, December 31, 2021 $ 16,692,145 $ 114,965 $ 16,807,110
Depletion and depreciation 1,819,500 21,092 1,840,592
Balance, June 30, 2022 $ 18,511,645 $ 136,057 $ 18,647,702
Foreign exchange
Balance December 31, 2020 $ 339,364 $ (4,166) $ 335,198
Effects of movements in foreign
exchange rates (20,747) 709 (20,038)
Balance December 31, 2021 $ 318,617 $ (3,457) $ 315,160
Effects of movements in foreign
exchange rates (87,509) (1,262) (88,771)
Balance June 30, 2022 $ 231,108 $ (4,719) $ 226,389
Net Book Value
Balance December 31, 2021 $ 15,787,389 $ 65,063 $ 15,852,452
Balance June 30, 2022 $ 17,715,997 $ 92,755 $ 17,808,752
As at June 30, 2022, the Company reviewed its cash-generating units ("CGU")
for property and equipment and determined that there were no indicators of
impairment present. As at December 31, 2021, the Company reviewed its
cash-generating units ("CGU") for property and equipment and determined that
there were indicators of impairment reversal previously recognized in its
Tapir block in Colombia and its Canadian assets mostly driven by the recovery
in energy commodity prices. The company prepared estimates of both the value
in use and fair value less costs of disposal of its CGUs of its CGUs and
determined that recoverable amounts exceeded their carrying value and,
therefore, an impairment loss reversal of $5,617,776 is included in the
consolidated statements of operations and comprehensive income (loss) for the
year ended December 31, 2021. The following table outlines forecast benchmark
prices and exchange rates used in the Company's impairment test as at December
31, 2021:
Exchange rate AECO Spot Gas
Brent
Year $US / $Cdn US$/Bbl C$/MMBtu
2022 0.80 74.50 3.71
2023 0.80 72.00 3.28
2024 0.80 69.50 2.99
2025 0.80 71.00 3.10
2026 0.80 72.00 3.13
Thereafter (inflation %) 2.0%/yr 2.0%/yr
The recoverable amounts were 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, 2021. 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 17.5% discount rate, which
took into account risks specific to the Colombian CGUs and inherent in the oil
and gas business, and 15% discount rate for its Canadian CGU, and provided the
following recoverable values:
Recoverable Impairment
CGU Amount Reversal
Canada 5,036,655 1,435,201
Tapir 9,147,575 4,182,575
5,617,776
8. Promissory Note
The promissory note was issued to Canacol Energy Ltd. ("Canacol") as partial
consideration in the acquisition of Carrao Energy S.A. from Canacol. The
promissory note bears interest at 15% per annum, was initially due on January
28, 2019 and has been subsequently amended and extended. On October 18, 2021,
Arrow and Canacol entered into a Seventh Amended and Restated Promissory Note
agreement. The principal amendments are the following:
- The new principal amount of the promissory note is $6,026,166
- On or before October 31, 2021, the Company shall make a payment of
C$ 3,900,000 plus all Canacol's expenses incurred in connection with this
amendment and related matters, which has already occurred;
- On or before December 31, 2022, the Company shall make a payment
equal to 50% of the total amount outstanding of interest and principal; and
- The remaining balance of principal and interest shall be paid no
later than June 30, 2023
The total balance of this promissory note and its interest of $3,557,792 is
presented as a current liability in the interim condensed consolidated
statement of financial position as at June 30, 2022. The Company has granted a
general security interest to Canacol for the obligations under the Promissory
Note.
9. Lease Obligations
A reconciliation of the discounted lease obligation is set forth below:
2022 2021
Obligation, beginning of the period $ 54,692 $ 70,842
Changes in existing lease 44,701 1,381
Lease payments (19,544) (24,535)
Interest 5,946 6,506
Effects of movements in foreign exchange rates (1,938) 498
Obligation, end of the period $ 83,857 $ 54,692
Current portion $ 38,084 $ 20,258
Long-term portion 45,773 34,434
$ 83,857 $ 54,692
As at June 30, 2022, the Company has the following future commitments
associated with its office lease obligations:
Less than one year $ 44,841
2 - 5 years 48,290
Total lease payments 93,132
Amounts representing interest over the term (9,275)
Present value of the net obligation 83,857
During 2022, the Company renegotiated its remaining lease agreement to add
space to its leased corporate space and its related future lease obligation.
As a result, the Company increased its right-of-use assets and its lease
obligation in $44,701.
