REG - Arrow Exploration - Q3 2024 Interim Results
28/11/2024 07:00
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RNS Number : 0033O Arrow Exploration Corp. 28 November 2024
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OR IN PART, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, JAPAN, THE
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JURISDICTION.
ARROW ANNOUNCES Q3 2024 INTERIM RESULTS AND PROVIDES OPERATIONAL UPDATE
CNB HZ-7 on production
CALGARY, November 28, 2024 - 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, is pleased to provide an
update on operational activity and announce the filing of its Interim
Condensed (unaudited) Consolidated Financial Statements and Management's
Discussion and Analysis ("MD&A") for the three and nine months ended
September 30, 2024 which are available on SEDAR (www.sedar.com
(http://www.sedar.com) ) and will also be available shortly on Arrow's
website at www.arrowexploration.ca (http://www.arrowexploration.ca) .
Q3 2024 Highlights:
· The strongest quarter in Arrow's history for production, revenue,
EBITDA and cash flow.
· Successfully drilled the first three horizontal development wells in
the Carrizales Norte (CN) field.
· Recorded $21.3 million of total oil and natural gas revenue, net of
royalties, representing a 53% increase when compared to the same period in
2023 (Q3 2023: $13.9 million).
· Net income of $6.7 million.
· Adjusted EBITDA((1)) of $15.9 million, a 62% increase when compared
to 2023 (Q3 2023: $9.8 million) and a 79% increase compared to Q2 2024 ($8.9
million).
· Average corporate production of 4,124 boe/d (Q3 2023: 2,518 boe/d).
· Realized corporate oil operating netbacks((1)) of $50.76/bbl.
· Cash position of $16.5 million at the end of Q3 2024.
· Generated operating cashflows of $29.2 million for the nine months
ended September 30, 2024 (2023: $13.9 million).
((1))Non-IFRS measures - see "Non-IFRS Measures" section within the MD&A
Post Period End Highlights:
· Drilled three additional successful CN horizontal wells.
· Currently mobilizing rig to the Alberta Llanos pad (formerly known as
Baquiano) in the Tapir block to spud the exploratory Alberta-1 well in early
December.
CNB HZ-7
The sixth horizontal well on the Carrizales Norte "B" pad (CNB HZ-7) is now on
production. The well initially flowed at a rate of approximately 800 BOPD
gross (400 BOPD net to Arrow) with a 60% water cut. Currently the well has a
65% water cut and gross production of 700 BOPD gross (350 BOPD net).
HZ-7 was drilled lower in the structure than the other horizontal wells and
expectations were that the water cut would be higher on this well with lower
production. Nevertheless, the HZ7 well is expected to pay out in
approximately four months. As pump frequency is increased production should
increase as well.
The results of HZ7 and the other horizontal wells have derisked further
horizontal development to the north and south of the current horizontal wells
at Carrizales Norte.
CNB HZ-7 was spud on October 22, 2024, and reached a target depth of 8,448
feet (true vertical depth) on November 7, 2024. The well was drilled to a
total measured depth of 13,893 feet with a horizontal section of approximately
3,612 feet. CNB HZ-7 came on production on November 14, 2024, with the use of
an electric submersible pump (ESP).
Please note initial production flows are not necessarily indicative of
long-term performance or ultimate recovery and a stabilized production rate
will be determined in the first few weeks of operations, in keeping with
conservative reservoir management. Further updates will be provided in due
course.
Corporate Update
Current net corporate production is approximately 5,500 BOE/D, inclusive of
CNB HZ-7. Optimization continues.
Arrow's cash position was approximately $19 million on November 1, 2024.
Arrow has maintained a healthy balance sheet with no debt while growing the
production base.
Upcoming Drilling
The rig is mobilizing to the Alberta Llanos prospect where Arrow plans to
drill a low risk, vertical exploration well with multiple targets including
the C7, Gacheta and Ubaque. Thereafter, the Company expects to drill two
more vertical wells on the Alberta Llanos pad.
Arrow plans another year of growth in 2025, expecting to drill up to 23 wells
utilizing two rigs. Rig 1 will drill the Alberta Llanos prospect and will
also be used at the Carrizales Norte development area and the Mateguafa Oeste
and Capullo prospects. Rig 2 will drill development wells at RCE and from a
new pad, called Carrizales Norte C, which will be positioned to drill
horizontal wells in the northern section of Carrizales Norte field and the
Alberta Llanos prospect. The Company is also planning a 3D seismic project
over the southern area of the Tapir block which will further develop the Icaco
and Macoya prospects. Total budgeted capital expenditures planned for 2025
is approximately $50 million, net to Arrow, which is expected to result in
production for 2025 being significantly higher than current levels.
Marshall Abbott, CEO of Arrow Exploration Corp., commented:
"The third quarter of 2024 was the best quarter on record for Arrow.
Compared to the same quarter last year, corporate production grew by 64% and
revenue grew by 53%. Operating income and EBITDA grew by 54% and 62%
respectively despite Brent and AECO prices being less than in 2023."
"The highly successful horizontal well program at Carrizales Norte is ongoing
with the completion of HZ-7. This program has also demonstrated that the
Carrizales Norte reservoir extends further than originally thought and the
plan is to exploit the reservoir extension with additional horizontal wells.
The Ubaque reservoir has proven to be productive and very economic with the
average wells paying out in less than three months. Declines from CNB HZ1,
the longest producing horizontal well, were 50% in the first 3 months and 27%
from day 90 until now. Individual well performance will vary, but HZ-1 is
indicative of declines across the Company's horizontal wells thus far.
Expectations are that these horizontal wells will continue to produce for
many years to come."
"Arrow is looking forward to 2025 with an approved budget that will see up to
23 wells drilled on the Tapir block. The 2025 budget will be focused on
production growth in development areas and low risk exploration. Arrow plans
to test the Mateguafa Oeste and Capullo prospects and to develop further the
Carrizales Norte and Rio Cravo Este areas using both vertical and horizontal
technology."
