REG - Arrow Exploration - Arrow Announces 2025 Year End and Q4 2025 Results
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RNS Number : 3049C Arrow Exploration Corp. 29 April 2026
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OR IN PART, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, JAPAN, THE
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CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH
JURISDICTION.
ARROW ANNOUNCES 2025 AUDITED YEAR END AND Q4 2025 RESULTS, FILING OF AUDITED
FINANCIAL STATEMENTS, MD&A AND RESERVES REPORT
CALGARY, April 29, 2026 - Arrow Exploration Corp. (AIM: AXL; TSXV: AXL)
("Arrow" or the "Company"), the high-growth operator with a portfolio of
assets across key Colombian hydrocarbon basins, announces the filing of its
Annual Audited Financial Statements and Management's Discussion and Analysis
("MD&A") for the quarter and year ended December 31, 2025 and the filing
of its 2025 year-end reserves report, which are available on SEDAR
(www.sedar.com (http://www.sedar.com) ) and will also shortly be available on
Arrow's website at www.arrowexploration.ca (http://www.arrowexploration.ca) .
Full Year 2025 Highlights:
· Net income of $1.4 million inclusive of an impairment loss of $7.6
million (FY: 2024: $13.1 million).
· Total oil and gas revenue of $70.5 million, net of royalties (2024:
$73.7 million).
· Cash position of $11 million at the end of 2025 (2024: $18 million).
No outstanding debt.
· Adjusted EBITDA of $35 million (FY 2024: $48 million), with Q4 2025
EBITDA of $6.3 million (Q4 2024: $13.3 million).
· Funds flow from operations of $32 million (FY 2024: $36 million) with
Q4 2025 funds flow from operations of $9 million (Q4 2024: $12 million).
· 13% increase in annual average production to 4,012 boe/d (2024: 3,542
boe/d).
· Successfully drilled 14 development wells at its different fields in
the Tapir block, including Rio Cravo Este (RCE), Carrizales Norte(CN) and
Alberta Llanos (AB), which contributed to maintain Company production levels.
· Drilled a successful exploratory well on the Mateguafa Attic (M)
field in the Tapir block, followed by drilling of three development wells,
including one horizontal well (M-HZ7). One well was drilled in Canada.
· All operations delivered safely, with no accidents or environmental
incidents.
Post Period End Highlights:
· So far in 2026, the Company has drilled four development wells on the
Mateguafa Attic field in the Tapir Block, including the Mateguafa 12 (M-HZ12)
horizontal well.
· Mateguafa HZ12 (M-HZ12) is on production and cleaning up.
· Currently mobilizing the drilling rig to the Icaco pad to start
drilling the Icaco-1 exploration well.
· Received authorization from the Agencia Nacional de Hidrocarburos
(ANH) to terminate the COR-39 exploration and production contract, which
included release of a $12 million commitment.
Outlook
· Arrow has a fully funded 2026 work program totaling $24 million
targeting up to nine new wells in the Tapir block.
· Continue discussions with its partner and authorities on the contract
extension for the Tapir block. To date the dialog has been very
constructive. Arrow believes that all conditions required for the extension
to be granted have been met and management remains very confident that the
extension will be granted.
· 2026 capital operations to be funded by cash flow and cash on hand.
Marshall Abbott, CEO of Arrow Exploration Corp., commented:
"Arrow's continued drilling success in 2025 has solidified the production and
cashflow base which enables the Company to maintain a constructive low risk
drilling pace. The Company sustained increased production, revenue and EBITDA
that, along with a robust balance sheet, supports the capital program planned
for 2026. Core strategy remains maintaining a disciplined approach to capital
allocation. This allows Arrow to grow production while maintaining positive
cash flow and a growing cash position. Today's strong results show clear
success in our operating strategy. Arrow is confident in continuing to
successfully pursue the scope and repeatability that the Colombian Tapir Block
offers. The Company focus remains on growing production and cash flow that
will strengthen valuation and afford greater optionality in pursuing
additional opportunities."
"Arrow continues to have a strong balance sheet with no debt. The funds for
the 2026 capital operations are expected to come from operating cash flow and
cash reserves."
The Arrow team continues to strive towards growth, operational excellence and
increasing shareholder value."
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended Year ended December 31, Three months ended Year ended December 31,
December 31, 2025 December 31, 2024
(in United States dollars, except as otherwise noted) 2025 2024
Total natural gas and crude oil revenues, net of royalties 16,535,582 70,454,619 22,873,626 73,725,028
Funds flow from operations ((1)) 9,245,359 32,359,739 12,519,464 35,619,816
Funds flow from operations ((1)) per share -
Basic($) 0.03 0.11 0.04 0.12
Diluted ($) 0.03 0.11 0.04 0.12
Net income (loss) (3,376,116) 1,442,598 2,081,956 13,175,001
Net income (loss) per share -
Basic ($) (0.01) 0.01 0.01 0.05
Diluted ($) (0.01) 0.00 0.01 0.05
Adjusted EBITDA ((1)) 6,323,833 34,968,736 13,277,044 48,144,181
Weighted average shares outstanding:
Basic 285,864,348 285,864,348 285,864,348 285,864,348
Diluted 288,112,538 291,754,093 290,029,866 291,226,740
Common shares end of period 285,864,348 285,864,348 285,864,348 285,864,348
Capital expenditures 7,752,237 43,190,196 8,928,725 31,121,240
Cash and cash equivalents 11,208,824 11,208,824 18,837,784 18,837,784
Current assets 34,496,370 34,496,370 25,973,196 25,973,196
Current liabilities 32,673,035 32,673,035 14,167,619 14,167,619
Adjusted working capital((1)) 1,823,335 1,823,335 11,805,577 11,805,577
Non-current restricted cash and deposits((2)) 273,257 273,257 167,545 167,545
Total assets 106,017,624 106,017,624 81,268,734 81,268,734
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 1,384 1,536 1,332 1,119
Natural gas liquids (bbl/d) 5 7 5 5
Crude oil (bbl/d) 3,739 3,749 4,511 3,351
Total (boe/d) 3,975 4,012 4,738 3,542
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($0.39) ($1.14) ($0.71) ($0.68)
Crude oil ($/bbl) $33.82 $36.24 $42.80 $50.13
Total ($/boe) $31.77 $33.52 $40.63 $47.33
((1))Non-IFRS measures - see "Non-IFRS Measures" section within this MD&A
((2))Long term restricted cash not included in working capital
2025 Year-End Reserves
Arrow has also filed on SEDAR, the Company's Statement of Reserves Data and
Other Oil and Gas Information, Report on Reserves Data by Independent
Qualified Reserves Evaluator, and Report of Management and Directors on Oil
and Gas Disclosure for the year ended December 31, 2025, as required by
section 2.1 of National Instrument 51-101 - Standards of Disclosure for Oil
and Gas Activities (together, the "Reserve Report").
To recap, the Company's Year-End 2025 Company Working Interest Gross Reserves
Highlights include:
· 1,801 Mboe of Proved Developed Producing Reserves ("PDP Reserves")
· 5,415 Mboe of Proved Reserves ("1P Reserves");
· 11,775 Mboe of Proved plus Probable Reserves ("2P Reserves");
· 20,102 Mboe of Proved plus Probable plus Possible Reserves ("3P
Reserves")(1);
· 1P Reserves estimated net present value before income taxes of US$96
million calculated at a 10% discount rate;
· 2P Reserves estimated net present value before income taxes of US$245
million calculated at a 10% discount rate; and
· 3P Reserves estimated net present value before income taxes of US$473
million calculated at a 10% discount rate.
Arrow refers readers to the Company's press release of March 20, 2026 for
additional details, as well as to the Reserve Report filed on SEDAR.
Discussion of Operating Results
The Company increased its annual production in 2025 as a result of new wells
at its Mateguafa Attic and Alberta Llanos fields in the Tapir block. These
have allowed the Company to continue its healthy level of operating results
and EBITDA, despite decreases in crude oil prices and natural gas during
2025. The Company's natural gas production in Canada has fluctuated over the
year due to maintenance, shut ins and natural declines.
Average Production by Property
Average Production Boe/d YTD 2025 Q4 2025 Q3 2025 Q2 2025 Q1 2025 YTD 2024 Q4 2024
Oso Pardo 114 95 103 131 126 153 154
Rio Cravo Este (Tapir) 1,043 996 1,065 996 1,118 1,294 1,178
Carrizales Norte (Tapir) 1,991 1,702 1,879 2,070 2,321 1,897 3,153
Alberta Llanos (Tapir) 474 446 943 296 205 7 26
Mateguafa (Tapir) 127 500 - - - - -
Total Colombia 3,749 3,739 3,990 3,493 3,770 3,351 4,511
Fir, Alberta 100 107 85 100 105 81 88
Pepper, Alberta 162 129 139 170 210 110 139
KEHO, Alberta 1 - - 5 - - -
TOTAL (Boe/d) 4,012 3,975 4,214 3,768 4,085 3,542 4,738
The Company's average production for the three months and year ended December
31, 2025 was 3,975 and 4,012 boe/d, respectively, which consisted of crude oil
production in Colombia of 3,739 and 3,749 bbl/d, respectively, natural gas
production of 1,384 and 1,536 Mcf/d, respectively, and minor amounts of
natural gas liquids.
Discussion of Financial Results
During Q4 2025 the Company realized lower oil and gas prices than in Q4 2024,
as summarized below.
Three months ended
December 31,
2025 2024 Change
Benchmark Prices
AECO (C$/Mcf) $2.20 $1.50 47%
Brent ($/bbl) $63.70 $73.13 (13%)
West Texas Intermediate ($/bbl) $59.15 $70.30 (16%)
Realized Prices
Natural gas, net of transportation ($/Mcf) $1.52 $1.21 26%
Natural gas liquids ($/bbl) $59.42 $65.73 (10%)
Crude oil, net of transportation ($/bbl) $51.12 $57.04 (10%)
Corporate average, net of transport ($/boe)((1)) $54.08 $54.73 (1%)
((1)Non-IFRS measure)
As at December 31, 2025, the Company reviewed its cash-generating units
("CGU") for property and equipment and determined that there were indicators
of impairment its Keho CGU and its Oso Pardo CGU and recognized an loss of
$7.6 million (see MD&A for further details).
Operating Netbacks
The Company also continued to realize good operating netbacks, as summarized
below.
Three months ended Year ended
December 31, December 31,
2025 2024 2025 2024
Natural Gas ($/Mcf)
Revenue, net of transportation expense $1.52 $1.21 $1.24 $1.35
Royalties ($0.06) ($0.05) ($0.07) ($0.02)
Operating expenses ($1.85) ($1.87) ($2.30) ($2.01)
Natural Gas operating netback((1)) ($0.39) ($0.71) ($1.13) ($0.68)
Crude oil ($/bbl)
Revenue, net of transportation expense $51.12 $57.04 $57.26 $65.40
Royalties ($5.15) ($2.61) ($6.51) ($6.33)
Operating expenses ($12.15) ($11.63) ($14.51) ($8.94)
Crude Oil operating netback((1)) $33.82 $42.80 $36.24 $50.13
Corporate ($/boe)
Revenue, net of transportation expense $48.72 $54.73 $54.08 $62.41
Royalties ($4.87) ($2.50) ($6.11) ($5.99)
Operating expenses ($12.08) ($11.60) ($14.45) ($9.09)
Corporate Operating netback((1)) $31.77 $40.63 $33.52 $47.33
( (1))Non-IFRS measure
The operating netbacks of the Company were lower in 2025, due to increased
operating costs at its Colombia assets as well as lower overall crude oil
prices.
During 2025, the Company invested $43 million of capital expenditures,
primarily in connection with the drilling of 16 wells in the Tapir Block and
one in Canada. This acceleration in operational tempo is expected to continue
in 2026, 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
Hannam & Partners (Joint Broker)
Leif Powis +44 20 7907 8500
Samuel Merlin
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. By way of a private commercial contract with the recognized
interest holder before Ecopetrol S.A., Arrow is entitled to receive 50% of the
production from the Tapir block. The formal assignment to the Company is
subject to Ecopetrol's consent. Arrow's seasoned team is led by a hands-on
executive team supported by an experienced board. Arrow is listed on the AIM
market of the London Stock Exchange and on TSX Venture Exchange under the
symbol "AXL".
Forward-looking Statements
This news release contains certain statements or disclosures relating to Arrow
that are based on the expectations of its management as well as assumptions
made by and information currently available to Arrow which may constitute
forward-looking statements or information ("forward-looking statements") under
applicable securities laws. All such statements and disclosures, other than
those of historical fact, which address activities, events, outcomes, results
or developments that Arrow anticipates or expects may, could or will occur in
the future (in whole or in part) should be considered forward-looking
statements. In some cases, forward-looking statements can be identified by the
use of the words "continue", "expect", "opportunity", "plan", "potential" and
"will" and similar expressions. The forward-looking statements contained in
this news release reflect several material factors and expectations and
assumptions of Arrow, including without limitation, Arrow's evaluation of the
impacts of COVID-19, the potential of Arrow's Colombian and/or Canadian assets
(or any of them individually), the prices of oil and/or natural gas, and
Arrow's business plan to expand oil and gas production and achieve attractive
potential operating margins. Arrow believes the expectations and assumptions
reflected in the forward-looking statements are reasonable at this time, but
no assurance can be given that these factors, expectations, and assumptions
will prove to be correct.