10. Other Liabilities
The other liabilities of the Company relate to an environmental fee in
Colombia that is levied on capital projects. The fee is calculated as 1% of
the project cost. The program is administered by the Colombian National
Authority of Environmental Licences ("ANLA") and is levied on projects that
utilize surface water or deep water wells that may have an impact on the
environment. The funds are generally used in the affected communities for
purposes of land purchases, biomechanical works (e.g. containment walls in
rivers), reforestation, research projects and others. At December 31, 2021 the
Company had provided for $177,500 (December 31, 2020 - $177,500) for the
environmental fee.
11. 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.
June 30, December 31, 2021
2022
Obligation, beginning of the period $ 2,470,239 $ 2,584,907
Change in estimated cash flows - (10,173)
Additions 338,319 -
Payments or settlements (89,569) (237,826)
Accretion expenses 89,976 132,807
Effects of movements in foreign exchange rates (9,387) 524
Obligation, end of the period $ 2,799,579 $ 2,470,239
The obligation was calculated using a risk-free discount rate range of 1.00%
to 2.00% in Canada (2021: 1.00% to 2.00%) and 8.46% in Colombia (2021: 8.46%)
with an inflation rate of 2.0% and 4.5%, respectively (2021: 2.0% and 4.5%).
It is expected that the majority of costs are expected to occur between 2022
and 2033. 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 $4,754,579 (2021: $4,222,717).
12. Derivative liability
Derivative liability includes warrants issued and outstanding as follows:
June 30, December 31,
2022 2021
Warrants Number Amounts Number Amounts
Balance beginning of the period 72,474,706 $ 4,692,303 - $ -
Issued in AIM financing (Note 15) - - 70,474,768 5,124,985
Issues in private placement (Note 15) - - 1,999,938 149,543
Exercised (902,500) (112,969)
Fair value adjustment - 5,362,264 - (582,225)
Balance end of the period 71,572,206 $ 9,941,599 72,474,706 $ 4,692,303
Each warrant is exercisable at £0.09 per new common share for 24 months from
the issuance date and are measured at fair value quarterly using the
Black-Scholes options pricing model. The fair value of warrants at June 30,
2022 and December 31, 2021 was estimated using the following assumptions:
June 30, 2022 December 31, 2021
Number outstanding re-valued warrants 71,572,206 72,474,706
Fair value of warrants outstanding £0.115 £0.048
Risk free interest rate 1.63% 0.50%
Expected life 1.32 years 1.82 years
Expected volatility 154% 160%
The following table summarizes the warrants outstanding and exercisable at
June 30, 2022:
Number of
warrants Exercise price Expiry date
70,234,768 £0.09 October 25, 2023
1,337,438 £0.09 November 23, 2023
71,572,206
13. Share Capital
(a) Authorized: Unlimited number of common shares without par value
(b) Issued:
June 30, December 31,
2022 2021
Common shares Shares Amounts Shares Amounts
Balance beginning of the period 213,389,643 $ 56,698,237 68,674,602 $ 50,740,292
Issued in AIM financing (i) - - 140,949,565 12,086,423
Issued in private placement (ii) - - 3,765,476 308,501
Allocated to warrants (Note 14) - - - (5,274,528)
Share-issue costs (iii) - - - (1,162,451)
Issued from warrants exercised 902,500 216,508 - -
Issued from options exercised 375,000 19,725 - -
Balance at end of the period 214,667,143 $ 56,932,670 213,389,643 $ 56,698,237
(i) On October 2021, the Company raised approximately $12 million
(C$15.0 million), through a placing and subscription for new common shares
with new investors, Canacol Energy Ltd. (Canacol), and executive management
(the Fundraising) as part of the Company's shares admission to trade on the
AIM Market of the London Stock Exchange plc. The Fundraising consisted on
placement and subscription of 140,949,565 new common shares at an issue price
of £0.0625 (C$0.106125) per new common share. The Company's executive
management invested approximately C$ 1.41 million and Canacol participated in
the subscription to hold 19.9% of the enlarged share capital. Investors
received one warrant for every two new common shares, exercisable at £0.09
per new common share for 24 months from the AIM admission date (October 25,
2021).
(ii) On November 24, 2021, the Company announced that it has closed a
private placement of C$395,375 for issuance of 3,765,476 new common shares and
1,999,938 warrants (see Note 12).