"Arrow's focus for the remainder of 2024 will be the low-risk exploration well
at the Alberta Llanos prospect. The Alberta Llanos prospect is a
continuation of the fault from the Carrizales and Carrizales Norte fields and
the 3D seismic shows 3-way closure with multi zone potential including the C7,
Gacheta and Ubaque. Arrow expects to have drilling and log results before
the end of 2024. "
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended Nine months Three months ended September 30, 2023
September 30, 2024 ended
(in United States dollars, except as otherwise noted) September 30, 2024
Total natural gas and crude oil revenues, net of royalties 21,300,115 50,851,402 13,990,353
Funds flow from operations ((1)) 9,233,972 23,100,351 8,690,907
Funds flow from operations ((1)) per share -
Basic($) 0.03 0.08 0.04
Diluted ($) 0.03 0.08 0.03
Net income 6,668,493 11,093,045 7,153,120
Net income per share -
Basic ($) 0.02 0.04 0.03
Diluted ($) 0.02 0.04 0.02
Adjusted EBITDA ((1)) 15,961,900 34,867,138 9,826,997
Weighted average shares outstanding -
Basic ($) 285,864,348 285,864,348 237,919,872
Diluted ($) 288,921,950 291,542,735 295,875,232
Common shares end of period 285,864,348 285,864,348 245,526,041
Capital expenditures 6,945,779 22,192,515 5,471,561
Cash and cash equivalents 16,536,801 16,536,801 12,891,190
Current Assets 23,230,243 23,230,243 18,652,504
Current liabilities 13,608,118 13,608,118 13,321,524
Adjusted working capital((1)) 9,622,125 9,622,125 10,822,475
Long-term portion of restricted cash((2)) 176,094 176,094 637,793
Total assets 73,535,397 73,535,397 62,755,250
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 461 1,047 2,012
Natural gas liquids (bbl/d) 5 4 4
Crude oil (bbl/d) 4,042 2,960 2,178
Total (boe/d) 4,124 3,139 2,518
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($1.48) ($0.66) $0.18
Crude oil ($/bbl) $52.00 $53.87 $60.62
Total ($/boe) $50.76 $50.70 $52.67
( (1))Non-IFRS measures - see "Non-IFRS Measures" section within the MD&A
((2))Long term restricted cash not included in working capital
Discussion of Operating Results
The Company continued increasing its production from new wells at CN which
allowed the Company to continue to improve its operating results and EBITDA.
There has been a decrease in the Company's natural gas production in Canada
due to shut in of wells and natural declines.
Average Production by Property
Average Production Boe/d Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023
Oso Pardo 180 113 166 80 93 130 138
Ombu (Capella) - - - - - - 80
Rio Cravo Este (Tapir) 1,078 1,283 1,644 1,326 1,443 1,592 1,004
Carrizales Norte (Tapir) 2,784 991 622 621 642 57 -
Total Colombia 4,042 2,387 2,432 2,027 2,178 1,779 1,222
Fir, Alberta 82 77 78 80 81 77 74
Pepper, Alberta - 82 220 228 259 313 340
TOTAL (Boe/d) 4,124 2,546 2,730 2,335 2,518 2,169 1,635
The Company's average production for the three months ended September 30, 2024
was 4,124 boe/d, which consisted of crude oil production in Colombia of 4,042
bbl/d, natural gas production of 461 Mcf/d, and minor amounts of natural gas
liquids from the Company's Canadian properties. The Company's Q3 2024
production was 62% higher than its Q2 2024 production and 64% higher when
compared to Q3 2023.
Discussion of Financial Results
During Q3 2024 the Company continued to realize good oil prices, offset by
lower gas prices, as summarized below:
Three months ended
September 30
2024 2023 Change
Benchmark Prices
AECO (C$/Mcf) $0.70 $2.64 (73%)
Brent ($/bbl) $72.87 $92.59 (21%)
West Texas Intermediate ($/bbl) $75.15 $77.35 (3%)
Realized Prices
Natural gas, net of transportation ($/Mcf) $0.56 $1.95 (71%)
Natural gas liquids ($/bbl) $61.24 $67.10 (9%)
Crude oil, net of transportation ($/bbl) $65.35 $77.63 (16%)
Corporate average, net of transport ($/boe)((1)) $64.04 $68.80 (7%)
( (1)Non-IFRS measure)
Operating Netbacks
The Company also continued to realize strong oil operating netbacks, as
summarized below:
Three months ended
September 30
2024 2023
Natural Gas ($/Mcf)
Revenue, net of transportation expense $0.56 $1.95
Royalties ($0.09) ($0.05)
Operating expenses ($1.95) ($1.72)
Natural Gas operating netback((1)) ($1.48) $0.18
Crude oil ($/bbl)
Revenue, net of transportation expense $65.35 $77.63
Royalties ($7.44) ($9.45)
Operating expenses ($5.91) ($7.56)
Crude Oil operating netback((1)) $52.00 $60.62
Corporate ($/boe)
Revenue, net of transportation expense $64.04 $68.80
Royalties ($7.28) ($8.21)
Operating expenses ($6.00) ($7.92)
Corporate Operating netback((1)) $50.76 $52.67
( (1))Non-IFRS measure
The operating netbacks of the Company continued within healthy levels during
2024 due increasing production from its Colombian assets and consistent crude
oil prices, which were offset by decreases in natural gas prices.
During Q3 2024, the Company incurred $7 million of capital expenditures,
primarily in connection with the drilling of three additional CN wells in the
Tapir block. This accelerated tempo is expected to continue during the
remainder of 2024, 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 global pandemics, 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
MMbbls: Million of barrels
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.
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").