The forward-looking statements included in this news release are not
guarantees of future performance and should not be unduly relied upon. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ materially
from those anticipated in such forward-looking statements. The forward-looking
statements contained in this news release are made as of the date hereof and
the Company undertakes no obligations to update publicly or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, unless so required by applicable securities laws.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that
term is defined in policies of the TSX Venture Exchange) accepts
responsibility for the adequacy or accuracy of this release.
Glossary
Bbl/d or bop/d: Barrels per day
$/Bbl: Dollars per barrel
Mcf/d: Thousand cubic feet of gas per day
Mmcf/d: Million cubic feet of gas per day
$/Mcf: Dollars per thousand cubic feet of gas
Mboe: Thousands of barrels of oil equivalent
Boe/d: Barrels of oil equivalent per day
$/Boe: Dollars per barrel of oil equivalent
BOE's may be misleading particularly if used in isolation. A BOE conversion
ratio of 6 Mcf: 1 bblis based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.
Non‐IFRS Measures
The Company uses non-IFRS measures to evaluate its performance which are
measures not defined in IFRS. Adjusted working capital, funds flow from
operations, realized prices, operating netback and adjusted EBITDA 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.
Qualified Person's Statement
The technical information contained in this announcement has been reviewed and
approved by Grant Carnie, senior non-executive director of Arrow Exploration
Corp. Mr. Carnie was formerly a member of the Canadian Society of Petroleum
Geologists, holds a B.Sc. in Geology from the University of Alberta and has
over 35 years' experience in the oil and gas industry.
This Announcement contains inside information for the purposes of the UK
version of the market abuse regulation (EU No. 596/2014) as it forms part of
United Kingdom domestic law by virtue of the European Union (Withdrawal) Act
2018 ("UK MAR").
Arrow Exploration Corp.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ended DECEMBER 31, 2025 AND 2024
IN UNITED STATES DOLLARS
INDEPENDENT AUDITOR'S REPORT
To the shareholders of Arrow Exploration Corp.
Opinion
We have audited the consolidated financial statements of Arrow Exploration
Corp. and its subsidiaries (the Company), which comprise the consolidated
statements of financial position as at December 31, 2025 and 2024, and the
consolidated statements of operations and comprehensive income, changes in
shareholders' equity and cash flows for the years then ended, and notes to the
consolidated financial statements, including material accounting policy
information.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Company as at December 31, 2025 and 2024, and its consolidated financial
performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards (IFRS Accounting
Standards).
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Our responsibilities under those standards are further described in
the Auditor's responsibilities for the audit of the consolidated financial
statements section of our report. We are independent of the Company in
accordance with the ethical requirements that are relevant to our audit of the
consolidated financial statements in Canada, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Key audit matter
Key audit matters are those matters that, in our professional judgment, were
of most significance in the audit of the consolidated financial statements of
the current period. These matters were addressed in the context of the audit
of the consolidated financial statements as a whole, and in forming the
auditor's opinion thereon, and we do not provide a separate opinion on these
matters. For the matter below, our description of how our audit addressed the
matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor's
responsibilities for the audit of the consolidated financial statements
section of our report, including in relation to this matter. Accordingly,
our audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the consolidated financial
statements. The results of our audit procedures, including the procedures
performed to address the matter below, provide the basis for our audit opinion
on the accompanying consolidated financial statements.
Key audit matter How our audit addressed the key audit matter
The impact of estimated oil and gas reserves on property & equipment
We draw attention to notes 2, 3 and 8 of the consolidated financial Our approach to addressing the matter included the following procedures:
statements. The Company uses oil and gas reserves to deplete its development
and production assets included in property and equipment, and to assess for · Tested how management determined reserves, which included the
indicators of impairment or impairment reversal in the Company's cash following:
generating units ("CGUs"). If any such indicators exist, the Company uses oil
and gas reserves to estimate the recoverable amount of the CGU. o The competence, capabilities and objectivity of management's expert was
evaluated, the work performed was understood and the appropriateness of the
The Company had $67.8 million of property and equipment at December 31, 2025. work as audit evidence was evaluated.
Depletion and depreciation expense was $20.6 million for the year ended
December 31, 2025. For the year ended December 31, 2025, impairment of $7.6 o The procedures performed also included evaluation of the methods and
million was recorded. assumptions used by management's expert, tests of data used by management's
expert and an evaluation of their findings.
Reserves are evaluated by the Company's independent petroleum engineers
(management's expert). Key assumptions developed by management used to o Evaluated the reasonableness of key assumptions used, including expected
determine reserves include forward price estimates, expected future rates of future rates of production, future production costs and the timing and amount
production, future production costs and the timing and amount of future of future development expenditures by considering current and past performance
development expenditures. of the Company and whether these assumptions were consistent with evidence
obtained in other areas of the audit, as applicable.
We considered this a key audit matter due to the judgments by management,
including the use of management's expert and a high degree of auditor o Evaluated the reasonableness of forward price estimates by comparing those
judgment, subjectivity and effort in performing procedures relating to the key forecasts with third party industry forecasts.
assumptions.
· Recalculated depletion and depreciation expense.
· Evaluated the adequacy of the disclosures in the accompanying
consolidated financial statements in relation to this matter.
Other information
Management is responsible for the other information. The other information
is comprised of Management's Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other
information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information, and in doing so, consider
whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated.
We obtained Management's Discussion & Analysis prior to the date of this
auditor's report. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to
report that fact in this auditor's report. We have nothing to report in this
regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the
consolidated financial statements in accordance with IFRS Accounting
Standards, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible
for assessing the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to
liquidate the Company or to cease operations, or has no realistic alternative
but to do so.
Those charged with governance are responsible for overseeing the Company's
financial reporting process.
Auditor's responsibilities for the audit of the consolidated financial
statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report
that includes our opinion. Reasonable assurance is a high level of assurance
but is not a guarantee that an audit conducted in accordance with Canadian
generally accepted auditing standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing
standards, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
· Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal
control.
· Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control.
· Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.
· Conclude on the appropriateness of management's use of the going
concern basis of accounting and, based on the audit evidence obtained, whether
a material uncertainty exists related to events or conditions that may cast
significant doubt on the Company's ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor's report. However, future events or conditions
may cause the Company to cease to continue as a going concern.
· Evaluate the overall presentation, structure, and content of the
consolidated financial statements, including the disclosures, and whether the
consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
· Plan and perform the group audit to obtain sufficient appropriate
audit evidence regarding the financial information of the entities or business
units within the Company as a basis for forming an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and
review of the work performed for the purposes of the group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the consolidated
financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in
our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's
report is Kim Wiggins.
Calgary,
Canada
April 28, 2026
·
Arrow Exploration Corp.
Consolidated Statements of Financial Position
In United States Dollars
As at Notes December 31, 2025 December 31, 2024
ASSETS
Current assets
Cash $ 11,208,824 $ 18,837,784
Restricted cash and deposits 4 258,006 238,141
Trade and other receivables 5 14,533,377 3,830,215
Taxes receivable 6 7,637,342 2,656,926
Deposits and prepaid expenses 135,221 232,730
Inventory 108,533 177,400
33,881,303 25,973,196
Non-current assets
Restricted cash and deposits 4 273,257 167,545
Exploration and evaluation assets 7 3,437,965 142,995
Property and equipment 8 67,810,032 54,984,998
Total Assets $ 105,402,557 $ 81,268,734
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 31,494,615 $ 8,504,332
Lease obligation 9 67,734 44,639
Income taxes 12 - 4,294,109
Stock based compensation liability 11 495,619 1,324,539
32,057,968 14,167,619
Non-current liabilities
Lease obligations 9 132,952 174,767
Stock based compensation liability 11 116,350 159,408
Other liabilities 855,363 610,059
Deferred income taxes 12 7,930,871 6,832,229
Decommissioning liability 10 9,863,781 6,307,659
Total liabilities 50,957,285 28,251,741
Shareholders' equity
Share capital 11 73,829,795 73,829,795
Contributed surplus 856,093 856,093
Deficit (19,328,296) (20,770,894)
Accumulated other comprehensive loss (912,320) (898,001)
Total shareholders' equity 54,445,272 53,016,993
Total liabilities and shareholders' equity $ 105,402,557 $ 81,268,734
Commitments and contingencies (Note 13)
The accompanying notes are an integral part of these consolidated financial
statements.
On behalf of the Board:
signed "Gage Jull"
Director
signed "Ian Langley" Director
Gage
Jull
Ian Langley
Arrow Exploration Corp.
Consolidated Statements of Operations and Comprehensive Income
In United States Dollars
For the years ended December 31, Notes 2025 2024
Revenue
Oil and natural gas 16 79,429,056 81,559,184
Royalties 16 (8,974,437) (7,834,156)
Total oil and natural gas revenue, net of royalties 70,454,619 73,725,028
Expenses
Operating 21,218,759 11,878,177
Exploration 7 3,008,415 -
Environmental - 127,890
Administrative 11,935,167 12,884,499
Share-based compensation expense 11 156,461 1,480,664
Financing costs:
Accretion 10 274,423 178,296
Interest 9 28,676 31,846
Other 530,401 330,450
Foreign exchange (gain) loss (971,531) 690,281
Depletion and depreciation 8 20,613,150 17,535,815
Finance and other income (9,912) -
Transaction costs 304,985 -
Impairment (reversal) of oil and gas properties, net 8 7,633,523 (662,753)
Total expenses, net 64,722,517 44,475,165
Income before income tax 5,732,102 29,249,863
Income tax expense
Current 12 3,190,862 10,481,144
Deferred 12 1,098,642 5,593,718
4,289,504 16,074,862
Net income 1,442,598 13,175,001
Other comprehensive loss
Foreign exchange (14,319) (361,679)
Total other comprehensive loss (14,319) (361,679)
Total comprehensive income 1,428,279 12,813,322
Net income per share:
Basic $ 0.01 $ 0.05
Diluted $ 0.00 $ 0.05
Weighted average shares outstanding
Basic 285,864,348 285,864,348
Diluted 291,754,093 291,226,740
The accompanying notes are an integral part of these consolidated financial
statements.
Arrow Exploration Corp.
Statements of Changes in Shareholders' Equity
In United States Dollars
Contributed Surplus Accumulated other comprehensive loss
Share Capital Deficit Total Equity
Balance January 1, 2025 $ 73,829,795 $ 856,093 $ (898,001) $ (20,770,894) $ 53,016,993
Net income - - - 1,442,598 1,442,598
Other comprehensive loss - - (14,319) - (14,319)
Total comprehensive income - - (14,319) 1,442,598 1,428,279
Balance December 31, 2025 $ 73,829,795 856,093 (912,320) (19,328,296) 54,445,272
Contributed Surplus Accumulated other comprehensive loss
Share Capital Deficit Total Equity
Balance January 1, 2024 $ 73,829,795 $ 2,161,945 $ (536,322) $ (33,945,895) $ 41,509,523
Net income - - - 13,175,001 13,175,001
Other comprehensive loss - - (361,679) - (361,679)
Total comprehensive income - - (361,679) 13,175,001 12,813,322
Share-based compensation - 136,752 - - 136,752
Reclassification of share-based compensation (Note 11)
(1,442,604) - - (1,442,604)
Balance December 31, 2024 $ 73,829,795 856,093 (898,001) (20,770,894) 53,016,993
The accompanying notes are an integral part of these consolidated financial
statements.
Arrow Exploration Corp.
Consolidated Statements of Cash Flows
In United States Dollars
For the year ended December 31, Notes 2025 2024
Cash flows provided by operating activities:
Net income $ 1,442,598 $ 13,175,001
Items not involving cash:
Deferred taxes 12 1,098,642 5,593,718
Share-based compensation 11 156,461 1,480,664
Depletion and depreciation 8 20,613,150 17,535,815
Impairment (reversal) of oil and gas properties 8 7,633,523 (662,753)
Interest on leases 9 28,676 31,846
Exploration expense 3,008,415 -
Accretion 10 274,423 178,296
Unrealized foreign exchange (gain) loss (152,085) (439,079)
Environmental - 127,890
Payment of asset decommissioning obligations 10 (536,919) (110,263)
Payment of other liabilities (112,665) (69,754)
Payment of share-based compensation 11 (1,094,480) (1,221,565)
Changes in non‑cash working capital balances:
Restricted cash and deposits (125,577) 449,148
Trade and other receivables (10,703,164) (293,278)
Taxes receivable (4,980,416) 1,998,473
Deposits and prepaid expenses 97,509 (35,328)
Inventory 68,867 314,932
Income tax payable (4,294,109) 1,185,605
Accounts payable and accrued liabilities 14,380,215 285,221
Cash flows provided by operating activities 26,803,064 39,524,589
Cash flows used in investing activities:
Additions to exploration and evaluation assets 7 (13,172,883) (3,818,279)
Additions to property and equipment 8 (30,017,313) (27,302,961)
Changes in non-cash working capital 8,610,070 (1,528,797)
Cash flows used in investing activities (34,580,126) (32,650,037)
Cash flows used in financing activities:
Lease payments 9 (76,048) (57,807)
Cash flows used in financing activities (76,048) (57,807)
Effect of changes in the exchange rate on cash 224,150 (114,337)
(Decrease) increase in cash (7,628,960) 6,702,408
Cash, beginning of year 18,837,784 12,135,376
Cash, end of year 11,208,824 18,837,784
Supplemental information
Interest paid $ - $ -
Taxes paid $ 7,843,804 $ 6,065,043
The accompanying notes are an integral part of these consolidated financial
statements.