(iii) During 2021, the Company recognized share issue costs for $1,162,451
and listing costs of $583,972 associated with the financings completed in 2021
as per above.
(b) 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 common shares that are
outstanding. 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
status of the Company stock option plan as at December 31, 2021 and 2020 and
changes during the respective periods ended on those dates is presented below:
June 30, 2022 December 31, 2021
Stock Options Number of options Weighted average Number of options Weighted average
exercise Price exercise price
(CAD $) (CAD $)
Beginning of period 17,114,000 $0.18 6,859,000 $0.40
Granted 2,300,000 $0.28 11,400,000 $0.13
Exercised in shares (375,000) $0.05 - -
Exercised in cash (400,000) $0.05 - -
Expired/Forfeited (2,794,000) $0.12 (1,145,000) $1.04
End of period 15,845,000 $0.18 17,114,000 $0.18
Exercisable, end of period 3,395,000 $0.42 2,969,669 $0.46
Date of Grant Number Outstanding Exercise Price Weighted Date of Number
(CAD $) Average Remaining Contractual Life Expiry Exercisable
June 30, 2021
October 22, 2018 1,050,000 $1.15 6.32 years Oct. 22, 2028 1,050,000
May 3, 2019 345,000 $0.31 6.85 years May 3, 2029 345,000
March 20, 2020 1,200,000 $0.05 7.73 years March 20, 2030 800,000
April 13, 2020 2,000,000 $0.05 7.79 years April 13, 2030 1,200,000
December 13, 2021 2,983,332 $0.13 0.96 years June 13, 2023 -
December 13, 2021 2,983,332 $0.13 1.96 years June 13, 2024 -
December 13, 2021 2,983,336 $0.13 2.96 years June 13, 2025 -
June 9, 2022 766,665 $0.28 1.45 years December 9, 2023 -
June 9, 2022 766,667 $0.28 2.45 years December 9, 2024 -
June 9, 2022 766,668 $0.28 3.45 years December 9, 2025 -
Total 15,845,000 $0.18 3.85 years 3,395,000
During 2022, the Company recognized an expense of $103,836 (2021 - income of
$272,056) as share based payments expense, with a corresponding decrease in
the contributed surplus account.
14. 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. In aggregate, the Company has
outstanding exploration commitments at June 30, 2022 of $17.8 million. The
Company, in conjunction with its partners, have made applications to cancel
$15.5 million ($5.8 million Arrow's share as per table below) in commitments
on the Macaya and Los Picachos blocks. The remaining commitments are expected
to be satisfied by means of seismic work, exploration drilling and farm-outs.
Presented below are the Company's exploration and production contractual
commitments at June 30, 2022:
Block Less than 1 year 1-3 years Thereafter Total
COR-39 - 12,000,000 - 12,000,000
Los Picachos - 1,970,000 - 1,970,000
Macaya - 3,830,000 - 3,830,000
Total - - 17,800,000
17,800,000
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 the individuals as a result of their service.
Letters of Credit
At June 30, 2022, the Company had obligations under Letters of Credit ("LC's")
outstanding totaling $5.3 million to guarantee work commitments on exploration
blocks and other contractual commitments. Of the total, approximately $4.1
million has been guaranteed by Canacol. Under an agreement, Canacol will
continue to provide security for Arrow's Letters of Credit providing that
Arrow uses all reasonable efforts to replace the LC's. 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. In
this instance, the Company could risk losing its entire interest in the
applicable block, including all capital expended to date and could possibly
also incur additional abandonment and reclamation costs if applied by the ANH.
Current Outstanding Letters of Credit
Contract Beneficiary Issuer Type Amount Renewal Date
(US $)
SANTA ISABEL ANH Carrao Energy Abandonment $563,894 April 14, 2023
ANH Canacol and Carrao Financial Capacity $1,672,162 December 31, 2022
COR - 39 ANH Canacol Compliance $2,400,000 December 31, 2022
OMBU ANH Carrao Energy Financial Capacity $436,300 April 14, 2023
Total $5,072,356
15. Financial Instruments
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
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. From time to time the
Company may attempt to mitigate commodity price risk through the use of
financial derivatives. Currently, the Company does not have any commodity
price contract in place.
