REG - Arrow Exploration - Third Horizontal Well Results and Q2 2024 Results
29/08/2024 07:00
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RNS Number : 1343C Arrow Exploration Corp. 29 August 2024
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JURISDICTION.
ARROW ANNOUNCES THIRD UBAQUE HORIZONTAL WELL RESULTS AND Q2 2024 INTERIM
RESULTS
CNB HZ-4 on production
CALGARY, August 29, 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 announces the filing of its Interim
Condensed (unaudited) Consolidated Financial Statements and Management's
Discussion and Analysis ("MD&A") for the three and six months ended June
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) .
CNB HZ-4
The third horizontal well on the Carrizales Norte "B" pad (CNB HZ-4) is now on
production and exceeding expectations. The well has a current flow rate
exceeding 2,500 BOPD gross (1,250 BOPD net to Arrow) and production is
continuing to increase. Currently the well has an 8% water cut while still
recovering load fluid. Management's expectations are that the CNB HZ-4 well
will reach IP production rates similar to the Company's first two horizontal
wells. 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.
CNB HZ-4 was spud on July 28, 2024, and reached a target depth of 8,452 feet
(true vertical depth) on August 12, 2024. The well was drilled to a total
measured depth of 13,335 feet with a horizontal section of approximately 3,940
feet. CNB HZ-4 came on production on August 26, 2024, with the use of an
electric submersible pump (ESP) and, based on initial results, has displayed
comparable reservoir characteristics as CNB HZ-1.
CNB HZ-3
The CNB HZ-3 is continuing to perform above expectations and is being
restricted to a current flow rate of 1,920 BOPD gross (960 BOPD net) with
approximately 31% water cut. CNB HZ-3 average production for the first 30 days
of production (IP30) was 2,212 BOPD gross (1,106 BOPD net). The well is
being restricted to optimize reservoir performance and ultimate recovery.
CNB HZ-1
The CNB HZ-1 is continuing to perform above expectations and is being
restricted to a current flow rate of 2,090 BOPD gross (1,045 BOPD net) with
approximately 41% water cut. CNB HZ-1 average production for the first 60 days
of production (IP60) was 2,375 BOPD gross (1,188 BOPD net).
Drilling Technology
Drilling metrics continue to improve in the horizontal program regarding both
time and cost. The improvements reflect the learnings taken from CNB HZ-1
and CNB HZ-3 as the operations team continues to focus on improving capital
and operating costs and creating further shareholder value.
The CNB HZ-4 is the first Arrow well to use Autonomous Inflow Control Devices
(AICDs) which are designed to limit the water cut in horizontal wells. The
results of CNB HZ-4 will be closely monitored to determine if these
technologies or others will enhance production and ultimate recovery in the
Ubaque reservoir.
Upcoming Drilling
The rig has been moved to the fifth cellar on the Carrizales Norte B Pad where
the Company spud the fourth horizontal well (CNB HZ-5) on August 22.
Thereafter, the Company expects to drill two more horizontal wells on the B
pad, followed by the Chorreron-1 (formerly known as Baquiano-1) exploration
well, which is on trend with the Carrizales Norte field.
Corporate Update
Current net corporate production is approximately 5,000 BOE/D, inclusive of
CNB HZ-1, CNB-3 and CNB HZ-4.
Arrow's cash position was approximately $12 million on August 1, 2024. Arrow
has maintained a healthy balance sheet with no debt.
Q2 2024 Highlights:
· Successfully drilled three development Carrizales Norte (CN) wells,
including the first horizontal well.
· Recorded $15.1 million of total oil and natural gas revenue, net of
royalties, representing a 47% increase when compared to the same period in
2023 (Q2 2023: $10.3 million).
· Net income of $1.2 million (Q2 2023: loss of $0.8 million).
· Adjusted EBITDA((1)) of $8.9 million, a 53% increase when compared to
2023 (Q2 2023: $5.8 million).
· Average corporate production of 2,546 boe/d (Q2 2023: 2,169 boe/d).
· Realized corporate oil operating netbacks((1)) of $51.21/bbl.
· Cash position of $10.8 million at the end of Q2 2024.
· Generated H1 2024 operating cashflows of $15.7 million (H1 2023: $7.4
million).
· Recognized an impairment in its Canadian oil & gas properties for
$1.5 million due to low natural gas prices.
((1))Non-IFRS measures - see "Non-IFRS Measures" section within the MD&A
Post Period End Highlights:
· Drilled three additional CN wells, including two horizontal wells and
one disposal well.
· Spud the CNB HZ-5 from the CNB pad. The Company expects to be able
to provide an update on the production figures for CNB HZ-5 in the coming
weeks.
Outlook:
· Continuing with the balanced delivery of the 2024 capital program,
the majority of which will be focused on the Carrizales Norte field and will
include additional horizontal wells.
· Low risk exploration well planned at the Chorreron prospect.
· The remaining 2024 capital program will be self-funded by a
combination of cash flow from operations and cash reserves.
Marshall Abbott, CEO of Arrow Exploration Corp., commented:
"The horizontal well program at the CNB pad continues to exceed expectations,
and the Company now plans to drill two additional horizontal wells before
moving to the Chorreron prospect (formerly named Baquiano). This will result
in a total of six horizontal wells at Carrizales Norte in 2024 with additional
horizontal wells being planned for 2025. The Arrow team continues to reduce
the time and costs needed to drill horizontal and vertical wells, using
internally generated development drilling and completion strategies."