Arrow Exploration Corp.
Notes to the Consolidated Financial Statements
In United States Dollars
December 31, 2025
1. Corporate Information
Arrow Exploration Corp. ("Arrow" or "the Company") is a public junior oil and
gas company engaged in the acquisition, exploration and development of oil and
gas properties in Colombia and in Western Canada. The Company's shares trade
on the TSX Venture Exchange and the AIM Market of the London Stock Exchange
plc under the symbol AXL. The head office of Arrow is located at 203, 2303 -
4th Street SW, Calgary, Alberta, Canada, T2S 2S7 and the registered office is
located at 600, 815 8th Avenue SW, Calgary, Alberta, Canada, T2P 3P2.
2. Basis of Presentation
Statement of compliance
The Company prepares its consolidated financial statements in accordance with
International Financial Reporting Standards ("IFRS Accounting Standards") as
issued by the International Accounting Standards Board (IASB). The
consolidated financial statements have been approved and authorized for
issuance by the Board of Directors ("the Board") on April 28, 2026.
Consolidated financial statements
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Subsidiaries are entities controlled by the Company. Control
exists when the Company has the power to govern the financial and operating
policies to obtain benefits from its activities. All inter-entity transactions
have been eliminated upon consolidation.
Basis of measurement
These consolidated financial statements have been prepared on a historical
cost basis except for derivative financial instruments (when applicable) that
are measured at fair value and specifically noted within the notes to these
consolidated financial statements.
Functional and presentation currency
These consolidated financial statements are presented in United States
Dollars. The Canadian Dollar is the functional currency of the Company and its
wholly owned subsidiary Arrow Holdings Ltd. (AHL). The functional currency of
the Company's subsidiaries operating in Colombia and Switzerland is the United
States Dollar. Monetary assets and liabilities denominated in foreign
currencies are translated to the functional currency at the period-end
exchange rate. Non-monetary assets, liabilities, revenues and expenses are
translated at exchange rates at the transaction date. Exchange gains or losses
arising from translation into the functional currency are included in the
determination of net income or loss in the consolidated statements of
operations and comprehensive income. Exchange gains or losses arising from
translation into the presentation currency (USD) from each entity's functional
currency are included in other comprehensive income (loss).
Material accounting estimates and judgments
The preparation of consolidated financial statements requires management to
make estimates and use judgment regarding the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as at the
date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. By their nature, estimates are subject
to measurement uncertainty and changes in such estimates in future periods
could require a material change in the financial statements. Accordingly,
actual results may differ from the estimated amounts as future confirming
events occur. Material estimates and judgments made by management in the
preparation of these financial statements are as follows:
Exploration and evaluation assets
Exploration and evaluation assets require judgment as to whether future
economic benefits exist, including the existence of proven or probable
reserves and the ability to finance exploration and evaluation projects, where
technical feasibility and commercial viability has not yet been determined.
Depletion and depreciation
The amounts recorded for depletion and depreciation are based on estimates of
proved and probable reserves. Assumptions that are valid at the time of
reserve estimation may change materially as new information becomes
available. Changes in forward price estimates, production and future
development costs, recovery rates or decommissioning costs may change the
economic status of reserves and may ultimately result in reserves used for
measurement purposes being removed from similar calculations in future
reporting periods.
Cash Generating Unit ("CGU") and Impairment of Long-lived Assets
IFRS requires that the Company's long-lived assets, represented by oil and
natural gas properties, be aggregated into CGUs, based on their ability to
generate largely independent cash flows, which are used to assess the
properties for impairment. The determination of the Company's CGUs is subject
to management's judgment. Indicators of impairment or reversal are assessed by
management using judgment, considering future plans, market conditions and
commodity prices. In assessing the recoverability, each CGU's carrying value
is compared to its recoverable amount, defined as the greater of its fair
value less costs of disposal and value in use. Recoverable amounts calculated
for impairment testing are based on estimates of future commodity prices,
expected volumes, quantity of reserves and discount rates as well as future
development costs, royalties, and operating costs. In addition, the Company
may identify value associated with undeveloped land with recoverable amounts
calculated based on precedent land transactions as well as the application of
a premium or discount to these precedent transactions and assumptions
regarding the ability to obtain extensions on such land. These calculations
require the use of estimates and assumptions, which by their nature, are
subject to measurement uncertainty. In addition, judgment is exercised by
management as to whether there have been indicators of impairment or of
impairment reversal. Indicators of impairment or impairment reversal may
include, but are not limited to a changes in: market value of assets, asset
performance, estimate of future prices, royalties and costs, estimated
quantity of reserves and appropriate discount rates.
Decommissioning obligations
Measurement of the Company's decommissioning liability involves estimates as
to the cost and timing of incurrence of future decommissioning programs. It
also involves assessment of appropriate discount rates, rates of inflation
applicable to future costs and the rate used to measure the accretion charge
for each reporting period. Measurement of the liability also reflects
current engineering methodologies as well as current environmental legislation
and standards.
Income taxes
The Company's income tax provisions and income tax assets and liabilities are
based on interpretations of applicable tax laws, including income tax treaties
between various countries in which the Company operates, as well as underlying
rules and regulations with respect to transfer pricing. These interpretations
involve judgments and estimates and may be challenged through government
taxation audits that the Company is regularly subject to new information may
become available that causes the Company to change its judgment regarding the
Company's income of applicable the adequacy of existing income tax assets and
liabilities, such changes will
impact net earnings in the period that such a determination is made.
The Company recognises deferred tax assets to the extent that it is probable
that the deductible temporary differences will reverse in the foreseeable
future and that sufficient taxable income will be generated in the future to
recover such deferred tax assets. Assessing the recoverability of deferred tax
assets requires the Company to make significant estimates related to
expectations of future taxable income. Estimates of future taxable income are
based on forecast cash flows from operations and the application of existing
tax laws. To the extent that future cash flows and taxable income differ
significantly from estimates, the ability of the Company to realise the net
deferred tax assets recorded at the reporting date could be impacted. In
addition, future changes in tax laws could limit the ability of the Company to
obtain tax deductions in future periods.
3. Material Accounting Policies
Interests in joint arrangements
Certain of the Company's exploration and production activities are regarded as
joint operations and are conducted under joint operating agreements, whereby
two or more parties jointly control the assets. These consolidated financial
statements reflect only the Company's share of these jointly controlled
operations, and the Company's proportionate share of the relevant revenue and
costs.
Financial instruments
The Company considers whether a contract contains an embedded derivative when
it first becomes a party to it. Embedded derivatives are separated from the
host contract which is not measured at fair value through profit or loss when
the analysis shows that the economic characteristics and risks of embedded
derivatives are not closely related to those of the host contract. Financial
assets and financial liabilities are recognized in the Company's statement of
financial position when the Company becomes party to the contractual
provisions of the instrument. Financial assets are derecognized when the
contractual rights to the cash flows from the financial asset expire or when
the contractual rights to those assets are transferred. Financial
liabilities are derecognized when the obligation specified in the contract is
discharged, cancelled or expired.
Financial assets
The Company's financial assets are comprised of cash, restricted cash, trade
and other receivables and deposits. Cash and restricted cash are classified
as financial assets at amortized cost. Trade and other receivables and
deposits are classified and measured at amortized cost, less any impairment
losses. The initial classification of a financial asset depends upon the
Company's business model for managing its financial assets and the contractual
terms of the cash flows. There are two measurement categories into which the
Company classified its financial assets:
- Amortized Cost: Includes assets that are held within a business model
whose objective is to hold assets to collect contractual cash flows and its
contractual terms give rise on specified dates to cash flows that represent
solely payments of principal and interest;
- Fair Value Through Profit or Loss ("FVTPL"): Includes assets that do not
meet the criteria for amortized cost or FVOCI and are measured at fair value
through profit or loss. This includes all derivative financial instruments.
At initial recognition, the Company measures a financial asset at its fair
value and, in the case of a financial asset not at FVTPL, including
transaction costs that are directly attributable to the acquisition of the
financial asset. Transaction costs of financial assets carried at FVTPL are
recorded as an expense. Financial assets are reclassified subsequent to their
initial recognition only if the business model for managing those financial
assets changes. The affected financial assets will be reclassified on the
first day of the first reporting period following the change in the business
model.
Financial liabilities
Financial liabilities are classified as financial liabilities at fair value
through profit or loss or amortized cost. The Company's financial liabilities
are comprised of accounts payable and accrued liabilities. These are
classified and measured at amortized cost using the effective interest method.
Exploration and evaluation assets
Pre-license costs are recognized in the statement of operations and
comprehensive income as incurred. Exploration and evaluation costs include the
costs of acquiring undeveloped land and drilling costs are initially
capitalized until the drilling of the well is complete and the results have
been evaluated. The costs are accumulated in cost centers by well, field or
exploration area pending determination of technical feasibility and commercial
viability.
The technical feasibility and commercial viability of extracting a mineral
resource is considered to be determinable when proved or probable reserves are
determined to exist. If proved and/or probable reserves are found, the
drilling costs and associated undeveloped land are transferred to property and
equipment after performing an impairment assessment. When exploration and
evaluation assets are determined not to be technically feasible and
commercially viable, or the Company decides not to continue with its activity,
the unrecoverable costs are charged to the consolidated statements of
operations and comprehensive income as exploration expenses.
Property and equipment
Items of property and equipment, which include oil and gas development and
production assets, are measured at cost less accumulated depletion,
depreciation and accumulated impairment losses, net of reversals. The cost of
development and production assets includes: transfers from exploration and
evaluation assets, which generally include the cost to drill the well and the
cost of the associated land upon determination of technical feasibility and
commercial viability; the cost to complete and tie-in the wells; facility
costs; the cost of recognizing provisions for future restoration and
decommissioning; geological and geophysical costs; and directly attributable
overheads. Development and production assets are grouped into CGU's for
impairment testing. Gains and losses on disposal of an item of property and
equipment, including oil and natural gas interests, are determined by
comparing the proceeds from disposal with the carrying amount of property and
equipment and are recognized in the statement of operations and comprehensive
income.
Subsequent costs:
Costs incurred subsequent to the determination of technical feasibility and
commercial viability and the costs of replacing parts of property and
equipment are recognized as oil and gas assets only when they increase the
future economic benefits embodied in the specific asset to which they relate.
All other expenditures are expensed as incurred. Such capitalized oil and
natural gas assets generally represent costs incurred in developing proved
and/or probable reserves and bringing in or enhancing production from such
reserves, and are accumulated on a field or geotechnical area basis. The
carrying amount of any replaced or sold component is derecognized. The costs
of the day-to-day servicing of property and equipment are recognized in
operating expenses as incurred.
Depletion and depreciation:
The net carrying value of development and production assets is depleted using
the unit of production method by reference to the ratio of production in the
period to the related proved plus probable reserves, taking into account
estimated future development costs necessary to bring those reserves into
production. Future development costs are estimated taking into account the
level of development required to produce the reserves. Proved plus probable
reserves are estimated annually by independent qualified reserve evaluators
and represent the estimated quantities of crude oil, natural gas and natural
gas liquids which geological, geophysical and engineering data demonstrate
with a specified degree of certainty to be recoverable in future years from
known reservoirs and which are considered commercially producible.
Depreciation methods, useful lives and residual values are reviewed at each
reporting date.
Impairment
Financial assets
The Company recognizes loss allowances for Expected Credit Losses ("ECLs") on
its financial assets measured at amortized cost. Due to the nature of its
financial assets, the Company measures loss allowances at an amount equal to
expected lifetime ECLs.
Lifetime ECLs are the anticipated ECLs that result from all possible default
events over the expected life of a financial asset. ECLs are a
probability-weighted estimate of credit losses. Credit losses are measured as
the present value of all cash shortfalls. ECLs are discounted at the effective
interest rate of the related financial asset. The Company does not have any
financial assets that contain a financing component.
Non-financial assets
The carrying amounts of the Company's non-financial assets are reviewed at
each reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the asset's recoverable amount
is estimated. Exploration and evaluation assets are also assessed for
impairment prior to being transferred to property and equipment. For the
purpose of impairment testing, assets are grouped together into the smallest
group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups of assets
(CGU).
The recoverable amount of an asset or a CGU is the greater of its value in use
and its fair value less costs of disposal. Fair value less cost to dispose is
determined as the amount that would be obtained from the sale of a CGU in an
arm's length transaction between knowledgeable and willing parties. The fair
value less cost to dispose of oil and gas assets is generally determined as
the net present value of the estimated future cash flows expected to arise
from the continued use of the CGU, including any expansion prospects, and its
eventual disposal, using assumptions that an independent market participant
may take into account. These cash flows are discounted by an appropriate
discount rate which would be applied by such a market participant to arrive at
a net present value of the CGU. In addition, the Company considers whether any
value may be separately attributed to undeveloped land.