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.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2024 AND 2023
IN UNITED STATES DOLLARS
(UNAUDITED)
Notice of No Auditor Review of the Interim Condensed Consolidated Financial
Statements
as at and for the three and nine months ended September 30, 2024
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 Consolidated Statements of Financial Position
In United States Dollars
(Unaudited)
As at Notes September 30, 2024 December 31, 2023
ASSETS
Current assets
Cash $ 16,536,801 $ 12,135,376
Restricted cash and deposits 3 252,149 611,753
Trade and other receivables 4 3,911,713 3,536,936
Taxes receivable 5 2,246,287 4,655,399
Deposits and prepaid expenses 232,676 197,402
Inventory 50,617 492,332
23,230,243 21,629,198
Non-current assets
Deferred income taxes 1,575,218 2,031,383
Restricted cash and deposits 3 176,094 243,081
Exploration and evaluation assets 6 1,442,094 -
Property and equipment 7 47,111,748 38,371,361
Total Assets $ 73,535,397 $ 62,275,023
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 7,829,348 $ 9,747,906
Lease obligation 8 36,323 103,674
Income taxes 5,742,447 3,108,504
13,608,118 12,960,084
Non-current liabilities
Lease obligations 8 198,881 216,919
Other liabilities 343,019 345,528
Deferred income taxes 1,306,252 3,269,894
Decommissioning liability 9 5,052,107 3,973,075
Total liabilities 20,508,377 20,765,500
Shareholders' equity
Share capital 10 73,829,795 73,829,795
Contributed surplus 2,717,118 2,161,945
Deficit (22,852,850) (33,945,895)
Accumulated other comprehensive loss (667,043) (536,322)
Total shareholders' equity 53,027,020 41,509,523
Total liabilities and shareholders' equity $ 73,535,397 $ 62,275,023
Commitments and contingencies (Note 11)
The accompanying notes are an integral part of these interim consolidated
financial statements.
On behalf of the Board:
signed "Gage Jull"
Director
signed "Ian Langley" Director
Gage
Jull
Ian Langley
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Operations and Comprehensive
Income
In United States Dollars
(Unaudited)
For the three months ended September 30 For the nine months ended September 30
Notes 2024 2023 2024 2023
Revenue
Oil and natural gas 24,031,829 15,884,660 57,592,614 35,487,485
Royalties (2,731,714) (1,894,307) (6,741,212) (4,223,991)
21,300,115 13,990,353 50,851,402 31,263,494
Expenses
Operating 2,252,602 1,829,833 6,797,194 4,338,913
Administrative 2,862,620 1,924,089 9,258,119 6,790,964
Environmental - 356,857 - 356,857
Share based payments 10 144,050 149,102 555,173 440,360
Financing costs:
Accretion 9 46,144 34,343 124,883 95,638
Interest 7,333 9,461 24,604 131,697
Other 105,412 89,281 413,249 238,135
Derivative loss - (1,191,385) - (109,613)
Foreign exchange (gain) loss 277,204 (28,003) 149,817 (109,959)
Depletion and depreciation 7 4,681,591 3,972,850 11,475,258 10,067,403
Impairment loss 7 - - 1,542,000 -
Other (income) expense (54,211) 80,580 (220,866) (138,028)
10,322,745 7,227,008 30,119,431 22,102,367
Income before taxes 10,977,370 6,763,345 20,731,971 9,161,127
Income taxes
Current 5,927,455 1,317,437 11,146,403 3,705,305
Deferred (1,618,578) (1,707,212) (1,507,477) (3,929,618)
4,308,876 (389,775) 9,638,926 (224,313)
Net income for the period 6,668,493 7,153,120 11,093,045 9,385,440
Other comprehensive loss (income)
Foreign exchange 95,203 34,103 (130,721) (77,481)
Total other comprehensive loss (income)
95,203 34,103 (130,721) (77,481)
Total comprehensive income for the period
6,763,696 7,187,223 10,962,324 9,307,959
Net income per share
- basic $ 0.02 $ 0.03 $ 0.04 $ 0.04
- Diluted $ 0.02 $ 0.02 $ 0.04 $ 0.03
Weighted average shares outstanding
- Basic 285,864,348 230,808,547 285,864,348 226,785,547
- Diluted 288,921,950 295,446,047 291,542,735 294,694,399
The accompanying notes are an integral part of these interim 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, 2024 $ 73,829,795 $ 2,161,945 $ (536,322) $ (33,945,895) $ 41,509,523
Net income for the period - - - 11,093,045 11,093,045
Other comprehensive loss - - (130,721) - (130,721)
Total comprehensive income - - (130,721) 11,093,045 10,962,324
Share-based compensation - 555,173 - - 555,173
Balance September 30, 2024 $ 73,829,795 $ 2,717,118 $ (667,043) $ (22,852,850) $ 53,027,020
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
Issuances of common shares, net 7,023,065 - - - 7,023,065
Net income for the period - - - 9,385,440 9,385,440
Othe comprehensive loss - - (77,481) - (77,481)
Total comprehensive income - - (77,481) 9,385,440 9,307,959
Share-based compensation - 440,360 - - 440,360
Balance September 30, 2023 $ 64,833,800 $ 2,010,851 $ (722,853) $ (23,453,842) $ 42,667,956
The accompanying notes are an integral part of these interim consolidated
financial statements.
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Cash Flows
In United States Dollars
(Unaudited)
For the nine months ended September 30 2024 2023
Cash flows provided by operating activities
Net income $ 11,093,045 $ 9,385,440
Items not involving cash:
Share based payment 555,173 440,360
Deferred income tax (1,507,477) (3,929,618)
Depletion and depreciation 11,475,258 10,067,403
Interest on leases 24,604 12,237
Interest on promissory note, net of forgiveness - 119,460
Accretion 124,883 95,638
Foreign exchange gain (44,473) (224,264)
Gain on derivative liability - (109,613)
Environmental provision - 356,857
Impairment loss 1,542,000 -
Changes in non‑cash working capital balances:
Restricted cash 426,591 (37,190)
Trade and other receivables (374,777) (229,288)
Taxes receivable 2,409,113 (933,966)
Deposits and prepaid expenses (35,274) 32,561
Inventory 441,715 (179,840)
Accounts payable and accrued liabilities 610,696 (654,363)
Income tax payable 2,633,943 (312,600)
Settlement of decommissioning obligations (162,662) (4,349)
Cash provided by operating activities 29,212,358 13,894,865
Cash flows used in investing activities
Additions to exploration and evaluation assets (1,442,094) (3,182,010)
Additions to property and equipment (20,750,421) (13,431,502)
Changes in non-cash working capital (2,529,254) 1,538,033
Cash flows used in investing activities (24,721,769) (15,075,479)
Cash flows (used in) provided by financing activities
Common shares issued - 3,025,568
Payment of promissory note, principal and interests - (2,018,577)
Lease payments (49,411) (54,813)
Cash flows (used in) provided by financing activities (49,411) 952,178
Effect of changes in the exchange rate on cash (39,753) 58,658
Increase (decrease) in cash 4,401,425 (169,778)
Cash, beginning of period 12,135,376 13,060,968
Cash, end of period 16,536,801 12,891,190
Supplemental information
Interest paid $ - $ 415,026
Taxes paid $ 1,430,337 $ 1,119,208
The accompanying notes are an integral part of these interim consolidated
financial statements.