"Arrow experienced material growth in production, revenue and earnings in Q2
2024 compared to Q2 2023. This growth was achieved while preparing for the
highly successful horizontal well program at Carrizales Norte. This included
the Q1 and Q2 Carrizales Norte vertical well program to delineate the Ubaque
reservoir, as well as preparing pads, roads, oil transportation and water
disposal infrastructure."
"Arrow's focus for the remainder of 2024 will be the completion of the six
well horizontal well program at Carrizales Norte as well as a low-risk
exploration well at the Chorreron prospect. A second rig is being evaluated to
begin development drilling at the RCE field towards the end of 2024."
"In 2025, Arrow plans another aggressive capital program focused on production
growth and exploration. Arrow plans to drill low risk exploration wells at
Mateguafa Oeste, Capullo, and Mateguafa Attic. The Company is also targeting
further horizontal Ubaque and vertical C7 development drilling at Carrizales
Norte, and Chorreron, if successful, and the drilling of development vertical
wells at Rio Cravo Este in 2025."
"This enhanced capital program underlies the prolific setting of the Tapir
Block in the Llanos Basin in Colombia. The block displays significant
hydrocarbon density in multiple oil-bearing zones down to 10,000 feet total
depth."
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended June 30, 2024 Six months Three months ended June 30, 2023
ended June 30, 2024
(in United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 15,146,366 29,551,287 10,280,280
Funds flow from operations ((1)) 6,655,696 13,866,379 3,278,041
Funds flow from operations ((1)) per share -
Basic($) 0.02 0.05 0.01
Diluted ($) 0.02 0.05 0.01
Net income (loss) 1,247,825 4,424,551 (757,416)
Net income (loss) per share -
Basic ($) 0.00 0.02 (0.00)
Diluted ($) 0.00 0.02 (0.00)
Adjusted EBITDA ((1)) 8,884,099 18,905,240 5,839,960
Weighted average shares outstanding -
Basic ($) 285,864,348 285,864,348 230,808,547
Diluted ($) 292,536,147 292,867,527 295,446,047
Common shares end of period 285,864,348 285,864,348 234,274,893
Capital expenditures 8,965,408 15,246,736 6,870,258
Cash and cash equivalents 10,826,380 10,826,380 10,801,494
Current Assets 19,975,633 19,975,633 15,159,322
Current liabilities 13,318,516 13,318,516 17,522,710
Adjusted working capital((1)) 6,657,117 6,657,117 6,341,935
Long-term portion of restricted cash((2)) 174,190 174,190 703,683
Total assets 67,864,633 67,864,633 56,305,530
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 926 1,343 2,318
Natural gas liquids (bbl/d) 4 4 3
Crude oil (bbl/d) 2,387 2,409 1,779
Total (boe/d) 2,546 2,638 2,169
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($1.25) ($0.52) ($0.05)
Crude oil ($/bbl) $54.54 $55.38 $53.64
Total ($/boe) $51.21 $50.66 $44.21
( (1))Non-IFRS measures - see "Non-IFRS Measures" section within the MD&A
((2))Long term restricted cash not included in working capital
Discussion of Operating Results
The Company continued increasing its production from new wells at CN which
allowed the Company to continue to improve its operating results and EBITDA.
There has been a decrease in the Company's natural gas production in Canada
due to shut in of wells and natural declines.
Average Production by Property
Average Production Boe/d Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023
Oso Pardo 113 166 80 93 130 138
Ombu (Capella) - - - - - 80
Rio Cravo Este (Tapir) 1,283 1,644 1,326 1,443 1,592 1,004
Carrizales Norte (Tapir) 991 622 621 642 57 -
Total Colombia 2,387 2,432 2,027 2,178 1,779 1,222
Fir, Alberta 77 78 80 81 77 74
Pepper, Alberta 82 220 228 259 313 340
TOTAL (Boe/d) 2,546 2,730 2,335 2,518 2,169 1,635
The Company's average production for the three months ended June 30, 2024 was
2,546 boe/d, which consisted of crude oil production in Colombia of 2,387
bbl/d, natural gas production of 926 Mcf/d, and minor amounts of natural gas
liquids from the Company's Canadian properties. The Company's Q2 2024
production, which only included a few weeks' production from the first
horizontal well at Carrizales Norte, was 7% lower than its Q1 2024
production and 17% higher when compared to Q2 2023.
Discussion of Financial Results
During Q2 2024 the Company continued to realize good oil prices, offset by
lower gas prices, as summarized below:
Three months ended June 30
2024 2023 Change
Benchmark Prices
AECO (C$/Mcf) $1.20 $2.46 (51%)
Brent ($/bbl) $83.00 $74.98 11%
West Texas Intermediate ($/bbl) $80.55 $73.75 9%
Realized Prices
Natural gas, net of transportation ($/Mcf) $0.94 $1.96 (52%)
Natural gas liquids ($/bbl) $69.96 $55.33 26%
Crude oil, net of transportation ($/bbl) $72.99 $67.69 8%
Corporate average, net of transport ($/boe)((1)) $69.39 $57.89 20%
( (1)Non-IFRS measure)
Operating Netbacks
The Company also continued to realize strong oil operating netbacks, as
summarized below:
Three months ended June 30
2024 2023
Natural Gas ($/Mcf)
Revenue, net of transportation expense $0.94 $1.96
Royalties $0.23 $0.20
Operating expenses ($2.42) ($2.21)
Natural Gas operating netback((1)) ($1.25) ($0.05)
Crude oil ($/bbl)
Revenue, net of transportation expense $72.99 $67.69
Royalties ($8.73) ($8.46)
Operating expenses ($9.72) ($5.59)
Crude Oil operating netback((1)) $54.54 $53.64
Corporate ($/boe)
Revenue, net of transportation expense $69.39 $57.89
Royalties ($8.17) ($6.76)
Operating expenses ($10.01) ($6.92)
Corporate Operating netback((1)) $51.21 $44.21
( (1))Non-IFRS measure
The operating netbacks of the Company continued within healthy levels during
2024 due increasing production from its Colombian assets and improved crude
oil prices, which were offset by decreases in natural gas prices.