An impairment loss is recognized if the carrying amount of a CGU exceeds its
estimated recoverable amount. Impairment losses are recognized in the
statement of operations and comprehensive income. Impairment losses recognized
in respect of CGU's are allocated to reduce the carrying amounts of assets in
the CGU on a pro rata basis. Impairment losses recognized in prior years are
assessed at each reporting date to determine if facts and circumstances
indicate that the loss has decreased or no longer exists. An impairment loss
is reversed if there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that would have
been determined, net of depletion and depreciation, if no impairment loss had
been recognized.
Share based compensation
The Company has a share based compensation plan that is accounted for as a
liability given that it allows holders to exercise stock options in either
common shares or cash, at the holder's discretion. The compensation cost
attributed to stock options granted is measured at the fair value at the grant
date, and expensed over the vesting period. Subsequent to initial recognition,
the stock-based compensation liability is measured at fair value through
profit and loss using the Black-Scholes model using updated estimates and
assumptions at each period end. Upon the settlement of the stock options in
common shares, the previously recognized liability is recorded as an increase
to share capital.
Provisions
A provision is recognized if, as a result of a past event, the Company has a
present legal or constructive obligation that can be estimated reliably, and
it is probable that an outflow of economic benefits will be required to settle
the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax risk-free rate that reflects current market
assessments of the time value of money and the risks specific to the
liability. Provisions are not recognized for future operating losses.
Decommissioning obligations
The Company's activities give rise to dismantling, decommissioning and site
disturbance remediation activities.
Provision is made for the estimated cost of abandonment and site restoration
and capitalized in the relevant asset category. Decommissioning obligations
are measured at the present value of management's best estimate of the
expenditure required to settle the present obligation as at the reporting
date. Subsequent to the initial measurement, the obligation is adjusted at the
end of each period to reflect the passage of time and changes in the estimated
future cash flows underlying the obligation. The increase in the provision due
to the passage of time is recognized as accretion (within finance expense)
whereas increases/decreases due to changes in the estimated future cash flows
or changes in the discount rate are capitalized. Actual costs incurred upon
settlement of the decommissioning obligations are charged against the
provision.
Revenue
The Company's revenues are primarily derived from the production of petroleum
and natural gas. Revenue from contracts with customers is recognized when
the Company satisfies a performance obligation by physically transferring the
product and control to a customer. The Company satisfies its performance
obligations at the point of delivery of the product and not over a period of
time. Revenue is measured based on the consideration specified in contracts
with customers. The total oil and natural gas revenue, net of royalties
represents the Company total revenue from customers as defined by IFRS 15 -
Revenue from Contracts with Customers.
Income tax
Income tax expense is comprised of current and deferred tax. Income tax
expense is recognized in the statement of operations and comprehensive income
except to the extent that it relates to items recognized directly in equity,
in which case it is recognized in equity. Current tax is the expected tax
payable on the taxable income for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable
in respect of previous years. Deferred tax is recognized on the temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized on the initial recognition of assets or
liabilities in a transaction that is not a business combination. In addition,
deferred tax is not recognized for taxable temporary differences arising on
the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, based on the laws that have been
enacted or substantively enacted by the reporting date. Deferred tax assets
and liabilities are offset if there is a legally enforceable right to offset,
and they relate to income taxes levied by the same tax authority on the same
taxable entity, or on different tax entities, but they intend to settle
current tax liabilities and assets on a net basis or their tax assets and
liabilities will be realized simultaneously. A deferred tax asset is
recognized to the extent that it is probable that future taxable profits will
be available against which the temporary difference can be utilized. Deferred
tax assets are reviewed at each reporting date and are reduced to the extent
that it is no longer probable that the related tax benefit will be realized.
Net Income per share
Basic net income per share is calculated by dividing the net income or loss
attributable to common shareholders of the Company by the weighted average
number of common shares outstanding during the period. Diluted net income per
share is calculated by dividing the net income by the number of shares for the
effects of dilutive potential shares. The effects of anti-dilutive potential
shares are not considered in calculating diluted earnings per share.
Future Accounting Standards
The Company plans to adopt the following amendments to accounting standards,
issued by the IASB, that are effective in future periods. The pronouncements
will be adopted on their respective effective dates and their impact to the
consolidated financial statements is currently under assessment.
In April 2024, the IASB issued new IFRS 18 - Presentation and Disclosure in
Financial Statements ("IFRS 18") replacing IAS 1. The new guidance is expected
to improve the usefulness of information presented and disclosed in the
financial statements of companies. IFRS 18 is effective for annual reporting
periods beginning on or after January 1, 2027, with early adoption permitted.
The Company is currently assessing the impact of this new IFRS accounting
standard on its consolidated financial statements.
In May 2024, the IASB issued amendments to IFRS 9 - Financial Instruments and
IFRS - 7 Financial Instruments: Disclosures related to settling financial
liabilities using an electronic payment system and assessing contractual cash
flow characteristics of financial assets. The amendments will be effective
January 1, 2026. The Company has assessed the impact of this new IFRS
accounting standard on its consolidated financial statements and does not
anticipate any material impact.
4. Restricted cash and deposits
December 31, 2025 December 31, 2024
Colombia (i) $ 399,174 $ 275,949
Canada (ii) 132,089 129,737
Sub-total 531,263 405,686
Long-term portion (273,257) (167,545)
Current portion of restricted cash and deposits $ 258,006 $ 238,141
(i) This balance is comprised of a deposit held as
collateral to guarantee abandonment expenditures related to the Tapir and
Santa Isabel blocks.
(ii) This balance pertains to other deposits held in
Canada.
5. Trade and other receivables
December 31, 2025 December 31, 2024
Trade receivables, net of advances $ 190,485 $ 1,926,176
Joint venture receivable 12,237,489 -
Other accounts receivable 2,105,403 1,904,039
$ 14,533,377 $ 3,830,215
As at December 31, 2025, other accounts receivable includes $733,990 (December
31, 2024 - $699,880) receivable from on demand loans with executives and
directors (Note 15).
6. Taxes receivable
December 31, 2025 December 31, 2024
Value-added tax (VAT) credits recoverable $ 3,727,152 $ 1,738,536
Income tax withholdings and advances, net 3,910,190 918,390
$ 7,637,342 $ 2,656,926
The VAT recoverable balance pertains to non-compensated value-added tax
credits originated in Colombia as operational and capital expenditures are
incurred. The Company is entitled to compensate or claim for the reimbursement
of these VAT credits.
7. Exploration and evaluation assets
December 31, 2025 December 31,
2024
Balance, beginning of the year $ 142,995 $ -
Additions, net 12,986,203 3,818,279
Reclassification to Property and equipment (Note 8) (6,775,054) (3,675,284)
Exploration expense and abandonment costs (2,916,179) -
Balance, end of the year $ 3,437,965 $ 142,995
During 2025, the Company incurred exploration and development costs associated
with its Mateguafa Oeste, Mateguafa Attic, Ardea and Capullo prospects,
including seismic studies for other prospects in the Tapir block (2024:
Alberta and Carrizales Norte prospects). Technical feasibility and commercial
viability was determined on the Mateguafa Attic area, transferring $6,775,054
(2024: $3,675,284) to its property and equipment. Likewise, no technical
feasibility nor commercial viability was determined for the Mateguafa Oeste
area and an exploration expense of $2,916,179 was recognized in the statement
of operations and comprehensive income.
8. Property and equipment
Oil and Gas Properties Right of Use and Other Assets
Cost Total
Balance, December 31, 2023 $ 75,292,865 $ 544,217 $ 75,837,082
Additions 27,295,956 6,908 27,302,864
Adjustment to ROU assets - (53,543) (53,543)
Transfers from exploration of evaluation assets 3,675,284 - 3,675,284
Decommissioning adjustment 2,702,058 - 2,702,058
Balance, December 31, 2024 $108,966,163 $ 497,582 $ 109,463,745
Additions 30,017,313 25,147 30,042,460
Decommissioning adjustment 4,112,985 - 4,112,985
Transfers from exploration of evaluation assets 6,775,054 - 6,775,054
Balance, December 31, 2025 $149,871,515 $ 522,729 $150,394,244
Accumulated depletion and depreciation and impairment Oil and Gas Properties Right of Use and Other Assets
Total
Balance, December 31, 2023 $ 37,074,320 $ 227,142 $ 37,301,462
Depletion and depreciation 17,448,880 86,935 17,535,815
Impairment reversal (662,753) - (662,753)
Balance, December 31, 2024 $ 53,860,447 $ 314,077 $ 54,174,524
Depletion and depreciation 20,549,872 63,278 20,613,150
Impairment 7,633,523 - 7,633,523
Balance, December 31, 2025 $ 82,043,842 $ 377,355 $ 82,421,197
Oil and Gas Properties Right of Use and Other Assets
Foreign exchange Total
Balance December 31, 2023 $ (161,237) $ (3,022) $ (164,259)
Effects of movements in foreign
exchange rates (122,332) (17,632) (139,964)
Balance, December 31, 2024 $ (283,569) $ (20,654) $ (304,223)
Effects of movements in foreign
exchange rates 134,573 6,635 141,208
Balance, December 31, 2025 $ (148,996) $ (14,019) $ (163,015)
Net Book Value
Balance December 31, 2025 $ 67,678,677 $ 131,355 $ 67,810,032
Balance December 31, 2024 $ 54,822,147 $ 162,851 $ 54,984,998
Canada
As at December 31, 2025, the Company determined there were indicators of
impairment in its Keho CGU,
mainly due to unsuccessful drilling, and recognized an impairment loss of
$1,781,467 was included in the consolidated statements of operations and
comprehensive income for the year ended December 31, 2025 corresponding to the
totality of costs incurred on this Keho CGU.
As at December 31, 2025, the Company determined there were no indicators of
impairment on its Canada CGU.As at December 31, 2024, the Company determined
there were indicators of impairment reversal in its Canada CGU, mainly due to
increased reserve quantities arising as a result of an increase in future
development capital expenditures. Management determined the recoverable amount
of its Canada CGU using the fair value less costs of disposal approach. As the
recoverable amount exceeded the carrying value of the CGU, an impairment
reversal of $662,753 was included in the consolidated statements of operations
for the year ended December 31, 2024.
Colombia
As at December 31, 2025, the Company determined there were indicators of
impairment in its Santa Isabel CGU, mainly due to negative reserves revision
primarily arising from declines in forecast commodity prices, and prepared an
estimate of the fair value less costs of disposal of this CGU. It was
determined that carrying value of its Santa Isabel CGU exceeded its
recoverable amount and, therefore, an impairment loss of $5,852,056,
corresponding to the full carrying value of this CGU, was included in the
consolidated statements of operations and comprehensive income for the year
ended December 31, 2025. The following table outlines forecast benchmark
prices used in the Company's impairment test as at December 31,
2025:
Brent
Year US$/barrel
2026 67.0
2027 68.5
2028 73.5
2029 75.5
2030 77.0
Thereafter (inflation %) 2.0%/yr
The recoverable amount was estimated as the 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, 2025. 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.
9. Lease Obligations
A reconciliation of the discounted lease obligation is set forth below:
2025 2024
Obligation, beginning of the year $ 219,406 $ 320,593
Additions 17,484 -
Changes to leases - (53,543)
Lease payments (76,048) (57,807)
Interest 28,676 31,846
Effects of movements in foreign exchange rates 11,168 (21,683)
Obligation, end of the year 200,686 219,406
Current portion (67,734) (44,639)
Long-term portion 132,952 174,767
In 2025, the Company recorded $17,484 in additions for a new vehicle lease.
During 2024, the Company recognized the impact of a change in payment terms of
its office as a decrease in lease liabilities and ROU assets for $ 53,543. As
at December 31, 2025, the Company has the following future lease obligations:
Less than one year $ 81,674
2 - 5 years 257,723
Total lease payments 339,397
Amounts representing interest over the term (138,711)
Present value of the net obligation $ 200,686
10. Decommissioning Liability
The following table presents the reconciliation of the beginning and ending
aggregate carrying amount of the obligation associated with the
decommissioning of oil and gas properties:
December 31, December 31,
2025 2024
Obligation, beginning of the year 6,307,659 3,973,075
Additions 1,999,904 1,467,282
Change in estimated cash flows 1,791,305 843,978
Payments or settlements (536,919) (110,263)
Accretion expense 274,423 178,296
Effects of movements in foreign exchange rates 27,409 (44,709)
9,863,781 6,307,659
Obligation, end of the year
The obligation was calculated using a risk-free discount rate range of 2.50%
to 3.75% in Canada (2024: 1.25% to 4.50%) and between 3.52% and 4.16% in
Colombia (2024: 4.30% and 4.60%) with an inflation rate of 2.0% and 1.90%,
respectively (2024: 2.0% and 1.9%). The increase in estimated cash flows
during the year ended December 31, 2025 was primarily due to increase in cost
estimate. The majority of costs are expected to occur between 2026 and 2038.