Arrow Exploration Corp.
Notes to the Interim Condensed Consolidated Financial Statements
In United States Dollars
(Unaudited)
September 30, 2024
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
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 authorized for issue by the board of directors of the Company on November
26, 2024. 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, 2023.
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, 2023, except for the adoption of new accounting standards
effective January 1, 2024. 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, 2023.
Adoption of New Accounting Standards
The Company adopted amendments to IAS 1 Presentation of Financial Statements,
issued by the IASB, related to the presentation of liabilities as current or
non-current and classification and disclosure of liabilities with covenants.
These amendments were adopted by the Company from January 1, 2024 but they did
not have a material impact on the interim consolidated financial statements.
3. Restricted Cash and deposits
September 30, December 31, 2023
2024
Colombia (i) $ 289,957 $ 312,530
Canada (ii) 138,286 542,304
Sub-total 428,243 854,834
Long-term portion (176,094) (243,081)
Current portion of restricted cash and deposits $ 252,149 $ 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.
4. Trade and other receivables
September 30, December 31, 2023
2024
Trade receivables, net of advances $ 2,598,565 $ 2,238,918
Other accounts receivable 1,313,148 1,298,018
$ 3,911,713 $ 3,536,936
As at September 30, 2024, other accounts receivable include $699,859 (December
31, 2023 - $682,197) receivable from on demand loans with executives and
directors.
5. Taxes receivable
September 30, December 31, 2023
2024
Value-added tax (VAT) credits recoverable $ 1,860,760 $ 1,703,260
Income tax withholdings and advances, net 385,527 2,952,139
$ 2,246,287 $ 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.
6. Exploration and Evaluation
September 30, December 31,
2024 2023
Balance, beginning of the period $ - $ -
Additions, net 1,442,094 3,212,808
Reclassification to Property and Equipment (Note 7) - (3,212,808)
Balance, end of the period $ 1,442,094 $ -
During 2024, the Company incurred in exploration and development costs
associated to its Alberta prospect in the Tapir block. During 2023, the
Company incurred in geological and geophysical costs in its Carrizales Norte
prospect located in its Tapir block, and determined the technical feasibility
and commercial viability of these assets, transferring $3,212,808 to its
property and equipment. An impairment test on these assets was prepared and
no losses were identified as a result of such tests.
7. 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 20,757,410 6,908 20,764,318
Adjustment to ROU assets - (53,543) (53,543)
Decommissioning additions 1,131,600 - 1,131,600
Balance, September 30, 2024 $ 97,181,875 $ 497,582 $ 97,679,457
Accumulated depletion and depreciation and impairment
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 11,404,636 70,622 11,475,258
Impairment loss 1,542,000 - 1,542,000
Balance, September 30, 2024 $ 50,020,956 $ 297,764 $ 50,318,720
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 (77,775) (6,955) (84,730)
Balance September 30, 2024 $ (239,012) $ (9,977) $ (248,989)
Net Book Value
Balance December 31, 2023 $ 38,057,308 $ 314,053 $ 37,371,361
Balance September 30, 2024 $ 46,921,907 $ 189,841 $ 47,111,748
Canada
As at June 30, 2024, the Company determined there were indicators of
impairment in its Canada CGU, mainly due to decreases in current and forward
gas prices, 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
$1,542,000 was included in the interim consolidated statements of operations
and comprehensive income for the three and nine months ended September 30,
2024. The following table outlines forecast benchmark prices and exchange
rates used in the Company's impairment test as at June 30, 2024:
Exchange rate AECO Spot Gas
Year $US / $Cdn C$/MMBtu
2024 0.75 2.24
2025 0.75 2.90
2026 0.75 4.33
2027 0.75 4.34
2028 0.75 4.30
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, 2023, updated to reflect changes in prices forecast, 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 18.3% (2023:
18.3%) pre-tax discount rate, which took into account risks specific to the
Canada CGU. The key assumptions in the internal valuation of undeveloped land
were the determination of the transactions considered precedent, the discount
applied to the Company's lands and the probability of obtaining extensions on
related lands. The Company utilized an average value per acre of $89.63 in the
impairment test as at June 30, 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 2024. 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.
8. 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 (49,411) (74,211)
Interest 24,587 22,011
Effects of movements in foreign exchange rates (7,022) 6,112
Obligation, end of the period 235,204 320,593
Current portion (36,323) (103,674)
Long-term portion 198,881 216,919
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 September 30, 2024, the Company has the following future
lease obligations:
Less than one year 65,505
2 - 5 years 249,085
Total lease payments 314,590
Amounts representing interest over the term (79,386)
Present value of the net obligation 235,204
9. 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:
September 30, December 31,
2024 2023
Obligation, beginning of the period 3,973,075 $ 3,303,301
Additions 1,131,600 1,000,889
Change in estimated cash flows - (262,066)
Payments or settlements (160,150) (19,545)
Dispositions - (191,081)
Accretion expense 124,883 127,478
Effects of movements in foreign exchange rates (17,301) 14,099
5,052,107 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 4.00% and 4.29% in
Colombia (2023: 4.00% and 4.29%) with an inflation rate of 2.5% and 2.6%,
respectively (2023: 2.5% and 2.6%). The majority of costs are expected to
occur between 2024 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 $6,871,182 (2023:
$5,686,938).