During Q2 2024, the Company incurred $8.9 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)
Andrew Turner +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 six months ended June 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 six months ended June 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 June 30, 2024 December 31, 2023
ASSETS
Current assets
Cash $ 10,826,380 $ 12,135,376
Restricted cash and deposits 3 253,132 611,753
Trade and other receivables 4 3,948,253 3,536,936
Taxes receivable 5 4,588,947 4,655,399
Deposits and prepaid expenses 312,374 197,402
Inventory 46,547 492,332
19,975,633 21,629,198
Non-current assets
Deferred income taxes 1,832,995 2,031,383
Restricted cash and deposits 3 174,190 243,081
Exploration and evaluation assets 6 1,059,825 -
Property and equipment 7 44,821,990 38,371,361
Total Assets $ 67,864,633 $ 62,275,023
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 8,418,067 $ 9,747,906
Lease obligation 8 49,313 103,674
Income taxes 4,851,136 3,108,504
13,318,516 12,960,084
Non-current liabilities
Lease obligations 8 184,072 216,919
Other liabilities 375,448 345,528
Deferred income taxes 3,182,607 3,269,894
Decommissioning liability 9 4,684,718 3,973,075
Total liabilities 21,745,361 20,765,500
Shareholders' equity
Share capital 10 73,829,795 73,829,795
Contributed surplus 2,573,068 2,161,945
Deficit (29,521,344) (33,945,895)
Accumulated other comprehensive loss (762,247) (536,322)
Total shareholders' equity 46,119,272 41,509,523
Total liabilities and shareholders' equity $ 67,864,633 $ 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 June 30 For the six months ended June 30
Notes 2024 2023 2024 2023
Revenue
Oil and natural gas $ 17,167,143 $ 11,637,968 $ 33,560,785 $ 19,602,826
Royalties (2,020,777) (1,357,688) (4,009,498) (2,329,686)
15,146,366 10,280,280 29,551,287 17,273,140
Expenses
Operating 2,475,582 1,391,490 4,544,593 2,509,080
Administrative 3,713,577 3,247,405 6,395,499 4,866,875
Share based payments 10 309,845 159,018 411,123 291,259
Financing costs:
Accretion 9 41,363 32,139 78,739 61,295
Interest 7,501 61,349 17,271 122,237
Other 108,773 103,172 307,837 148,854
Derivative loss - 2,436,047 - 1,081,772
Foreign exchange (gain) loss 161,351 (41,141) (127,387) (81,956)
Depletion and depreciation 7 3,261,894 3,640,189 6,793,668 6,094,553
Impairment loss 7 1,542,000 - 1,542,000 -
Other income (88,243) (157,434) (166,658) (218,610)
11,533,643 10,872,234 19,796,685 14,875,359
Income (loss) before taxes 3,612,723 (591,954) 9,754,602 2,397,781
Income taxes
Current 2,713,664 2,387,868 5,218,949 2,387,868
Deferred (348,766) (2,222,406) 111,102 (2,222,406)
2,364,898 165,462 5,330,051 165,462
Net income (loss) for the period 1,247,825 (757,416) 4,424,551 2,232,319
Other comprehensive loss
Foreign exchange (82,608) (93,164) (225,925) (111,584)
Total other comprehensive loss (82,608) (93,164) (225,925) (111,584)
Total comprehensive income (loss) for the period
$ 1,165,217 $ (850,580) $ 4,198,626 $ 2,120,735
Net income (loss) per share
- basic $ 0.00 $ (0.00) $ 0.02 $ 0.01
- Diluted $ 0.00 $ (0.00) $ 0.02 $ 0.01
Weighted average shares outstanding
- basic 285,864,348 230,808,547 285,864,348 226,785,547
- Diluted 292,536,147 295,446,047 292,867,527 294,694,399
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 - - - 4,424,551 4,424,551
Other comprehensive loss - - (225,925) - (225,925)
Total comprehensive income - - (225,925) 4,424,551 4,198,626
Share-based compensation - 411,123 - - 411,123
Balance June 30, 2024 $ 73,829,795 $ 2,573,068 $ (762,247) $ (29,521,344) $ 46,119,272
Accumulated other comprehensive loss
Contributed Surplus
Share Capital Deficit Total Equity
Balance January 1, 2023 $ 57,810,735 $ 1,570,491 $ (645,372) $ (32,839,282) $ 25,896,572
Net income for the period - - - 2,232,319 2,232,319
Othe comprehensive loss - - (111,584) - (111,584)
Total comprehensive income - - (111,584) 2,232,319 2,120,735
Issuances of common shares, net 3,887,661 - - - 3,887,661
Share-based compensation - 291,259 - - 291,259
Balance June 30, 2023 $ 61,698,396 $ 1,861,750 $ (756,956) $ (30,606,963) $ 32,196,227
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 six months ended June 30 Notes 2024 2023
Cash flows provided by operating activities
Net income $ 4,424,551 $ 2,232,319
Items not involving cash:
Share based payment 10 411,123 291,259
Deferred income tax 111,102 (2,222,406)
Depletion and depreciation 7 6,793,668 6,094,553
Interest on leases 17,271 2,954
Interest on promissory note, net of forgiveness - 119,283
Accretion 9 78,739 61,295
Foreign exchange loss (gain) 593,659 (138,235)