The undiscounted amount of cash flows, required over the estimated reserve
life of the underlying assets, to settle the obligation, adjusted for
inflation, is estimated at $12,033,788 (2024: $8,155,704).
11. Share Capital
(a) Authorized: Unlimited number of common shares without par value
(b) Issued:
December 31, 2025 December 31, 2024
Common shares Shares Amounts Shares Amounts
Balance at beginning and end of the year 285,864,348 73,829,795 285,864,348 73,829,795
On June 13, 2025, the Company commenced a Normal Course Issuer Bid (NCIB)
under which the Company was authorized to purchase up to a maximum of
14,293,217 outstanding common shares . This NCIB will terminate on the earlier
of June 13, 2026 and such earlier date as the maximum number of common shares
are purchased or the NCIB is completed or terminated by the Company. For the
year ended December 31, 2025, no common shares have been purchased by the
Company under this NCIB.
The calculation of basic net income per share was based on net income
available to holders of common shares and the weighted average number of
common shares outstanding for 2025 of 285,864,348 (2024: 285,864,348).
Diluted net income per share was calculated by adjusting the number of
outstanding common shares for the effects of potential dilution attributed to
stock options granted to executives and employees. For the year 2025, there
were 18,297,038 (2024: 16,602,224)stock options that were anti-dilutive and,
therefore, excluded from the diluted number of common shares calculation.
(c) 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 and one third of each
grant vest after every anniversary over three years. A summary of the
Company's stock option plan as at December 31, 2025 and December 31, 2024 and
changes during the years ended on those dates is presented below:
December 31, 2025 December 31, 2024
Stock Options Number of options Weighted average Number of options Weighted average
exercise price exercise price
(CAD $) (CAD $)
Beginning of year 24,795,002 $0.32 20,531,668 $0.24
Granted 6,198,334 $0.23 14,176,108 $0.41
Expired/Forfeited (3,803,518) - (2,433,333) -
Exercised (6,676,112) $0.19 (7,479,441) $0.20
End of year 20,513,706 $0.32 24,795,002 $0.32
Exercisable, end of year 5,866,486 $0.19 8,442,778 $0.19
Date of Grant Number Outstanding Exercise Price Weighted Date of Number
(CAD $) Average Remaining Contractual Life Expiry Exercisable
December 31, 2025
October 22, 2018 250,000 $1.15 2.81 Oct. 22, 2028 250,000
May 3, 2019 100,000 $0.31 3.34 May 3, 2029 100,000
March 20, 2020 900,000 $0.05 4.22 Mar. 20, 2030 900,000
April 13, 2020 900,000 $0.05 4.28 April 13, 2030 900,000
Date of Grant Number Outstanding Exercise Price Weighted Date of Number
(CAD $) Average Remaining Contractual Life Expiry Exercisable
December 31, 2025
September 7, 2022 416,668 $0.26 0.18 Mar. 7, 2024, 2025 and 2026 416,668
December 21, 2022 1,681,667 $0.28 0.47 June 21, 2024, 2025 and 2026 1,681,667
January 23, 2023 50,000 $0.32 0.56 July 23, 2024, 2025 and 2026 -
September 21, 2023 666,667 $0.33 1.22 Mar. 21, 2025, 2026 and 2027 333,333
April 29, 2024 5,495,926 $0.38 1.83 Oct.29 2025, 2026 and 2027 -
September 11, 2024 3,854,444 $0.48 2.19 Mar.11 2026, 2027 and 2028 1,284,818
October 8, 2025 6,198,334 $0.23 3.33 Apr. 8, 2027, 2028 and 2029 -
Total 20,513,706 $0.32 1.76 years 5,866,486
During the year ended December 31, 2025, the Company recognized $156,461 (2024
- $1,480,664) in share-based compensation expense. During 2024, due to an
amendment in the stock option plan that allows stock option holders to select
an equity or cash settlement, the Company started recognition of its
share-based compensation plan as a liability plan, with no equity component,
and reclassified $1,442,604 from contributed surplus to share-based
compensation liability to recognize the opening balance of this liability. The
Company fair values its stock based compensation liability on every balance
sheet date using the assumptions summarized in the following table , and the
Black-Scholes valuation model for the years ended December 31, 2025 and 2024:
2025 2024
Weighted-average risk free interest rate (%) 2.46 3.78
Weighted-average expected life (years) 2.50 2.50
Weighted-average volatility (%) 60.53 81.06
Forfeiture rate (%) 7.40 5.69
12. Income taxes
The provision for income taxes varies from the amount that would be computed
by applying the expected tax rate to income before income taxes. The principal
reasons for differences between such expected income tax expense and the
amount actually recorded are as follows:
2025 2024
Income before income taxes $ 5,732,102 $ 29,249,864
Corporate income tax rate 23% 23%
Computed expected tax expense 1,318,383 6,727,469
Increase (decrease) in income taxes resulting from:
Share-based compensation 35,986 340,553
(Recognized)/unrecognized deferred tax benefits 3,070,574 1,292,303
Tax rate difference on foreign jurisdictions 1,239,550 7,799,540
Changes in income tax rate (1,518,192) -
Other permanent differences 788,257 110,146
Foreign exchange and others (645,054) (195,149)
Income tax expense $ 4,289,504 $ 16,074,862
As at December 31, 2025, the Company recognized a deferred tax liability of
$7,930,871 (2024: $6,832,229) which represents the tax impact of temporary
differences in another Colombian legal entity. In Colombia, the enacted tax
rate is 35% with an additional tax rate of 5%, 10% or 15% for oil producers,
subject to international oil prices. The current and deferred tax rate applied
in Colombia was 35% in 2025 (2024: 45%).
The components of the Company's deferred income tax assets and liabilities are
as follows:
As at December 31 2025 2024
Property and equipment $ (8,151,197) $ (8,166,457)
Decommissioning liabilities and other provisions 3,479,676 2,544,440
Net deferred tax balance $ (4,671,521) $ (5,622,017)
Deferred tax liability 7,930,871 6,832,229
Unrecognized deferred tax asset (3,259,350) (1,210,212)
Deferred tax asset balance $ - $ -
At December 31, 2025, the Company had non-capital losses carried forward of
approximately $56,463,789 (2024: $50,241,304) available to reduce future years
taxable income. These losses commence expiring in 2029. At December 31,
2025, the Company had income tax credits and benefits, including non-capital
losses, of approximately $67,983,394 (2024: $60,093,726) related to Canada.
Non-capital losses, tax credits and benefits have not been recognized in the
financial statements due to uncertainties associated with its ability to
utilize these balances in the future.
13. Commitments and Contingencies
Exploration and Production Contracts
The Company has entered into a number of exploration contracts in Colombia
which require the Company to fulfill work program commitments and issue
financial guarantees related thereto (see Letters of Credit section below).
Subsequent to 2025, the Company received confirmation that its COR-39
exploration and production contract has been terminated by mutual agreement
with the ANH and, therefore, its $12,000,000 exploration commitment related to
this contract has been canceled at no additional costs to the Company. As a
result, the Company has no outstanding exploration commitments.
Contingencies
From time to time, the Company may be involved in litigation or has claims
sought against it in the normal course of business operations. Management of
the Company is not currently aware of any claims or actions that would
materially affect the Company's reported financial position or results from
operations. Under the terms of certain agreements and the Company's by-laws
the Company indemnifies individuals who have acted at the Company's request to
be a director and/or officer of the Company, to the extent permitted by law,
against any and all damages, liabilities, costs, charges or expenses suffered
by or incurred by those individuals.
Letters of Credit
At December 31, 2025, the Company had obligations under Letters of Credit
("LC's") outstanding totaling $3.6 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 685,296 April 14, 2027
ANH Carrao Energy Financial Capacity 1,672,162 June 30, 2026
COR - 39 ANH Carrao Energy Compliance 100,000 June 30, 2026
OMBU ANH Carrao Energy Financial Capacity 436,300 October 14, 2026
ANH Carrao Energy Abandonment 708,119 August 28, 2026
Total 3,601,878
14. Risk Management
The Company holds various forms of financial instruments. The nature of these
instruments and the Company's operations expose the Company to commodity
price, credit and foreign exchange risks. The Company manages its exposure to
these risks by operating in a manner that minimizes its exposure to the extent
practical.
(a) Commodity price risk
The Company's principal operation is the production and sale of crude oil
and natural gas. Fluctuations in prices of these commodities directly impact
the Company's financial performance. Commodity price risk is the risk that the
fair value or future cash flows of a financial instrument will fluctuate as a
result of changes in commodity prices. Lower commodity prices can also
impact the Company's ability to raise capital. Commodity prices for crude
oil are impacted by world economic events that dictate the levels of supply
and demand. There were no commodity derivative contracts during 2025 or
2024.
(b) Credit Risk
Credit risk reflects the risk of financial loss to the Company if a customer
or counterparty to a contract fails to fulfill their contractual obligations.
It arises mostly from the Company's cash balances and accounts receivable. The
Company's cash balances are held with five large reputable financial
institutions, and management has therefore concluded that associated credit
risk is low. The majority of the Company's trade accounts receivable balances
relate to petroleum and natural gas sales, which are normally collected within
25 days (in Canada) and up to 15 days (in Colombia) after the month of
production. 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 a group of producing companies, that accounts for around 73% (2024: 26%)
of the revenue, and commodity trader under existing sale/offtake agreements
with prepayment provisions and priced using the Brent benchmark. Other
accounts receivable mainly relate to balances owed by the Company's partner in
one of its blocks, and are mainly recoverable through joint billings. The
Company has historically not experienced any significant collection issues
with its customers and partners.
(c) Market Risk
Market risk is comprised of two components: foreign currency exchange risk and
interest rate risk.
i) Foreign Currency Exchange Risk
The Company operates on an international basis and therefore foreign exchange
risk exposures arise from transactions denominated in currencies other than
the United States dollar. The Company is exposed to foreign currency
fluctuations as it holds cash and incurs expenditures in exploration and
evaluation and administrative costs in foreign currencies. The Company incurs
expenditures in Canadian dollars, United States dollars, British Pounds and
the Colombian peso and is exposed to fluctuations in exchange rates in these
currencies. There were no exchange rate derivative contracts in place in 2025
or 2024.
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 on financial assets or liabilities.
(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.
During 2025, the Company entered into a two-year crude oil prepayment
agreement with an integrated energy major to market its oil production in
Colombia. The agreement provides access to $20 million in a revolving line
of credit until June 2026 and $15 million until June 2027. The interest rate
is SOFR + 4% for the first $10 million and SOFR + 5% for amounts exceeding $10
million. As at December 31, 2025, no funds have been withdrawn from this line
of credit.
(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), 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. The Company prepares annual budgets, which are updated as necessary
including current and forecast crude oil prices, changes in capital structure,
execution of the Company's business plan and general industry conditions.
The annual budget is approved by the Board of Directors. The Company's capital
includes the following:
December 31, 2025 December 31, 2024
Working capital 1,823,335 11,805,577
Share capital 73,829,795 73,829,795
75,653,130 85,635,372
15. Key Management Personnel
The Company has determined that key management personnel consists of its
executive management and its Board of Directors. In addition to the salaries
and fees paid to key management, the Company also provides compensation to
both groups under its share-based compensation plans. Compensation expenses
paid to key management personnel were as follows:
Years ended December 31
2025 2024
Salaries and director fees $ 4,333,844 $ 5,291,118
Share-based compensation 1,056,651 854,605
$ 5,390,495 $ 6,145,723
During 2023, the Company granted loans to some of its executives and Directors
in the form of promissory notes, which are due on demand and bear interest at
the average Bank of Canada Interbank Rate (currently 5%). As of December 31,
2025, the aggregate balance of these loans was $733,990, including interest of
$59,395 (2024: $57,413), and is included as other accounts receivable.
16. Segmented Information
The Company has two reportable operating segments: Colombia and Canada. The
Canada segment is also considered the corporate segment. The following tables
show information regarding the Company's segments for the years ended as at
December 31:
Year ended December 31, 2025 Colombia Canada Total
Revenue from oil and natural gas $ 78,608,566 $ 820,490 $ 79,429,056
Royalties (8,935,952) (38,485) (8,974,437)
Expenses (53,490,976) (3,598,018) (57,088,994)
Impairment (5,852,056) (1,781,467) (7,633,523)
Income taxes (4,289,504) - (4,289,504)
Net income (loss) $ 6,040,078 $ (4,597,480) $ 1,442,598
Capital expenditures for the year 2025 $ 41,414,780 $ 1,775,416 $ 43,190,196
Total Assets as at December 31, 2025 $ 100,640,975 $ 4,761,582 $ 105,402,557
Total liabilities as at December 31, 2025 $ 46,362,872 $ 4,594,413 $ 50,957,285
Year ended December 31, 2024 Colombia Canada Total
Revenue from oil and natural gas $ 80,899,199 $ 659,985 $ 81,559,184
Royalties (7,827,627) (6,529) (7,834,156)
Expenses (37,619,118) (7,518,800) (45,137,918)
Impairment reversal - 662,753 662,753
Income taxes (16,074,862) - (16,074,862)
Net income (loss) $ 19,377,592 $ (6,202,591) $ 13,175,001
Capital expenditures for the year 2024 $ 31,085,161 $ 36,079 $ 31,121,240
Total Assets as at December 31, 2024 $ 75,650,729 $ 5,618,005 $ 81,268,734
Total liabilities as at December 31, 2024 $ 24,125,685 $ 4,126,056 $ 28,251,741
Arrow Exploration Corp.