10. Share Capital
(a) Authorized: Unlimited number of common shares without par value
(b) Issued:
September 30, 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
(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 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 September 30, 2024 and
December 31, 2023 and changes during the periods ended on those dates is
presented below:
September 30, 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 (1,433,333) - (1,375,000) $0.12
Exercised (7,479,442) $0.20 (333,332) $0.11
End of period 25,795,001 $0.32 20,531,668 $0.24
Exercisable, end of period 3,633,332 $0.32 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 Oct. 22, 2028 250,000
May 3, 2019 100,000 $0.31 May 3, 2029 100,000
March 20, 2020 1,200,000 $0.05 Mar. 20, 2030 1,200,000
April 13, 2020 1,200,000 $0.05 April 13, 2030 1,200,000
December 13, 2021 2,983,336 $0.13 June 13, 2024 and 2025 -
June 9, 2022 600,001 $0.28 Dec. 9, 2023, 2024 and 2025 133,333
September 7, 2022 833,334 $0.26 Mar. 7, 2024, 2025 and 2026 416,666
December 21, 2022 3,652,222 $0.28 June 21, 2024, 2025 and 2026 -
January 23, 2023 100,000 $0.32 July 23, 2024, 2025 and 2026 -
September 21, 2023 1,000,000 $0.33 Mar. 21, 2025, 2026 and 2027 333,333
April 29, 2024 9,543,887 $0.38 Oct.29 2025, 2026 and 2027 -
September 11, 2024 4,332,221 $0.48 Mar.11 2026, 2027 and 2028 -
Total 25,795,001 $0.32 2.19 years 3,633,332
During the three and nine months ended September 30, 2024, the Company
recognized $144,050 and $555,173, respectively (2023: $149,102 and $440,360)
as share-based compensation expense, with a corresponding effect in the
contributed surplus account.
11. 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 September 30, 2024 of $12 million. The
Company has made an application to the ANH to mutually cancel its COR-39
contract. Presented below are the Company's exploration and production
contractual commitments at September 30, 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 September 30, 2024, the Company had obligations under Letters of Credit
("LC's") outstanding totaling $3.0 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 563,894 April 14, 2025
ANH Carrao Energy Financial Capacity 1,672,162 December 30, 2024
CORE - 39 ANH Carrao Energy Compliance 100,000 December 30, 2024
OMBU ANH Carrao Energy Financial Capacity 436,300 April 14, 2025
OMBU ANH Carrao Energy Abandonment 251,450 August 28, 2025
Total 3,023,806
12. 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
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 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. 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 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 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:
September 30, 2024 December 31, 2023
Working capital $ 9,622,125 $ 8,669,114
13. 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 Canada segment is also considered the corporate segment. The
following tables show information regarding the Company's segments for the
three and nine months ended and as at September 30:
Three months ended September 30, 2024 Colombia Canada Total
Revenue:
Oil Sales $ 23,981,362 $ - $ 23,981,362
Natural gas and liquid sales 50,467 50,467
Royalties (2,727,862) (3,852) (2,731,714)
Expenses (7,601,535) (2,721,210) (10,322,745)
Impairment loss - - -
Income taxes (4,308,877) - (4,308,877)
Net income (loss) $ 9,343,088 $ (2,674,595) $ 6,668,493
Nine months ended September 30, 2024 Colombia Canada Total
Revenue:
Oil Sales $ 57,110,675 $ - $ 57,110,675
Natural gas and liquid sales - 481,939 481,939
Royalties (6,740,821) (391) (6,741,212)
Expenses (19,447,170) (9,130,261) (28,577,431)
Impairment loss - (1,542,000) (1,542,000)
Income taxes (9,638,926) - (9,638,926)
Net income (loss) $ 21,283,758 $ (10,190,713) $ 11,093,045
As at September 30, 2024 Colombia Canada Total
Current assets $ 18,062,588 $ 5,167,655 $ 23,230,243
Non-current:
Deferred income taxes 1,575,218 - 1,575,218
Restricted cash 37,808 138,286 176,094
Exploration and evaluation 1,442,094 - 1,442,094
Property, plant and equipment 46,150,143 961,605 47,111,748
Total Assets $ 67,267,851 $ 6,267,546 $ 73,535,397
Current liabilities $ 11,670,854 $ 1,937,264 $ 13,608,118
Non-current liabilities:
Deferred income taxes 1,306,252 - 1,306,252
Other liabilities 343,019 - 343,019
Lease obligation - 198,881 198,881
Decommissioning liability 4,507,069 545,038 5,052,107
Total liabilities $ 17,827,194 $ 2,681,183 $ 20,508,377
Three months ended September 30, 2023 Colombia Canada Total
Revenue:
Oil Sales $ 15,496,501 $ - $ 15,496,501
Natural gas and liquid sales - 388,159 388,159
Royalties (1,885,968) (8,339) (1,894,307)
Expenses (6,339,173) (887,835) (7,227,008)
Income tax recovery 389,775 - 389,775
Net income (loss) $ 7,661,135 $ (508,015) $ 7,153,120
Nine months ended September 30, 2023 Colombia Canada Total
Revenue:
Oil Sales $ 34,177,223 $ - $ 34,177,223
Natural gas and liquid sales - 1,310,262 1,310,262
Royalties (4,214,621) (9,370) (4,223,991)
Expenses (14,799,562) (7,302,805) (22,102,367)
Income tax recovery 224,313 - 224,313
Net income (loss) $ 15,387,353 $ (6,001,913) $ 9,385,440
As at September 30, 2023 Colombia Canada Total
Current assets $ 17,392,681 $ 1,259,823 $ 18,652,504
Non-current:
Deferred income taxes 1,933,639 - 1,933,639
Restricted cash 37,808 599,985 637,793
Exploration and evaluation 3,182,010 - 3,182,010
Property, plant and equipment 34,003,518 4,345,786 38,349,304
Total Assets $ 56,549,656 $ 6,205,594 $ 62,755,250
Current liabilities $ 7,137,935 $ 6,183,589 $ 13,321,524
Non-current liabilities:
Deferred income taxes 2,198,419 - 2,198,419
Other liabilities 588,393 - 588,393
Lease obligation - 219,611 219,611
Decommissioning liability 3,202,198 557,149 3,759,347
Total liabilities $ 13,126,945 $ 6,960,349 $ 20,087,294
Arrow Exploration Corp.