Loss on derivative liability - 1,081,772
Impairment loss 7 1,542,000 -
Changes in non‑cash working capital balances:
Restricted cash 427,512 (103,080)
Trade and other receivables (411,317) 468,003
Taxes receivable 66,453 (168,689)
Deposits and prepaid expenses (114,972) (35,548)
Inventory 445,785 (170,814)
Accounts payable and accrued liabilities (305,814) 537,898
Income tax payable 1,742,632 (675,281)
Settlement of decommissioning obligations 9 (105,734) (4,150)
Cash provided by operating activities 15,716,658 7,371,133
Cash flows used in investing activities
Additions to exploration and evaluation assets 6 (1,059,825) (2,849,427)
Additions to property and equipment 10 (14,186,910) (8,292,524)
Changes in non-cash working capital (1,024,027) 1,740,101
Cash flows used in investing activities (16,270,762) (9,401,850)
Cash flows used in financing activities
Common shares issued - 1,775,003
Payment of promissory note - (2,018,577)
Lease payments 8 (55,266) (23,259)
Cash flows used in financing activities (55,266) (266,833)
Effect of changes in the exchange rate on cash (699,627) 38,075
Decrease in cash (1,308,997) (2,259,475)
Cash, beginning of period 12,135,377 13,060,969
Cash, end of period 10,826,380 10,801,494
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.
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 August
28, 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
June 30, December 31, 2023
2024
Colombia (i) $ 290,940 $ 312,530
Canada (ii) 136,382 542,304
Sub-total 427,322 854,834
Long-term portion (174,190) (243,081)
Current portion of restricted cash and deposits $ 253,132 $ 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 was able to recover its
$337,031 (CAD $445,749) deposit related to the Company's liability rating
management ("LMR"). The remaining $136,382 (2023: $205,273) pertain to other
deposits held in Canada.
4. Trade and other receivables
June 30, December 31, 2023
2024
Trade receivables, net of advances $ 2,840,134 $ 2,238,918
Other accounts receivable 1,108,119 1,298,018
$ 3,948,253 $ 3,536,936
As at June 30, 2024, other accounts receivable include $699,835 (December 31,
2023 - $682,197) receivable from on demand loans with executives and
directors.
5. Taxes receivable
June 30, December 31, 2023
2024
Value-added tax (VAT) credits recoverable $ 1,914,220 $ 1,703,260
Income tax withholdings and advances, net 2,674,727 2,952,139
$ 4,588,947 $ 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
June 30, December 31,
2024 2023
Balance, beginning of the period $ - $ -
Additions, net 1,059,825 3,212,808
Reclassification to Property and Equipment (Note 7) - (3,212,808)
Balance, end of the period $ 1,059,825 $ -
During 2024, the Company incurred in exploration and development costs
associated to its Baquiano 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 14,179,895 6,917 14,186,812
Adjustment to ROU assets - (53,543) (53,543)
Decommissioning additions 760,060 - 760,060
Balance, June 30, 2024 $ 90,232,820 $ 497,591 $ 90,730,411
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 6,739,870 53,798 6,793,668
Impairment loss 1,542,000 - 1,542,000
Balance, June 30, 2024 $ 45,356,190 $ 280,940 $ 45,637,130
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 (97,584) (9,448) (107,032)
Balance June 30, 2024 $ (258,821) $ (12,470) $ (271,088)
Net Book Value
Balance December 31, 2023 $ 38,057,308 $ 314,053 $ 37,371,361
Balance June 30, 2024 $ 44,617,809 $ 204,181 $ 45,821,990
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 six months ended June 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 (40,461) (74,211)
Interest 17,254 22,011
Effects of movements in foreign exchange rates (10,458) 6,112
Obligation, end of the period 233,385 320,593
Current portion (49,313) (103,674)
Long-term portion 184,072 216,919
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 June 30, 2024, the Company has the following future lease
obligations:
Less than one year 49,313
2 - 5 years 269,676
Total lease payments 318,989
Amounts representing interest over the term (85,604)
Present value of the net obligation 233,385
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:
June 30, December 31,
2024 2023
Obligation, beginning of the period 3,973,075 $ 3,303,301
Additions 760,060 1,000,889
Change in estimated cash flows - (262,066)
Payments or settlements (105,734) (19,545)
Dispositions - (191,081)
Accretion expense 78,739 127,478
Effects of movements in foreign exchange rates (21,422) 14,099
4,684,718 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 (2022: 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 $6,396,370 (2023:
$5,686,938).