MANAGEMENT's DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2025
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") as provided by the
management of Arrow Exploration Corp. ("Arrow" or the "Company"), is dated as
of April 28, 2026 and should be read in conjunction with Arrow's annual
consolidated financial statements and related notes as at and for years ended
December 31, 2025 and 2024. Additional information relating to Arrow is
available under Arrow's profile on www.sedar.com (http://www.sedar.com) .
Advisories
Basis of Presentation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"), and all amounts herein
are expressed in United States dollars, unless otherwise noted, and all
tabular amounts are expressed in United States dollars, unless otherwise
noted. Additional information for the Company may be found on SEDAR at
www.sedar.com.
Advisory Regarding Forward‐Looking Statements
This MD&A contains certain statements or disclosures relating to Arrow
that are based on the expectations of its management as well as assumptions
made by and information currently available to Arrow which may constitute
forward-looking statements or information ("forward-looking statements") under
applicable securities laws. All such statements and disclosures, other than
those of historical fact, which address activities, events, outcomes, results
or developments that Arrow anticipates or expects may, could or will occur in
the future (in whole or in part) should be considered forward-looking
statements. In some cases, forward-looking statements can be identified by the
use of the words "believe", "continue", "could", "expect", "likely", "may",
"outlook", "plan", "potential", "will", "would" and similar expressions. In
particular, but without limiting the foregoing, this MD&A contains
forward-looking statements pertaining to the following: global pandemics and
their impact; tax liability; capital management strategy; capital structure;
credit facilities and other debt; letters of credit; Arrow's costless collar
structure; cost reduction initiatives; potential drilling on the Tapir block;
capital requirements; expenditures associated with asset retirement
obligations; future drilling activity and the development of the Rio Cravo
Este, Carrizales Norte or Mateguafa structures 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. Adjusted working capital, funds flow from
operations, realized prices, operating netback, and adjusted EBITDA 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
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 flow 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, 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 flow 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 Year ended December 31, 2025 Three months ended Year ended December 31, 2024
December 31, December 31,
(in United States dollars) 2025 2024
Net (loss) income (3,376,116) 1,442,598 2,081,956 13,175,001
Add/(subtract):
Share based payments (50,957) 156,461 925,491 1,480,664
Financing costs:
Accretion on decommissioning obligations 55,238 274,423 53,414 178,296
Interest 7,167 28,676 7,242 31,846
Other 436,715 530,401 (82,799) 330,450
Depreciation and depletion 5,209,145 20,613,150 6,060,557 17,535,815
Impairment (reversal) of oil and gas properties 7,633,523 7,633,523 (2,204,753) (662,753)
Income tax expense, current and deferred (3,590,885) 4,289,504 6,435,936 16,074,862
Adjusted EBITDA ((1)) 6,323,833 34,968,736 13,277,044 48,144,181
Cash flows provided by operating activities 1,740,872 26,803,064 10,312,230 39,524,589
Minus - Changes in non‑cash working capital balances:
Trade and other receivables 10,813,389 10,703,164 (81,499) 293,278
Restricted cash 94,673 125,577 (22,557) (449,148)
Taxes receivable 1,071,445 4,980,416 410,640 (1,998,473)
Deposits and prepaid expenses (126,714) (97,509) 54 35,328
Inventory 51,417 (68,867) 126,783 (314,932)
Accounts payable and accrued liabilities (4,994,963) (14,380,215) 325,475 (285,221)
Income tax payable 595,240 4,294,109 1,448,338 (1,185,605)
Funds flow from operations ((1)) 9,245,359 32,359,739 12,519,464 35,619,816
( (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 Year ended December 31, Three months ended Year ended December 31,
December 31, 2025 December 31, 2024
(in United States dollars, except as otherwise noted) 2025 2024
Total natural gas and crude oil revenues, net of royalties 16,535,582 70,454,619 22,873,626 73,725,028
Funds flow from operations ((1)) 9,245,359 32,359,739 12,519,464 35,619,816
Funds flow from operations ((1)) per share -
Basic($) 0.03 0.11 0.04 0.12
Diluted ($) 0.03 0.11 0.04 0.12
Net income (loss) (3,376,116) 1,442,598 2,081,956 13,175,001
Net income (loss) per share -
Basic ($) (0.01) 0.01 0.01 0.05
Diluted ($) (0.01) 0.00 0.01 0.05
Adjusted EBITDA ((1)) 6,323,833 34,968,736 13,277,044 48,144,181
Weighted average shares outstanding:
Basic 285,864,348 285,864,348 285,864,348 285,864,348
Diluted 288,112,538 291,754,093 290,029,866 291,226,740
Common shares end of period 285,864,348 285,864,348 285,864,348 285,864,348
Capital expenditures 7,752,237 43,190,196 8,928,725 31,121,240
Cash and cash equivalents 11,208,824 11,208,824 18,837,784 18,837,784
Current assets 33,881,303 33,881,303 25,973,196 25,973,196
Current liabilities 32,057,968 32,057,968 14,167,619 14,167,619
Adjusted working capital((1)) 1,823,335 1,823,335 11,805,577 11,805,577
Non-current restricted cash and deposits((2)) 273,257 273,257 167,545 167,545
Total assets 105,402,557 105,402,557 81,268,734 81,268,734
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 1,384 1,536 1,332 1,119
Natural gas liquids (bbl/d) 5 7 5 5
Crude oil (bbl/d) 3,739 3,749 4,511 3,351
Total (boe/d) 3,975 4,012 4,738 3,542
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($0.39) ($1.14) ($0.71) ($0.68)
Crude oil ($/bbl) $33.82 $36.24 $42.80 $50.13
Total ($/boe) $31.77 $33.52 $40.63 $47.33
((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.
On May 31, 2018, Arrow Exploration Ltd. entered in a share purchase agreement,
as amended, with Canacol Energy Ltd. ("Canacol"), to acquire Canacol's
Colombian oil properties held by its wholly-owned subsidiary Carrao Energy
S.A. ("Carrao"). On September 27, 2018, Arrow Exploration Ltd. closed the
agreement with Canacol, and during 2025 Carrao changed its name to Arrow
Exploration Switzerland GmbH. 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 2118295 Alberta Ltd. were amalgamated to form Arrow
Holdings Ltd., a wholly-owned subsidiary of the Company.
On May 31, 2018, Arrow Exploration Ltd., entered into a purchase and sale
agreement to acquire a 50% beneficial interest in a contract entered into with
Ecopetrol S.A. pertaining to the exploration and production of hydrocarbons in
the Tapir block from Samaria Exploration & Production S.A. ("Samaria"). On
September 27, 2018, Arrow Exploration Ltd. closed the agreement with Samaria.
As at December 31, 2025 the Company held an interest in four oil blocks in
Colombia and oil and natural gas leases in five areas in Canada as follows:
Gross Acres Working Interest Net Acres
COLOMBIA
Tapir Operated(1) 65,125 50% 32,563
Oso Pardo Operated 672 100% 672
Ombu Non-operated 56,482 10% 5,648
COR-39 Operated 95,111 100% 95,111
Total Colombia 217,390 133,994
CANADA
Fir Non operated 7,680 32% 2,458
Penhold Non-operated 480 13% 61
Pepper Operated 16,000 100% 16,000
Wapiti Non-operated 1,280 13% 160
Ante Creek Operated 2,560 100% 2,560
KEHO Operated 7,357 100% 7,357
Total Canada 35,357 28,596
TOTAL 252,747 162,590
(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).
The Company's 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, in Management's opinion, continues to offer substantial
exploration upside.
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 indefinite
tenure. Both West Pepper and East Pepper have been in intermittent production
during 2025.
KEHO, Alberta
A land package of 7,357 acres was purchased in January 2025 for CAD$ 336,239.
A single multi-zone exploration well was drilled on the acreage in Q2 2025.
The well was drilled to a total measured depth of 2,095 feet of measured and
true vertical depth and encountered recoverable oil in the cretaceous
glauconitic formation. The well was subsequently put on production, but
after a short period of uneconomic flow rates it was suspended in that
quarter. Pending stabilized oil prices, the well may be put back into
production in recognition of a higher oil price environment. Additional low
risk exploration opportunities exist on the acreage. Negotiations are underway
in acquiring an extensive 3-D seismic survey from a major E&P Company. The
3-D will highlight additional opportunities on the land block. These will be
ranked accordingly within our extensive prospect inventory.
Year ended December 31, 2025 Financial and Operational Highlights
· Arrow recorded $70,454,619 in revenues, net of royalties, on
crude oil sales of 1,372,953 bbls, 2,381 bbls of natural gas liquids ("NGL's")
and 560,773 Mcf of natural gas sales;
· Cash flows provided by operating activities of $26,803,064 and
funds flow from operations of $32,359,739;
· Net income of $1,442,598 and adjusted EBITDA of $34,968,736;
Three Months Ended December 31, 2025 Financial and Operational Highlights
· Arrow recorded $16,535,583 in revenues, net of royalties, on
crude oil sales of 355,153 bbls, 328 bbls of natural gas liquids ("NGL's") and
129,634 Mcf of natural gas sales;
· Cash flows provided by operating activities of $1,740,872 and
funds flow from operations of $9,245,359;
· Net loss of $3,376,114 and adjusted EBITDA of $6,323,833;
Annual 2025 Reserve Highlights
· 1,801 Mboe of Proved Developed Producing Reserves, net decrease
of 24% when compared to 2024;
· 5,415 Mboe of Proved Reserves, net decrease of 7% when compared
to 2024;
· 11,775 Mboe of Proved plus Probable Reserves, net decrease of 14%
when compared to 2024;
· Proved reserves estimated net present value, before income taxes,
of US$96 million using a 10% discount rate;
· Proved plus Probable Reserves estimated net present value, before
income taxes, of US$245 million using a 10% discount rate.
Results of Operations
The Company increased its annual production in 2025 as a result of new wells
at its Mateguafa and Alberta Llanos fields in the Tapir block. These have
allowed the Company to continue its healthy level of operating results and
EBITDA, despite decreases in crude oil prices and natural gas. The Company's
natural gas production in Canada has fluctuated over the year due to
maintenance, shut ins and natural declines.
Average Production by Property
Average Production Boe/d YTD 2025 Q4 2025 Q3 2025 Q2 2025 Q1 2025 YTD 2024 Q4 2024
Oso Pardo 114 95 103 131 126 153 154
Rio Cravo Este (Tapir) 1,043 996 1,065 996 1,118 1,294 1,178
Carrizales Norte (Tapir) 1,991 1,702 1,879 2,070 2,321 1,897 3,153
Alberta Llanos (Tapir) 474 446 943 296 205 7 26
Mateguafa (Tapir) 127 500 - - - - -
Total Colombia 3,749 3,739 3,990 3,493 3,770 3,351 4,511
Fir, Alberta 100 107 85 100 105 81 88
Pepper, Alberta 162 129 139 170 210 110 139
KEHO, Alberta 1 - - 5 - - -
TOTAL (Boe/d) 4,012 3,975 4,214 3,768 4,085 3,542 4,738
The Company's average production for the three months and year ended December
31, 2025 was 3,975 and 4,012 boe/d, respectively, which consisted of crude oil
production in Colombia of 3,739 and 3,749 bbl/d, respectively, natural gas
production of 1,384 and 1,536 Mcf/d, respectively, and minor amounts of
natural gas liquids. The Company's Q4 2025 production was 6% lower than its Q3
2025 production and 16% lower than Q4 2024.
Average Daily Natural Gas and Oil Production and Sales Volumes
Three months ended Year ended
December 31, December 31,
2025 2024 2025 2024
Natural Gas (Mcf/d)
Natural gas production 1,384 1,332 1,536 1,119
Natural gas sales 1,384 1,332 1,536 1,119
Realized Contractual Natural Gas Sales 1,384 1,332 1,536 1,119
Crude Oil (bbl/d)
Crude oil production 3,739 4,511 3,749 3,351
Inventory movements and other 121 22 111 38
Crude Oil Sales((1)) 3,860 4,533 3,860 3,389
Corporate
Natural gas production (boe/d) 231 222 256 186
Natural gas liquids(bbl/d) 5 5 7 5
Crude oil production (bbl/d) 3,789 4,511 3,749 3,351
Total production (boe/d) 3,975 4,738 4,012 3,542
Inventory movements and other (boe/d) 121 22 111 38
Total Corporate Sales (boe/d) 4,096 4,760 4,123 3,580
((1) Royalties paid in kind reduce the Company's crude oil sales volumes)
During the three months and year ended December 31, 2025 the majority of
production was attributed to Colombia, where all of Company's blocks were
producing, except for Capella. During 2025, the Company continued paying in
kind its Tapir Block royalties payable to the ANH.