MANAGEMENT's DISCUSSION AND ANALYSIS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 November 26, 2024 and should be read in conjunction with Arrow's interim
condensed (unaudited) consolidated financial statements and related notes as
at and for the three and nine months ended September 30, 2024 and 2023.
Additional information relating to Arrow, including its annual consolidated
financial statements and related notes for the year ended December 31, 2023
and 2022 (the "Annual Financial Statements"), 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; 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; 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 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 September 30, 2024 Nine months ended September 30, 2024 Three months ended September 30, 2023 Nine months ended September 30, 2023
(in United States dollars)
Net income 6,668,493 11,093,045 7,153,120 9,385,440
Add/(subtract):
Share based payments 144,050 555,173 149,102 440,360
Financing costs:
Accretion on decommissioning obligations 46,144 124,883 34,343 95,638
Interest 7,333 24,604 9,461 131,697
Other 105,412 413,249 89,281 238,135
Depreciation and depletion 4,681,591 11,475,258 3,972,850 10,067,403
Derivative gain - - (1,191,385) (109,613)
Impairment loss - 1,542,000 - -
Income tax (recovery) expense, current and deferred 4,308,877 9,638,926 (389,775) (224,313)
Adjusted EBITDA ((1)) 15,961,900 34,867,138 9,826,997 20,024,747
Cash flows provided by operating activities 13,495,700 29,212,358 6,523,732 13,894,865
Minus - Changes in non‑cash working capital balances:
Trade and other receivables (36,540) 374,777 697,291 229,288
Restricted cash 921 (426,591) (65,890) 37,190
Taxes receivable (2,342,660) (2,409,113) 765,277 933,966
Deposits and prepaid expenses (79,698) 35,274 (68,109) (32,561)
Inventory 4,070 (441,715) 9,026 179,840
Accounts payable and accrued liabilities (916,510) (610,696) 1,192,261 654,363
Income taxes (891,311) (2,633,943) (362,681) 312,600
Funds flow from operations ((1)) 9,233,972 23,100,351 8,690,907 16,209,551
( )
((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 Nine months Three months ended September 30, 2023
September 30, 2024 ended
(in United States dollars, except as otherwise noted) September 30, 2024
Total natural gas and crude oil revenues, net of royalties 21,300,115 50,851,402 13,990,353
Funds flow from operations ((1)) 9,233,972 23,100,351 8,690,907
Funds flow from operations ((1)) per share -
Basic($) 0.03 0.08 0.04
Diluted ($) 0.03 0.08 0.03
Net income 6,668,493 11,093,045 7,153,120
Net income per share -
Basic ($) 0.02 0.04 0.03
Diluted ($) 0.02 0.04 0.02
Adjusted EBITDA ((1)) 15,961,900 34,867,138 9,826,997
Weighted average shares outstanding -
Basic ($) 285,864,348 285,864,348 237,919,872
Diluted ($) 288,921,950 291,542,735 295,875,232
Common shares end of period 285,864,348 285,864,348 245,526,041
Capital expenditures 6,945,779 22,192,515 5,471,561
Cash and cash equivalents 16,536,801 16,536,801 12,891,190
Current Assets 23,230,243 23,230,243 18,652,504
Current liabilities 13,608,118 13,608,118 13,321,524
Adjusted working capital((1)) 9,622,125 9,622,125 10,822,475
Long-term portion of restricted cash((2)) 176,094 176,094 637,793
Total assets 73,535,397 73,535,397 62,755,250
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 461 1,047 2,012
Natural gas liquids (bbl/d) 5 4 4
Crude oil (bbl/d) 4,042 2,960 2,178
Total (boe/d) 4,124 3,139 2,518
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($1.48) ($0.66) $0.18
Crude oil ($/bbl) $52.00 $53.87 $60.62
Total ($/boe) $50.76 $50.70 $52.67
( )
((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 September 30, 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
Ansell Operated 640 100% 640
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
Total Canada 29,280 22,519
TOTAL 246,670 156,513
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 wells are currently shut in due to
current low natural gas prices in Canada.
Three months ended September 30, 2024 Financial and Operational Highlights
· Arrow recorded $21,300,115 in revenues, net of royalties, on
crude oil sales of 366,988 bbls, 437 bbls of natural gas liquids ("NGL's") and
42,447 Mcf of natural gas sales;
· Funds flow from operations of $9,233,972;
· Net income of $6,668,493 and adjusted EBITDA was $15,961,900;
· Drilled three horizontal wells, and spud an additional one, at
its Carrizales Norte field.
Results of Operations
The Company increased its production from its new wells at its Carrizales
Norte field 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 Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023
Oso Pardo 180 113 166 80 93 130 138
Ombu (Capella) - - - - - - 80
Rio Cravo Este (Tapir) 1,078 1,283 1,644 1,326 1,443 1,592 1,004
Carrizales Norte (Tapir) 2,784 991 622 621 642 57 -
Total Colombia 4,042 2,387 2,432 2,027 2,178 1,779 1,222
Fir, Alberta 82 77 78 80 81 77 74
Pepper, Alberta - 82 220 228 259 313 340
TOTAL (Boe/d) 4,124 2,546 2,730 2,335 2,518 2,169 1,635
The Company's average production for the three months ended September 30, 2024
was 4,124 boe/d, which consisted of crude oil production in Colombia of 4,042
bbl/d, natural gas production of 461 Mcf/d, and minor amounts of natural gas
liquids from the Company's Canadian properties. The Company's Q3 2024
production was 62% higher than its Q2 2024 production and 64% higher when
compared to Q3 2023.