10. Share Capital
(a) Authorized: Unlimited number of common shares without par value
(b) Issued:
June 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 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 Company
stock option plan as at June 30, 2024 and December 31, 2023 and changes during
the periods ended on those dates is presented below:
June 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 9,843,887 $0.38 1,650,000 $0.27
Expired/Forfeited - - (1,375,000) $0.12
Exercised (3,545,555) $0.19 (333,332) $0.11
End of period 26,830,000 $0.29 20,531,668 $0.24
Exercisable, end of period 7,317,220 $0.25 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 750,000 $1.15 Oct. 22, 2028 750,000
May 3, 2019 235,000 $0.31 May 3, 2029 235,000
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 5,150,002 $0.13 June 13, 2024 and 2025 2,166,666
June 9, 2022 1,200,001 $0.28 Dec. 9, 2023, 2024 and 2025 433,333
September 7, 2022 833,334 $0.26 Mar. 7, 2024, 2025 and 2026 -
December 21, 2022 4,951,110 $0.28 June 21, 2024, 2025 and 2026 1,298,888
January 23, 2023 466,666 $0.32 July 23, 2024, 2025 and 2026 33,333
September 21, 2023 1,000,000 $0.33 Mar. 21, 2025, 2026 and 2027 -
April 29, 2024 9,843,887 $0.38 Oct.29 2025, 2026 and 2027 -
Total 26,830,000 $0.23 2.38 years 7,317,220
During the three and six months ended June 30, 2024, the Company recognized
$309,845 and $411,123, respectively (2023: $159,018 and $291,259) 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 June 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 June 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 June 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 October 14, 2024
Total $2,772,356
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 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 and a 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:
June 30, 2024 December 31, 2023
Working capital $ 6,657,117 $ 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 six months ended and as at June 30:
Three months ended June 30, 2024 Colombia Canada Total
Revenue:
Oil Sales $ 17,062,022 $ - $ 17,062,022
Natural gas and liquid sales - 105,121 105,121
Royalties (2,040,580) 19,803 (2,020,777)
Expenses (6,258,927) (3,732,716) (9,991,643)
Impairment loss - (1,542,000) (1,542,000)
Income taxes (2,364,898) - (2,364,898)
Net income (loss) $ 6,397,617 $ (5,149,792) $ 1,247,825
Six months ended June 30, 2024 Colombia Canada Total
Revenue:
Oil Sales $ 33,129,313 $ - $ 33,129,313
Natural gas and liquid sales - 431,472 431,472
Royalties (4,012,959) 3,461 (4,009,498)
Expenses (11,845,635) (6,409,050) (18,254,685)
Impairment loss - (1,542,000) (1,542,000)
Income taxes (5,330,051) - (5,330,051)
Net income (loss) $ 11,940,668 $ (7,516,117) $ 4,424,551
As at June 30, 2024 Colombia Canada Total
Current assets $ 17,499,989 $ 2,475,644 $ 19,975,633
Non-current:
Deferred income taxes 1,832,995 - 1,832,995
Restricted cash 37,808 136,382 174,190
Exploration and evaluation 1,059,825 - 1,059,825
Property, plant and equipment 43,859,733 962,257 44,821,990
Total Assets $ 64,290,350 $ 3,574,283 $ 67,864,633
Current liabilities $ 11,487,165 $ 1,831,351 $ 13,318,516
Non-current liabilities:
Deferred income taxes 3,182,607 - 3,182,607
Other liabilities 375,448 - 375,448
Lease obligation - 184,072 184,072
Decommissioning liability 4,147,564 537,154 4,684,718
Total liabilities $ 19,192,784 $ 2,552,577 $ 21,745,361
Three months ended June 30, 2023 Colombia Canada Total
Revenue:
Oil Sales $ 11,206,886 $ - $ 11,206,886
Natural gas and liquid sales - 431,082 431,082
Royalties (1,399,621) 41,933 (1,357,688)
Expenses (5,270,072) (5,502,162) (10,872,234)
Income taxes (165,462) - (165,462)
Net income (loss) $ 4,371,731 $ (5,129,147) $ (757,416)
Six months ended June 30, 2023 Colombia Canada Total
Revenue:
Oil Sales $ 18,680,723 $ - $ 18,680,723
Natural gas and liquid sales - 922,103 922,103
Royalties (2,328,654) (1,032) (2,329,686)
Expenses (8,460,388) (6,414,971) (14,875,359)
Income taxes (165,462) - (165,462)
Net income (loss) $ 7,726,219 $ (5,493,900) $ 2,232,319
As at June 30, 2023 Colombia Canada Total
Current assets $ 13,847,131 $ 1,312,191 $ 15,159,322
Non-current:
Deferred income taxes 533,558 - 533,558
Restricted cash 37,808 665,875 703,683
Exploration and evaluation 2,849,427 - 2,849,427
Property, plant and equipment 32,495,634 4,563,906 37,059,540
Total Assets $ 49,763,558 $ 6,541,972 $ 56,305,530
Current liabilities $ 8,150,721 $ 9,371,989 $ 17,522,710
Non-current liabilities:
Deferred income taxes 2,505,549 - 2,505,549
Other liabilities 264,881 - 264,881
Lease obligation - 171,517 171,517
Decommissioning liability 3,080,832 563,814 3,644,646
Total liabilities $ 14,001,983 $ 10,107,320 $ 24,109,303
Arrow Exploration Corp.