Natural Gas and Oil Revenues
Three months ended Year ended
December 31, December 31,
2025 2024 2025 2024
Natural Gas
Natural gas revenues 197,362 148,255 692,581 551,419
NGL revenues 19,480 29,791 127,909 108,566
Royalties (8,264) (6,138) (38,485) (6,529)
Revenues, net of royalties 208,578 171,908 782,005 653,456
Oil
Oil revenues 18,154,895 23,788,524 78,608,566 80,899,199
Royalties (1,827,891) (1,086,806) (8,935,952) (7,827,627)
Revenues, net of royalties 16,327,004 22,701,718 69,672,614 73,071,572
Corporate
Natural gas revenues 197,362 148,255 692,581 551,419
NGL revenues 19,480 29,791 127,909 108,566
Oil revenues 18,154,895 23,788,524 78,608,566 80,899,199
Total revenues 18,371,737 23,966,570 79,429,056 81,559,184
Royalties (1,836,155) (1,092,944) (8,974,437) (7,834,156)
Natural gas and crude oil revenues, net of royalties 16,535,582 22,873,626 70,454,619 73,725,028
Natural gas and crude oil revenues, net of royalties, for the three months and
year ended December 31, 2025 were $16,535,582 and $70,454,619, respectively
(2024: $22,873,626 and $73,725,028), which represents a decrease of 28% and
4%, respectively, when compared to the same 2024 periods, and 11% lower than
Q3 2025. These decreases are mainly due to decreased oil production in
Colombia, during Q4 2025, as well as decreased oil prices in 2025.
Average Benchmark and Realized Prices
Three months ended Year ended
December 31, December 31,
2025 2024 Change 2025 2024 Change
Benchmark Prices
AECO (C$/Mcf) $2.20 $1.50 47% $1.60 $1.48 8%
Brent ($/bbl) $63.70 $73.13 (13%) $69.05 $78.42 (12%)
West Texas Intermediate ($/bbl) $59.15 $70.30 (16%) $64.75 $75.70 (14%)
Realized Prices
Natural gas, net of transportation ($/Mcf) $1.52 $1.21 26% $1.24 $1.35 (8%)
Natural gas liquids ($/bbl) $59.42 $65.73 (10%) $53.72 $65.60 (18%)
Crude oil, net of transportation ($/bbl) $51.12 $57.04 (10%) $57.26 $65.40 (12%)
Corporate average, net of transport ($/boe)((1)) $54.08 $54.73 (1%) $48.72 $62.41 (22%)
((1)Non-IFRS measure)
The Company realized prices of $54.08 and $48.72 per boe during the three
months and year ended December 31, 2025, respectively (2024: $54.73 and
$62.41). The decrease in realized prices 2025 is due to the overall decrease
in crude oil prices during 2025, which is the main commodity produced by the
Company.
Operating Expenses
Three months ended Year ended
December 31, December 31,
2025 2024 2025 2024
Natural gas & NGL's 239,618 229,574 1,291,901 822,409
Crude oil 4,316,619 4,851,408 19,926,858 11,055,768
Total operating expenses 4,556,237 5,080,982 21,218,759 11,878,177
Natural gas ($/Mcf) $1.85 $1.87 $2.30 $2.01
Crude oil ($/bbl) $12.15 $11.63 $14.51 $8.94
Corporate ($/boe)((1)) $12.08 $11.60 $14.45 $9.09
((1)Non-IFRS measure)
During the three months and year ended December 31, 2025, Arrow incurred
operating expenses of $4,556,237 and $21,218,759, respectively (2024:
$5,080,982 and $11,878,177). This increase in operating costs in 2025 was
mainly due to increased production in the Company's Alberta Llanos and
Mateguafa fields during 2025, together with increased water production at its
Carrizales Norte field.
Operating Netbacks
Three months ended Year ended
December 31, December 31,
2025 2024 2025 2024
Natural Gas ($/Mcf)
Revenue, net of transportation expense $1.52 $1.21 $1.24 $1.35
Royalties ($0.06) ($0.05) ($0.07) ($0.02)
Operating expenses ($1.85) ($1.87) ($2.30) ($2.01)
Natural Gas operating netback((1)) ($0.39) ($0.71) ($1.13) ($0.68)
Crude oil ($/bbl)
Revenue, net of transportation expense $51.12 $57.04 $57.26 $65.40
Royalties ($5.15) ($2.61) ($6.51) ($6.33)
Operating expenses ($12.15) ($11.63) ($14.51) ($8.94)
Crude Oil operating netback((1)) $33.82 $42.80 $36.24 $50.13
Corporate ($/boe)
Revenue, net of transportation expense $48.72 $54.73 $54.08 $62.41
Royalties ($4.87) ($2.50) ($6.11) ($5.99)
Operating expenses ($12.08) ($11.60) ($14.45) ($9.09)
Corporate Operating netback((1)) $31.77 $40.63 $33.52 $47.33
( (1))Non-IFRS measure
The operating netbacks of the Company are lower in 2025, due to increased
operating costs at its Colombia assets as well as decreased overall crude oil
prices.
General and Administrative Expenses (G&A)
Three months ended Year ended
December 31, December 31,
2025 2024 2025 2024
General & administrative expenses 2,895,922 4,000,268 13,328,227 13,870,102
G&A recovered from 3(rd) parties (448,821) (373,888) (1,393,060) (985,603)
Total G&A 2,447,101 3,626,380 11,935,167 12,884,499
Cost per boe $6.49 $8.28 $8.13 $9.86
For the three months and year ended December 31, 2025, G&A expenses before
recoveries totaled $2,895,922 and $13,328,227, respectively (2024: $4,000,268
and $13,870,102). When compared to Q4 2024, G&A expenses were lower due
to optimization of resources and reduction in services supporting the
operation of assets in Colombia and Canada.
Share-based Compensation
Three months ended Year ended
December 31, December 31,
2025 2024 2025 2024
Share-based Payments (50,957) 925,491 156,461 1,480,664
Share-based compensation expense/(recovery) for the three months and year
ended December 31, 2025 totaled $(50,957) and $156,461, respectively (2024:
$925,491 and $1,480,664). This decrease was due to a lower price of the
Company's common shares during 2025, which is one of the metrics used for
valuation of shared-based payments. Since 2024, due to an amendment in the
stock option plan that allows stock option holders to select an equity or cash
settlement, the Company started recognition of its share-based compensation
plan as a liability plan, with no equity component.
Financing Costs
Three months ended Year ended
December 31, December 31,
2025 2024 2025 2024
Financing expense paid or payable 443,882 (75,557) 559,077 362,296
Non-cash financing costs 55,238 53,414 274,423 178,296
Net financing costs $499,120 ($22,143) $833,500 $540,592
The finance expense for 2025 is mostly related to financial transactions tax
paid in Colombia. The non-cash finance cost represents an increase in the
present value of the decommissioning obligation for the current periods. The
amount of this expense will fluctuate commensurate with the asset retirement
obligation as new wells are drilled or properties are acquired or disposed.
Depletion and Depreciation
Three months ended Year ended
December 31, December 31,
2025 2024 2025 2024
Depletion and depreciation 5,209,145 6,060,556 20,613,150 17,535,815
Depletion and depreciation expense for the three months and year ended
December 31, 2025 totaled $5,209,145 and $20,613,150, respectively (2024:
$6,060,556 and $17,535,815). The increase in 2025 is due to higher carrying
value of depletable property and equipment, increase in production volumes and
decreases in the reserves in 2025. The Company uses the unit of production
method and proved plus probable reserves to calculate its depletion and
depreciation expense.
Impairment (reversal) of oil and gas properties, net
Three months ended Year ended
December 31, December 31,
2025 2024 2025 2024
Impairment (reversal) of oil and gas properties, net
7,633,523 (2,204,753) 7,633,523 (662,753)
As at December 31, 2025, the Company reviewed its cash-generating units
("CGU") for property and equipment and determined that there were indicators
of impairment its KEHO CGU mainly due to unsuccessful drilling. As a result,
the Company recognized an impairment loss of $1,781,467. As at December 31,
2024, the Company determined there were indicators of impairment reversal in
its Canada CGU, mainly due to increased reserve quantities, and recognized an
impairment reversal of $2,204,753 and $662,753 which was included in results
during the year and the three months ended December 31, 2024, respectively.
Also, as at December 31, 2025, the Company determined there were indicators of
impairment in its Santa Isabel CGU, mainly due to revision of reserves, and
prepared estimates of its fair value less costs of disposal of this CGU. It
was determined that carrying value of its Santa Isabel CGU exceeded its
recoverable amount and, therefore, an impairment loss of $5,852,056,
corresponding to the full carrying value of this asset, was recognized during
the year ended December 31, 2025.
Income Taxes
Three months ended Years ended
December 31, December 31,
2025 2024 2025 2024
Current income tax expense (recovery) (1,009,865) (665,259) 3,190,862 10,481,144
Deferred income tax expense (recovery) (2,581,020) 7,101,195 1,098,642 5,593,718
Total income tax expense (recovery) (3,590,885) 6,435,936 4,289,504 16,074,862
During 2025, the Company recognized a total income tax expense of $4,289,504
(2024: $16,074,862) which consisted of $3,190,862 of current income tax
expense (2024: $10,480,144) and an expense of $1,098,642 of deferred income
tax (2024: of $5,593,718). This decrease is mainly caused by the decrease of
the Company's net taxable income in Colombia and a reduction in the applicable
income tax rate as a result of the decline in realized prices.
LIQUIDITY AND CAPITAL RESOURCES
Capital Management
The Company's objective is to maintain a capital base sufficient to provide
flexibility in the future development of the business and maintain investor,
creditor and market confidence. The Company manages its capital structure
and makes adjustments in response to changes in economic conditions and the
risk characteristics of the underlying assets. The Company considers its
capital structure to include share capital, debt and adjusted working capital.
In order to maintain or adjust the capital structure, from time to time the
Company may issue common shares or other securities, sell assets or adjust its
capital spending to manage current and projected debt levels. As at December
31, 2025 the Company has a working capital of $1,823,335. The Company has
maintained a healthy working capital, using its operational cash flows to
settle its obligations and to continue growing its operations. Despite the
decrease in commodity prices, the Company still was able to generate
sufficient financial resources to sustain its operations and growth.
Working Capital
As at December 31, 2025 the Company's adjusted working capital was calculated
as follows:
December 31, 2025
Current assets:
Cash $ 11,208,824
Restricted cash and deposits 258,006
Trade and other receivables 14,533,377
Taxes receivable 7,637,342
Other current assets 243,754
Less:
Accounts payable and accrued liabilities 31,494,615
Lease obligation 67,734
Stock based compensation liability 495,619
Adjusted working capital((1)) $ 1,823,335
((1))Non-IFRS measure
During 2025, the Company became the financial operator of the Tapir block and
it is now responsible for incurring in expenditures for the joint operation,
which is represented by the increase in accounts payable and accrued
liabilities. Payment of these obligations is funded by the Company's own
resources and cash calls received from its partners.
Debt
As at December 31, 2025 the Company did not have any outstanding debt
balances. During 2025, the Company entered into a two-year crude oil
prepayment agreement with an integrated energy major to market its oil
production in Colombia. The agreement provides access to $20 million in a
revolving line of credit in until June 2026 and $15 million until June 2027.
The interest rate is SOFR + 4% for the first $10 million and SOFR + 5% for
amounts exceeding $10 million. As at December 31, 2025, no funds have been
withdrawn from this line of credit.
Letters of Credit
At December 31, 2025, the Company had obligations under Letters of Credit
("LC's") outstanding totaling $3.6 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 685,296 April 14, 2027
ANH Carrao Energy Financial Capacity 1,672,162 June 30, 2026
CORE - 39 ANH Carrao Energy Compliance 100,000 June 30, 2026
OMBU ANH Carrao Energy Financial Capacity 436,300 October 14, 2026
ANH Carrao Energy Abandonment 708,119 August 28, 2026
Total $3,601,878
Share Capital
As at December 31, 2025, the Company had 285,864,348 common shares and
20,513,706 stock options outstanding.
RELATED PARTIES
The following table summarizes the Company's Directors and executives
compensation paid during the year ended December 31, 2025, as well as the
stock options available as at December 31, 2025:
Total stock options available
Salary or Annual Fee Other Stock-Based
Director Bonus Benefits Compensation Total
G. Jull 500,940 764,508 17,699 288,935 1,572,082 5,015,000
M. Abbott 500,940 764,508 15,010 238,754 1,519,212 4,322,593
J. McFarlane 500,940 764,508 15,382 288,935 1,569,765 5,015,000
G. Carnie 150,000 - - 38,860 188,860 1,088,889
R. Sharma 150,000 - - 94,361 244,361 1,837,223
A. Zaidi 87,500 - - 84,645 172,146 N/A
Ian Langley 150,000 - - 22,161 172,160 1,200,000
Total 2,040,320 2,293,524 48,091 1,056,651 5,438,586 18,478,705
Performance bonuses to executives totaled in aggregate $2,293,524 and were
payable on meeting a number of operational performance criteria. During 2025,
the Company has loans to some of its executives and Directors in the form of
promissory notes, which are due on demand and bear interest at the average
Bank of Canada Interbank Rate (currently 2.50%). The current aggregate balance
receivable of these loans is $733,990 (2024: $699,880), including interest, as
other account receivables.