Average Daily Natural Gas and Oil Production and Sales Volumes
Three months ended Nine months ended
September 30 September 30
2024 2023 2024 2023
Natural Gas (Mcf/d)
Natural gas production 461 2,012 1,047 2,261
Natural gas sales 461 2,012 1,047 2,261
Realized Contractual Natural Gas Sales 461 2,012 1,047 2,261
Crude Oil (bbl/d)
Crude oil production 4,042 2,178 2,960 1,730
Inventory movements and other (53) (8) 44 (19)
Crude Oil Sales 3,989 2,170 3,003 1,711
Corporate
Natural gas production (boe/d) 77 336 175 376
Natural gas liquids(bbl/d) 5 4 4 4
Crude oil production (bbl/d) 4,042 2,178 2,960 1,730
Total production (boe/d) 4,124 2,518 3,139 2,110
Inventory movements and other (boe/d) (53) (8) 44 (19)
Total Corporate Sales (boe/d) 4,071 2,510 3,183 2,091
During the three and nine months ended September 30, 2024 the majority of
production was attributed to Colombia, where most of Company's blocks were
producing. The volumes reported as inventory movements during the nine months
ended September 30, 2024 correspond to the sale of 18,990 barrels of oil that
were stored at the non-operated Capella field in the OMBU block.
Natural Gas and Oil Revenues
Three months ended Nine months ended
September 30 September 30
2024 2023 2024 2023
Natural Gas
Natural gas revenues 23,714 361,381 403,164 1,242,889
NGL revenues 26,753 26,778 78,775 67,373
Royalties (3,852) (8,339) (391) (9,370)
Revenues, net of royalties 46,615 379,820 481,548 1,300,892
Oil
Oil revenues 23,981,362 15,496,501 57,110,675 34,177,223
Royalties (2,727,862) (1,885,968) (6,740,821) (4,214,621)
Revenues, net of royalties 21,253,500 13,610,533 50,369,854 29,962,602
Corporate
Natural gas revenues 23,714 361,381 403,164 1,242,889
NGL revenues 26,753 26,778 78,775 67,373
Oil revenues 23,981,362 15,496,501 57,110,675 34,177,223
Total revenues 24,031,829 15,884,660 57,592,614 35,487,485
Royalties (2,731,714) (1,894,307) (6,741,212) (4,223,991)
Natural gas and crude oil revenues, net of royalties 21,300,115 13,990,353 50,851,402 31,263,494
Natural gas and crude oil revenues, net of royalties, for the three and nine
months ended September 30, 2024 were $21,300,115 and $50,851,402, respectively
(2023: $13,990,353 and $31,263,494), which represents an increase of 52% and
63%, respectively, when compared to the same 2023 periods, and 41% higher than
Q2 2024. These significant increases are mainly due to increased oil
production in Colombia, despite decreased oil prices, offset by decrease in
revenue in Canada.
Average Benchmark and Realized Prices
Three months ended Nine months ended
September 30 September 30
2024 2023 Change 2024 2023 Change
Benchmark Prices
AECO (C$/Mcf) $0.70 $2.64 (73%) $1.48 $2.77 (47%)
Brent ($/bbl) $72.87 $92.59 (21%) $80.18 $82.26 (3%)
West Texas Intermediate ($/bbl) $75.15 $77.35 (3%) $77.55 $82.20 (6%)
Realized Prices
Natural gas, net of transportation ($/Mcf) $0.56 $1.95 (71%) $1.41 $2.01 (30%)
Natural gas liquids ($/bbl) $61.24 $67.10 (9%) $65.56 $63.30 (4%)
Crude oil, net of transportation ($/bbl) $65.35 $77.63 (16%) $69.66 $73.16 (5%)
Corporate average, net of transport ($/boe)((1)) $64.04 $68.80 (7%) $66.28 $62.14 (7%)
((1)Non-IFRS measure)
The Company realized prices of $64.04 and $66.28 per boe during the three and
nine months ended September 30, 2024, respectively (2023: $68.80 and $62.14),
due to overall decrease in oil and natural gas prices during 2024, partially
offset by natural gas liquids price, which increased during this period, and
increased crude oil weighting.
Operating Expenses
Three months ended Nine months ended
September 30 September 30
2024 2023 2024 2023
Natural gas & NGL's 82,505 319,439 592,835 1,302,246
Crude oil 2,170,097 1,510,394 6,204,359 3,036,667
Total operating expenses 2,252,602 1,829,833 6,797,194 4,338,913
Natural gas ($/Mcf) $1.95 $1.72 $2.07 $2.10
Crude oil ($/bbl) $5.91 $7.56 $7.57 $6.50
Corporate ($/boe)((1)) $6.00 $7.92 $7.82 $7.59
((1)Non-IFRS measure)
During the three and nine months ended September 30, 2024, Arrow incurred
operating expenses of $2,252,602 and $6,797,194, respectively (2023:
$1,829,833 and $4,338,913). This increase in operating costs is mainly due to
increased production in the Company's Carrizales Norte field, including
production of heavier oil, and $464,900 of additional operating costs
corresponding to the Capella inventory volumes sold during Q2 2024.
Operating Netbacks
Three months ended Nine months ended
September 30 September 30
2024 2023 2024 2023
Natural Gas ($/Mcf)
Revenue, net of transportation expense $0.56 $1.95 $1.41 $2.01
Royalties ($0.09) ($0.05) ($0.00) ($0.02)
Operating expenses ($1.95) ($1.72) ($2.07) ($2.10)
Natural Gas operating netback((1)) ($1.48) $0.18 ($0.66) ($0.11)
Crude oil ($/bbl)
Revenue, net of transportation expense $65.35 $77.63 $69.66 $73.16
Royalties ($7.44) ($9.45) ($8.22) ($9.02)
Operating expenses ($5.91) ($7.56) ($7.57) ($6.50)
Crude Oil operating netback((1)) $52.00 $60.62 $53.87 $57.64
Corporate ($/boe)
Revenue, net of transportation expense $64.04 $68.80 $66.28 $62.14
Royalties ($7.28) ($8.21) ($7.76) ($7.40)
Operating expenses ($6.00) ($7.92) ($7.82) ($7.59)
Corporate Operating netback((1)) $50.76 $52.67 $50.70 $47.15
( (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 Nine months ended
September 30 September 30
2024 2023 2024 2023
General & administrative expenses 3,057,447 2,069,314 9,869,834 7,259,939
G&A recovered from 3(rd) parties (194,827) (145,225) (611,715) (468,975)
Total G&A 2,862,620 1,924,089 9,258,119 6,790,964
Cost per boe $7.63 $8.33 $10.65 $11.89
For the three and nine months ended September 30, 2024, G&A expenses
before recoveries totaled $2,862,620 and $9,258,119, respectively (2023:
$1,924,089 and $6,790,964). 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 Nine months ended
September 30 September 30
2024 2023 2024 2023
Share-based Payments 144,050 149,102 555,173 440,360
Share-based compensation expense for the three and nine months ended September
30, 2024 totaled $144,050 and $555,173, respectively (2023: $149,102 and
$440,360). During Q3 2024, the Company granted 4,332,221 new options to its
personnel and Directors, which has caused an increase in the shared-based
payments expenses for 2024, partially offset by reversal of expense associated
with forfeited options.