(b) Credit Risk
Credit risk reflects the risk of loss if counterparties do not fulfill their
contractual obligations. The majority of the Company's account receivable
balances relate to petroleum and natural gas sales and balances receivables
with partners in areas operated by the Company. The Company's policy is to
enter into agreements with customers that are well established and well
financed 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 a producing
company under an existing sale/offtake agreement 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 advance (in
Colombia) of 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 production. The Company has historically not
experienced any 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 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 as it borrows funds at a fixed coupon rate of
15% on the promissory notes.
(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. 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.
The Company monitors leverage and adjusts its capital structure based on its
net debt level. Net debt is defined as the principal amount of its
outstanding debt, less working capital items. In order to facilitate the
management of its net debt, the Company prepares annual budgets, which are
updated as necessary depending on varying factors 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 and updates are prepared and reviewed as
required.
The Company's capital includes the following:
June 30, 2022 December 31, 2021
Working capital, before promissory note $ 5,594,027 $ 8,006,074
Non-Current portion of promissory note - (1,659,393)
$ 5,594,027 $ 6,346,681
16. Segmented Information
The Company has two reportable operating segments: Colombia and Canada. The
Company, through its operating segments, is engaged primarily in oil
exploration, development and production, and the acquisition of oil and gas
properties. The Canadian segment is also considered the corporate segment. The
following tables show information regarding the Company's segments for the
three months ended and as at June 30:
Three months ended June 30, 2022 Colombia Canada Total
Revenue:
Oil Sales $ 4,475,645 $ - $ 4,475,645
Natural gas and liquid sales 1,255,464 1,255,464
Royalties (569,224) (137,281) (706,505)
Expenses (1,541,018) (2,715,267) (4,256,286)
Net loss $ 2,365,403 $ (1,597,084) $ 768,318
Six months ended June 30, 2022 Colombia Canada Total
Revenue:
Oil Sales $ 6,956,442 $ - $ 6,956,442
Natural gas and liquid sales - 2,685,996 2,685,996
Royalties (778,717) (436,155) (1,214,872)
Expenses 3,157,421 9,933,692 (13,091,113)
Net income (loss) $ 3,020,304 $ (7,683,851) $ (4,663,547)
As at June 30, 2022 Colombia Canada Total
Current assets $ 6,491,047 $ 5,699,016 $ 12,190,063
Non-current:
Deferred income taxes 4,839,785 - 4,839,785
Restricted cash 195,289 671,758 867,047
Exploration and evaluation 6,964,506 - 6,964,506
Property and equipment 12,530,568 5,278,184 17,808,752
Total Assets $ 31,021,195 $ 11,648,958 $ 42,670,153
Current liabilities $ 2,196,394 $ 4,399,641 $ 6,596,035
Non-current liabilities:
Other liabilities 177,500 - 177,500
Deferred income taxes 3,371,935 - 3,371,935
Lease obligation - 45,773 45,773
Decommissioning liability 2,244,675 554,904 2,799,579
Long-term debt - 31,040 31,040
Derivative liability - 9,941,499 9,941,499
Total liabilities $ 7,990,505 $ 14,972,857 $ 22,963,362
Three months ended June 30, 2021 Colombia Canada Total
Revenue:
Oil Sales $ 933,103 $ - $ 933,103
Natural gas and liquid sales 125,513 125,513
Royalties 107,497 9,500 116,997
Expenses 1,196,850 479,086 1,675,936
Net loss $ (371,244) $ (363,073) $ (734,317)
Six months ended June 30, 2021 Colombia Canada Total
Revenue:
Oil Sales $ 1,799,933 $ - $ 1,701,009
Natural gas and liquid sales - 247,486 247,486
Royalties 236,036 22,331 258,367
Expenses 1,734,851 1,298,923 3,033,774
Net loss $ (170,954) $ (1,073,768) $ (1,244,722)
As at June 30, 2021 Colombia Canada Total
Current assets $ 4,797,199 $ 3,976,737 $ 8,773,936
Non-current:
Restricted cash 53,726 443,155 496,881
Exploration and evaluation 6,961,667 - 6,961,667
Property and equipment 6,568,383 3,147,684 9,716,067
Total Assets $ 18,380,975 $ 7,567,576 $ 25,948,551
Current liabilities $ 4,064,824 $ 1,567,895 $ 5,632,719
Non-current liabilities:
Other liabilities 177,500 - 177,500
Lease obligation - 45,461 45,461
Decommissioning liability 2,142,865 520,757 2,663,622
Long-term debt - 32,272 32,272
Promissory note - 6,135,132 6,135,132
Total liabilities $ 6,385,189 $ 8,301,517 $ 14,686,706
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