MANAGEMENT's DISCUSSION AND ANALYSIS
THREE AND SIX MONTHS ENDED JUNE 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 August 28, 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 six months ended June 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 June 30, 2024 Six months ended June 30, 2024 Three months ended June 30, 2023 Six months ended June 30, 2023
(in United States dollars)
Net income (loss) 1,770,825 4,947,551 (757,416) 2,232,319
Add/(subtract):
Share based payments 309,845 411,123 159,018 291,258
Financing costs:
Accretion on decommissioning obligations 41,363 78,739 32,139 61,295
Interest 7,501 17,271 61,349 122,237
Other 108,773 307,837 103,172 148,854
Depreciation and depletion 2,738,894 6,270,668 3,640,189 6,094,553
Derivative loss - - 2,436,047 1,081,772
Impairment loss 1,542,000 1,542,000 - -
Income taxes, current and deferred 2,364,898 5,330,051 165,462 165,462
Adjusted EBITDA ((1)) 8,884,099 18,905,240 5,839,960 10,197,750
Cash flows provided by operating activities 7,134,370 15,716,658 4,990,938 7,371,133
Minus - Changes in non‑cash working capital balances:
Trade and other receivables 710,871 411,317 1,236,941 (468,003)
Restricted cash (83,766) (427,512) 90,814 103,080
Taxes receivable (230,531) (66,453) (433,680) 168,689
Deposits and prepaid expenses (37,991) 114,972 (78,064) 35,548
Inventory (445,693) (445,785) 53,016 170,814
Accounts payable and accrued liabilities 8,603 305,814 (3,020,563) (537,898)
Income taxes (400,167) (1,742,632) 438,639 675,281
Funds flow from operations ((1)) 6,655,696 13,866,379 3,278,041 7,518,644
( )
((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, 2024 Six months Three months ended June 30, 2023
ended June 30, 2024
(in United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 15,146,366 29,551,287 10,280,280
Funds flow from operations ((1)) 6,655,696 13,866,379 3,278,041
Funds flow from operations ((1)) per share -
Basic($) 0.02 0.05 0.01
Diluted ($) 0.02 0.05 0.01
Net income (loss) 1,247,825 4,424,551 (757,416)
Net income (loss) per share -
Basic ($) 0.00 0.02 (0.00)
Diluted ($) 0.00 0.02 (0.00)
Adjusted EBITDA ((1)) 8,884,099 18,905,240 5,839,960
Weighted average shares outstanding -
Basic ($) 285,864,348 285,864,348 230,808,547
Diluted ($) 292,536,147 292,867,527 295,446,047
Common shares end of period 285,864,348 285,864,348 234,274,893
Capital expenditures 8,965,408 15,246,736 6,870,258
Cash and cash equivalents 10,826,380 10,826,380 10,801,494
Current Assets 19,975,633 19,975,633 15,159,322
Current liabilities 13,318,516 13,318,516 17,522,710
Adjusted working capital((1)) 6,657,117 6,657,117 6,341,935
Long-term portion of restricted cash((2)) 174,190 174,190 703,683
Total assets 67,864,633 67,864,633 56,305,530
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 926 1,343 2,318
Natural gas liquids (bbl/d) 4 4 3
Crude oil (bbl/d) 2,387 2,409 1,779
Total (boe/d) 2,546 2,638 2,169
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($1.25) ($0.52) ($0.05)
Crude oil ($/bbl) $54.54 $55.38 $53.64
Total ($/boe) $51.21 $50.66 $44.21
( )
((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, 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 June 30, 2024 Financial and Operational Highlights
· Arrow recorded $15,146,366 in revenues, net of royalties, on
crude oil sales of 233,757 bbls, 370 bbls of natural gas liquids ("NGL's") and
84,269 Mcf of natural gas sales;
· Funds flow from operations of $6,655,696;
· Net income of $1,247,825 and adjusted EBITDA was $8,884,099;
· Drilled three wells (two development and one water injector) 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 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023
Oso Pardo 113 166 80 93 130 138
Ombu (Capella) - - - - - 80
Rio Cravo Este (Tapir) 1,283 1,644 1,326 1,443 1,592 1,004
Carrizales Norte (Tapir) 991 622 621 642 57 -
Total Colombia 2,387 2,432 2,027 2,178 1,779 1,222
Fir, Alberta 77 78 80 81 77 74
Pepper, Alberta 82 220 228 259 313 340
TOTAL (Boe/d) 2,546 2,730 2,335 2,518 2,169 1,635
The Company's average production for the three months ended June 30, 2024 was
2,546 boe/d, which consisted of crude oil production in Colombia of 2,387
bbl/d, natural gas production of 926 Mcf/d, and minor amounts of natural gas
liquids from the Company's Canadian properties. The Company's Q2 2024
production was 7% lower than its Q1 2024 production and 17% higher when
compared to Q2 2023.