Financing Costs
Three months ended Nine months ended
September 30 September 30
2024 2023 2024 2023
Financing expense paid or payable 112,745 98,742 437,853 369,833
Non-cash financing costs 46,144 34,343 124,883 95,638
Net financing costs 158,889 133,085 562,736 465,471
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. 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 Nine months ended
September 30 September 30
2024 2023 2024 2023
Depletion and depreciation 4,681,591 3,972,850 11,475,258 10,067,403
Depletion and depreciation expense for the three and nine months ended
September 30, 2024 totaled $4,681,591 and $11,475,258, respectively (2023:
$3,972,850 and $10,067,403). 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 loss
Three months ended Nine months ended
September 30 September 30
2024 2023 2024 2023
Impairment loss - - 1,542,000 -
As at June 30, 2024, the Company reviewed its cash-generating units ("CGU")
for property and equipment and determined that there were indicators of
impairment loss in its Canada CGU and recognized a loss of $1,542,000. This
impairment loss was mainly caused by decreases in the forecast prices of
natural gas.
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 September 30, 2024 the Company has a working capital of $9,622,125. 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 September 30, 2024 the Company's net debt (net cash) was calculated as
follows:
September 30, 2024
Current assets $ 23,230,243
Less:
Accounts payable and accrued liabilities 7,829,348
Income taxes payable 5,742,447
Net debt (Net cash) ((1)) $ (9,658,448)
((1))Non-IFRS measure
Working Capital
As at September 30, 2024 the Company's adjusted working capital was calculated
as follows:
September 30, 2024
Current assets:
Cash $ 16,536,801
Restricted cash and deposits 252,149
Trade and other receivables 3,911,713
Taxes receivable 2,246,287
Other current assets 283,293
Less:
Accounts payable and accrued liabilities 7,829,348
Lease obligation 36,323
Income tax payable 5,742,447
Working capital((1)) $ 9,622,125
((1))Non-IFRS measure
Debt Capital
As at September 30, 2024 the Company does not have any outstanding debt
balance.
Letters of Credit
As at September 30, 2024, the Company had obligations under Letters of Credit
("LC's") outstanding totaling $2.8 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 $563,894 April 14, 2025
ANH Carrao Energy Financial Capacity $1,672,162 December 30, 2024
CORE - 39 ANH Carrao Energy Compliance $100,000 December 30, 2024
OMBU ANH Carrao Energy Financial Capacity $436,300 April 14, 2025
OMBU ANH Carrao Energy Abandonment $251,450 August 28, 2025
Total $3,023,806
Share Capital
As at September 30, 2024, the Company had 285,864,348 common shares and
25,795,001 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
September 30, 2024:
Less than 1 year 1-3 years Thereafter Total
Exploration and production contracts - 12,000,000 - 12,000,000
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. In aggregate,
the Company has outstanding commitments of $12 million. The Company have made
an application to cancel its commitments on the COR-39.
SUMMARY OF THREE MONTHS RESULTS
2024 2023 2022
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
Oil and natural gas sales, net of royalties
21,300,115 15,146,366 14,404,921 13,406,513 13,990,353 10,280,280 6,992,860 8,931,562
Net income (loss) 6,668,493 1,247,825 3,176,727 (10,492,053) 7,153,120 (757,416) 2,989,735 2,968,117
Income (loss) per share -
basic 0.02 0.00 0.01 (0.04) 0.03 (0.00) 0.01 0.01
diluted 0.02 0.00 0.01 (0.04) 0.02 (0.00) 0.01 0.01
Working capital (deficit) 9,622,125 6,657,117 9,520,829 8,669,114 10,822,475 (2,363,388) 2,619,715 (1,316,665)
Total assets 73,535,397 67,864,633 64,579,940 62,275,023 62,755,250 56,305,530 53,719,944 53,190,248
Net capital expenditures 6,945,779 8,965,408 6,281,329 10,471,447 5,471,561 6,870,258 4,271,693 2,106,463
Average daily production (boe/d) 4,124 2,638 2,730 2,666 2,518 2,169 1,635 1,736
The Company's oil and natural gas sales have increased 52% in Q3 2024 when
compared to Q3 2023 due to increased production in its existing assets and
stable commodity prices. The Company's production levels in Colombia continue
growing. Trends in the Company's net income are also impacted most
significantly by operating expenses, financing costs, income taxes, depletion,
depreciation and impairment of oil and gas properties, and other income.
OUTSTANDING SHARE DATA
At November 26, 2024 the Company had the following securities issued and
outstanding:
Number Exercise Price Expiry Date
Common shares 285,864,348 n/a n/a
Stock options 250,000 CAD$ 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 deployed the capital raised at the time of the Admission to
AIM on a successful drilling campaigns at Rio Cravo and Carrizales Norte on
the Tapir Block. These successful campaigns have translated into production
growth and positive cashflows, providing Arrow with the funds required to
continue with its capital program for 2024.
During 2024, the Company has drilled thirteen wells at Carrizales Norte,
including six horizontal wells, 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.
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.
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, 2023 for a description of the
financial, business and other risk factors affecting the Company which are
available on SEDAR at www.sedar.com.
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