Average Daily Natural Gas and Oil Production and Sales Volumes
Three months ended Six months ended
June 30 June 30
2024 2023 2024 2023
Natural Gas (Mcf/d)
Natural gas production 926 2,318 1,343 2,388
Natural gas sales 926 2,318 1,343 2,388
Realized Contractual Natural Gas Sales 926 2,318 1,343 2,388
Crude Oil (bbl/d)
Crude oil production 2,387 1,779 2,409 1,502
Inventory movements and other 181 40 93 (24)
Crude Oil Sales 2,569 1,819 2,502 1,478
Corporate
Natural gas production (boe/d) 155 386 224 398
Natural gas liquids(bbl/d) 4 4 4 4
Crude oil production (bbl/d) 2,387 1,779 2,409 1,502
Total production (boe/d) 2,546 2,169 2,638 1,904
Inventory movements and other (boe/d) 181 40 93 (24)
Total Corporate Sales (boe/d) 2,728 2,209 2,731 1,880
During the three and six months ended June 30, 2024 the majority of production
was attributed to Colombia, where most of Company's blocks were producing. The
volumes reported as inventory movements 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 Six months ended
June 30 June 30
2024 2023 2024 2023
Natural Gas
Natural gas revenues 79,226 413,632 379,450 881,508
NGL revenues 25,894 17,450 52,022 40,595
Royalties 19,803 41,933 3,461 (1,032)
Revenues, net of royalties 124,924 473,015 434,933 921,071
Oil
Oil revenues 17,062,022 11,206,886 33,129,313 18,680,723
Royalties (2,040,580) (1,399,621) (4,012,959) (2,328,654)
Revenues, net of royalties 15,021,442 9,807,265 29,116,354 16,352,069
Corporate
Natural gas revenues 79,226 413,632 379,450 881,508
NGL revenues 25,894 17,450 52,022 40,595
Oil revenues 17,062,022 11,206,886 33,129,313 18,680,723
Total revenues 17,167,143 11,637,968 33,560,785 19,602,826
Royalties (2,020,777) (1,357,688) (4,009,498) (2,329,686)
Natural gas and crude oil revenues, net of royalties 15,146,366 10,280,280 29,551,287 17,273,140
Natural gas and crude oil revenues, net of royalties, for the three and six
months ended June 30, 2024 were $15,145,366 and $29,551,287, respectively
(2023: $10,280,280 and $17,273,140), which represents an increase of 47% and
71%, respectively, when compared to the same 2023 periods, and 5% higher than
Q1 2024. These significant increases are mainly due to increased oil
production in Colombia, offset by decrease in revenue in Canada.
Average Benchmark and Realized Prices
Three months ended June 30 Six months ended June 30
2024 2023 Change 2024 2023 Change
Benchmark Prices
AECO (C$/Mcf) $1.20 $2.46 (51%) $1.87 $2.85 (34%)
Brent ($/bbl) $83.00 $74.98 11% $83.84 $77.10 9%
West Texas Intermediate ($/bbl) $80.55 $73.75 9% $78.75 $74.90 5%
Realized Prices
Natural gas, net of transportation ($/Mcf) $0.94 $1.96 (52%) $1.55 $2.04 (24%)
Natural gas liquids ($/bbl) $69.96 $55.33 26% $68.02 $61.01 11%
Crude oil, net of transportation ($/bbl) $72.99 $67.69 8% $73.15 $69.83 5%
Corporate average, net of transport ($/boe)((1)) $69.39 $57.89 20% $67.99 $57.62 18%
((1)Non-IFRS measure)
The Company realized prices of $69.39 and $67.99 per boe during the three and
six months ended June 30, 2024, respectively (2023: $57.89 and $57.62), due to
increased in oil prices during 2024, partially offset by natural gas prices
which decreased during this period.
Operating Expenses
Three months ended June 30 Six months ended June 30
2024 2023 2024 2023
Natural gas & NGL's 204,106 465,154 510,330 982,807
Crude oil 2,271,476 926,336 4,034,263 1,526,273
Total operating expenses 2,475,582 1,391,490 4,544,593 2,509,080
Natural gas ($/Mcf) $2.42 $2.21 $2.09 $2.27
Crude oil ($/bbl) $9.72 $5.59 $8.91 $5.71
Corporate ($/boe)((1)) $10.01 $6.92 $9.21 $7.37
((1)Non-IFRS measure)
During the three and six months ended June 30, 2024, Arrow incurred operating
expenses of $2,475,582 and $4,544,593, respectively (2023: $1,391,490 and
$2,509,080). This increase in operating costs is mainly due to increased
production in the Company's Carrizales Norte field, including production of
heavier oil, and $464,900 of additional operating costs corresponding to the
Capella inventory volumes sold during Q2 2024.
Operating Netbacks
Three months ended June 30 Six months ended June 30
2024 2023 2024 2023
Natural Gas ($/Mcf)
Revenue, net of transportation expense $0.94 $1.96 $1.55 $2.03
Royalties $0.23 $0.20 $0.01 ($0.00)
Operating expenses ($2.42) ($2.21) ($2.09) ($2.27)
Natural Gas operating netback((1)) ($1.25) ($0.05) ($0.52) ($0.24)
Crude oil ($/bbl)
Revenue, net of transportation expense $72.99 $67.69 $73.15 $69.83
Royalties ($8.73) ($8.46) ($8.86) ($8.70)
Operating expenses ($9.72) ($5.59) ($8.91) ($5.71)
Crude Oil operating netback((1)) $54.54 $53.64 $55.38 $55.42
Corporate ($/boe)
Revenue, net of transportation expense $69.39 $57.89 $67.99 $57.62
Royalties ($8.17) ($6.76) ($8.12) ($6.85)
Operating expenses ($10.01) ($6.92) ($9.21) ($7.37)
Corporate Operating netback((1)) $51.21 $44.21 $50.66 $43.40
( (1))Non-IFRS measure
The operating netbacks of the Company continued within healthy levels during
2024 due increasing production from its Colombian assets and improved crude
oil prices, which were offset by decreases in natural gas prices.
General and Administrative Expenses (G&A)
Three months ended June 30 Six months ended June 30
2024 2023 2024 2023
General & administrative expenses 3,875,274 3,437,678 6,812,387 5,190,625
G&A recovered from 3(rd) parties (161,697) (189,551) (416,888) (323,750)
Total G&A 3,713,577 3,248,127 6,395,499 4,866,875
Cost per boe $15.01 $23.34 $12.96 $14.31
For the three and six months ended June 30, 2024, G&A expenses before
recoveries totaled $3,875,274 and $6,812,387, respectively (2023: $3,437,678
and $5,190,625). 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 June 30 Six months ended June 30
2024 2023 2024 2023
Share-based Payments 309,845 159,018 411,123 291,259
Share-based compensation expense for the three and six months ended June 30,
2024 totaled $309,845 and $411,123, respectively (2023: $159,018 and
$291,259). During Q2 2024, the Company granted 9,843,887 new options to its
personnel and Directors, which has caused an increase in the shared-based
payments expenses for 2024.
Financing Costs
Three months ended June 30 Six months ended June 30
2024 2023 2024 2023
Financing expense paid or payable 116,274 164,521 325,108 271,091
Non-cash financing costs 41,363 32,139 78,739 61,295
Net financing costs 157,637 196,660 403,847 332,386
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 Six months ended
June 30 June 30
2024 2023 2024 2023
Depletion and depreciation 3,261,894 3,640,189 6,793,668 6,094,553
Depletion and depreciation expense for the three and six months ended June 30,
2024 totaled $3,261,894 and $6,793,668, respectively (2023: $3,640,189 and
$6,094,553). 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 June 30 Six months ended June 30
2024 2023 2024 2023
Impairment loss 1,542,000 - 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 June 30, 2024 the Company has a working capital of $6,657,117. 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 June 30, 2024 the Company's net debt (net cash) was calculated as
follows:
June 30, 2024
Current assets $ 19,975,633
Less:
Accounts payable and accrued liabilities 8,418,067
Income taxes payable 4,851,136
Net debt (Net cash) ((1)) $ (6,706,430)
((1))Non-IFRS measure
Working Capital
As at June 30, 2024 the Company's adjusted working capital was calculated as
follows:
June 30, 2024
Current assets:
Cash $ 10,826,380
Restricted cash and deposits 253,132
Trade and other receivables 3,948,253
Taxes receivable 4,588,947
Other current assets 358,921
Less:
Accounts payable and accrued liabilities 8,418,067
Lease obligation 49,313
Income tax payable 4,851,136
Working capital((1)) $ 6,657,117
((1))Non-IFRS measure
Debt Capital
As at June 30, 2024 the Company does not have any outstanding debt balance.
Letters of Credit
As at June 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 October 14, 2024
Total $2,772,356
Share Capital
As at June 30, 2024, the Company had 285,864,348 common shares and 26,830,000
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, 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 $12 million. The Company have made
an application to cancel its commitments on the COR-39.
SUMMARY OF THREE MONTHS RESULTS
2024 2023 2022
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
Oil and natural gas sales, net of royalties
15,146,366 14,404,921 13,406,513 13,990,353 10,280,280 6,992,860 8,931,562 7,614,336
Net income (loss) 1,247,825 3,176,727 (10,492,053) 7,153,120 (757,416) 2,989,735 2,968,117 2,041,955
Income (loss) per share -
basic 0.00 0.01 (0.04) 0.03 (0.00) 0.01 0.01 0.02
diluted 0.00 0.01 (0.04) 0.02 (0.00) 0.01 0.01 0.00
Working capital (deficit) 6,657,117 9,520,829 8,669,114 10,822,475 (2,363,388) 2,619,715 (1,316,665) 7,392,310
Total assets 67,864,633 64,579,940 62,275,023 62,755,250 56,305,530 53,719,944 53,190,248 46,979,259
Net capital expenditures 8,965,408 6,281,329 10,471,447 5,471,561 6,870,258 4,271,693 2,106,463 4,836,860
Average daily production (boe/d) 2,638 2,730 2,666 2,518 2,169 1,635 1,736 1,503
The Company's oil and natural gas sales have increased 47% in Q2 2024 when
compared to Q2 2023 due to increased production in its existing assets and
stable commodity prices.
The Company's production levels in Colombia continue growing. Trends in the
Company's net income are also impacted most significantly by operating
expenses, financing costs, income taxes, depletion, depreciation and
impairment of oil and gas properties, and other income.
OUTSTANDING SHARE DATA
At August 28, 2024 the Company had the following securities issued and
outstanding:
Number Exercise Price Expiry Date
Common shares 285,864,348 n/a n/a
Stock options 750,000 CAD$ 1.15 October 22, 2028
Stock options 235,000 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 1,200,001 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 433,333 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 9,843,887 CAD $0.375 Oct. 29 2025, 2026 and 2027
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 in positive cashflows during 2023 and 2022, providing Arrow with
the funds required to continue with its capital program for 2024.
During 2024, the Company has drilled ten wells at Carrizales Norte, which have
increased overall production, including three horizontal wells. This confirms
Arrow's commitment to increase production and shareholder value. The Company
is able to support its 2024 capital program with current cash on hand and cash
flow from operations.
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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