CONTRACTUAL OBLIGATIONS
The Company has entered into a number of exploration contracts in Colombia
which require the Company to fulfill work program commitments and issue
financial guarantees related thereto (see Letters of Credit section below).
During 2026, the Company received confirmation that its COR-39 exploration and
production contract has been terminated by mutual agreement with the ANH and,
therefore, its $12,000,000 exploration commitment related to this contract has
been canceled at no additional costs to the Company. As a result, the Company
has no outstanding exploration commitments.
SUMMARY OF THREE MONTHS RESULTS
2025 2024
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Oil and natural gas sales, net of royalties
16,535,583 18,543,974 15,868,938 19,506,125 22,873,626 21,300,115 15,146,366 14,404,921
Net income (loss) (3,910,602) 3,089,683 (934,735) 2,663,764 2,081,956 6,668,493 1,247,825 3,176,727
Income (loss) per share -
basic (0.03) 0.01 (0.00) 0.01 0.01 0.02 0.00 0.01
diluted (0.03) 0.01 (0.00) 0.01 0.01 0.02 0.00 0.01
Working capital 1,172,147 173,863 393,211 11,036,334 11,646,169 9,622,125 6,657,117 9,520,829
Total assets 106,017,624 93,684,265 92,729,950 90,532,063 81,268,734 73,535,397 67,864,633 64,579,940
Net capital expenditures 7,752,239 9,287,571 14,771,206 11,379,180 8,928,725 6,945,779 8,965,408 6,281,329
Average daily production (boe/d) 4,096 4,214 3,767 4,085 4,738 4,124 2,638 2,730
The Company's oil and natural gas sales have decreased 28% in Q4 2025 when
compared to Q4 2024 due to decreased production on its existing assets and
overall decreased crude oil prices. The Company's production levels in
Colombia remain consistent. Trends in the Company's net income are also
impacted most significantly by operating expenses, financing costs, income
taxes, depletion, depreciation and impairment of oil and gas properties, and
other income.
OUTSTANDING SHARE DATA
At April 28, 2026 the Company had the following securities issued and
outstanding:
Number Exercise Price Expiry Date
Common shares 285,864,348 n/a n/a
Stock options 250,000 CAD$ 1.15 October 22, 2028
Stock options 100,000 CAD$ 0.31 May 3, 2029
Stock options 1,681,667 GBP 0.1675 June 21, 2024, 2025 and 2026
Stock options 50,000 GBP 0.1925 July 23, 2024, 2025 and 2026
Stock options 333,334 CAD $0.33 Mar. 21, 2025, 2026 and 2027
Stock options 5,495,926 CAD $0.375 Oct. 29 2025, 2026 and 2027
Stock options 2,569,626 CAD $0.475 Mar. 11 2026, 2027 and 2028
Stock options 6,198,334 CAD $0.23 Apr. 8 2027, 2028 and 2029
Stock options 2,753,518 CAD $0.38 Sept. 9, 2027, 2028, 2029
OUTLOOK
The Company has efficiently deployed its resources on successful drilling
campaigns at Rio Cravo, Carrizales Norte, Alberta Llanos and more recently
Mateguafa on the Tapir Block. These successful campaigns have translated into
production growth and positive cashflows, providing Arrow with the funds
required to expand its capital program for 2026. In 2026, the Company plans
another year of production growth with a balanced program of both development
and low risk exploration drilling on the Tapir Block. The Company has a
strong balance sheet with no debt, access to financing and cash flow from
operations which will fund the 2026 program.
CRITICAL ACCOUNTING ESTIMATES
A summary of the Company's critical accounting estimates is contained in Note
3 Annual Financial Statements. These accounting policies are subject to
estimates and key judgements about future events, many of which are beyond
Arrow's control. The following is a discussion of the accounting estimates
that are critical to the consolidated financial statements.
Crude oil and natural gas assets - reserves estimates - Arrow retained
independent third-party petroleum engineers to evaluate its crude oil and
natural gas reserves, prepare an evaluation report, and report to the Reserves
Committee of the Board of Directors. The process of estimating crude oil and
natural gas reserves is subjective and involves a significant number of
decisions and assumptions in evaluating available geological, geophysical,
engineering and economic data. These estimates will change over time as
additional data from ongoing development and production activities becomes
available and as economic conditions affecting crude oil and natural gas
prices and costs change. Reserves can be classified as proved, probable or
possible with decreasing levels of likelihood that the reserves will be
ultimately produced. Reserve estimates are a key input to the Company's
depletion calculations and impairment tests. Property, plant and equipment
within each area are depleted using the unit-of-production method based on
proved and probable reserves using estimated future prices and costs. In
addition, the costs subject to depletion include an estimate of future costs
to be incurred in developing proved and probable reserves. A revision in
reserve estimates or future development costs could result in the recognition
of higher depletion charged to net income.
Under the IFRS, the carrying amounts of property, plant and equipment are
reviewed at each reporting date to determine whether there is any indication
of impairment or impairment reversal. If any such indication exists, the
estimated recoverable amount is calculated. For the purpose of impairment
testing, assets are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets (the "cash-generating unit"
or "CGU"). The recoverable amount of an asset or a CGU is the greater of its
value in use and its fair value less costs to sell. In assessing value in use,
the estimated future cash flows are discounted to their present value using a
post-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. Value in use is generally
computed by reference to the present value of the future cash flows expected
to be derived from production of proven and probable reserves. Exploration and
evaluation ("E&E") assets will be allocated to the related CGU's to assess
for impairment, both at the time of any triggering facts and circumstances as
well as upon their eventual reclassification to producing assets (oil and
natural gas interests in property, plant and equipment). An impairment loss is
recognized in income if the carrying amount of an asset or its CGU exceeds its
estimated recoverable amount. Reserve, revenue, royalty and operating cost
estimates and the timing of future cash flows are all critical components of
the impairment test. Revisions of these estimates could result in a write-down
of the carrying amount of crude oil and natural gas properties.
Decommissioning obligations - The Company recognizes the estimated fair value
of the decommission liability in the period in which it is incurred and
records a corresponding increase in the carrying value of the related asset.
The future asset retirement obligation is an estimate based on the Company's
ownership interest in wells and facilities and reflects estimated costs to
complete the abandonment and reclamation as well as the estimated timing of
the costs to be incurred in future periods. Estimates of the costs associated
with abandonment and reclamation activities require judgement concerning the
method, timing and extent of future retirement activities. The capitalized
amount is depleted on a unit-of-production method over the life of the proved
and probable reserves. The liability amount is increased each reporting period
due to the passage of time and this accretion amount is charged to earnings in
the period, which is included as a financing expense. Actual costs incurred on
settlement of the decommissioning liability are charged against the liability.
Judgements affecting current and annual expense are subject to future
revisions based on changes in technology, abandonment timing, costs, discount
rates and the regulatory environment.
Income taxes - Arrow follows the balance sheet method, providing for temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Current tax is the expect tax payable on the taxable income for the year,
using tax rates enacted or substantially enacted at the reporting period, and
any adjustment to tax payable in respect to previous periods.
Tax interpretations and legislation in which the Company operates are subject
to change. As such, income taxes are subject to measurement uncertainty and
interpretations can impact net income through current tax arising from the
changes in the deferred income tax asset and liabilities.
SUMMARY OF MATERIAL ACCOUNTING POLICIES
A summary of the Company's material accounting policies is included in note 3
of the Annual Financial Statements. These accounting policies are consistent
with those of the previous financial year as described in Note 3 of the Annual
Consolidated Financial Statements.
RISKS AND UNCERTAINTIES
The Company is subject to financial, business and other risks, many of which
are beyond its control and which could have a material adverse effect on the
business and operations of the Company. A summary of certain risk factors
relating to our business are disclosed below.
Unstable Oil and Gas Industry
Recent market events and conditions, constant changes oil and natural gas
supply, actions taken by the Organization of Petroleum Exporting Countries
(OPEC), the Russian-Ukraine conflict, Middle East conflict, market volatility,
and sanctions imposed on certain oil producing nations by other countries have
caused significant weakness and volatility in commodity prices. These events
and conditions have caused a significant volatility in the valuation of oil
and gas companies and a variable confidence in the oil and gas industry. Lower
commodity prices may also affect the volume and value of the Company's
reserves especially as certain reserves become uneconomic. In addition, in a
low commodity prices environment might affect the Company's cash flow. As a
result, the Company may not be able to replace its production with additional
reserves and both the Company's production and reserves could be reduced on a
year over year basis. Given the current market conditions, the Company may
have difficulty raising additional funds or if it is able to do so, it may be
on unfavourable and highly dilutive terms.
Prices, Markets and Marketing of Crude Oil and Natural Gas
Oil and natural gas are commodities whose prices are determined based on world
demand, supply and other factors, all of which are beyond the control of
Arrow. World prices for oil and natural gas have fluctuated widely in recent
years. Any material decline in prices could result in a reduction of net
production revenue. Certain wells or other projects may become uneconomic as a
result of a decline in world oil prices and natural gas prices, leading to a
reduction in the volume of Arrow's oil and gas reserves. Arrow might also
elect not to produce from certain wells at lower prices. All of these factors
could result in a material decrease in Arrow's future net production revenue,
causing a reduction in its oil and gas acquisition and development activities.
In addition to establishing markets for its oil and natural gas, Arrow must
also successfully market its oil and natural gas to prospective buyers. The
marketability and price of oil and natural gas which may be acquired or
discovered by Arrow will be affected by numerous factors beyond its control.
Arrow will be affected by the differential between the price paid by refiners
for light quality oil and the grades of oil produced by Arrow. The ability of
Arrow to market its natural gas may depend upon its ability to acquire space
on pipelines which deliver natural gas to commercial markets. Arrow will also
likely be affected by deliverability uncertainties related to the proximity of
its reserves to pipelines and processing facilities and related to operational
problems with such pipelines and facilities and extensive government
regulation relating to price, taxes, royalties, land tenure, allowable
production, the export of oil and natural gas and many other aspects of the
oil and natural gas business.
Substantial Capital Requirements; Liquidity
Arrow's cash flow from its production and sales of petroleum and natural gas
may not, at all times be sufficient to fund its ongoing activities. From time
to time, Arrow may require additional financing in order to carry out its oil
and gas acquisition, exploration and development activities. Failure to obtain
such financing on a timely basis could cause Arrow to forfeit its interest in
certain properties, miss certain acquisition opportunities and reduce or
terminate its operations. If Arrow's revenues from its production of petroleum
and natural gas decrease as a result of lower oil and natural gas prices or
otherwise, it may affect Arrow's ability to expend the necessary capital to
replace its reserves or to maintain its production. If Arrow's funds from
operations are not sufficient to satisfy its capital expenditure requirements,
there can be no assurance that additional financing will be available to meet
these requirements or available on terms acceptable to Arrow.
Arrow's lenders will be provided with security over substantially all of the
assets of Arrow. If Arrow becomes unable to pay its debt service charges or
otherwise commits an event of default, such as bankruptcy, these lenders may
foreclose on or sell Arrow's properties. The proceeds of any such sale would
be applied to satisfy amounts owed to Arrow's lenders and other creditors and
only the remainder, if any, would be available to Arrow shareholders. Arrow
monitors and updates its cash projection models on a regular basis which
assists in the timing decision of capital expenditures. Farm-outs of projects
may be arranged if capital constraints are an issue or if the risk profile
dictates that the Company wishes to hold a lesser working interest position.
Equity, if available and if on reasonable terms, may be utilized to help fund
Arrow's capital program.
Access to Capital
Access to capital has become limited during these times of economic
uncertainty. To the extent the external sources of capital become limited or
unavailable. Arrow's ability to make the necessary capital investments to
maintain or expand oil and gas reserves may be impaired.
Risks of Foreign Operations Generally
Most of Arrow's oil and gas properties and operations are located in a foreign
jurisdiction. As such, Arrow's operations may be adversely affected by changes
in foreign government policies and legislation or social instability and other
factors which are not within the control of Arrow, including, but not limited
to, nationalization, expropriation of property without fair compensation,
renegotiation or nullification of existing concessions and contracts, the
imposition of specific drilling obligations and the development and
abandonment of fields, changes in energy policies or the personnel
administering them, changes in oil and natural gas pricing policies, the
actions of national labour unions, currency fluctuations and devaluations,
exchange controls, economic sanctions and royalty and tax increases and other
risks arising out of foreign governmental sovereignty over the areas in which
Arrow's operations are conducted, as well as risks of loss due to civil
strife, acts of war, terrorism, guerrilla activities and insurrections.
Arrow's operations may also be adversely affected by laws and policies of
Colombia and Canada affecting foreign trade, taxation and investment.
If Arrow's operations are disrupted and/or the economic integrity of its
projects is threatened for unexpected reasons, its business may be harmed.
Prolonged problems may threaten the commercial viability of its operations. In
addition, there can be no assurance that contracts, licenses, license
applications or other legal arrangements will not be adversely affected by
changes in governments in foreign jurisdictions, the actions of government
authorities or others, or the effectiveness and enforcement of such
arrangements. In the event of a dispute arising in connection with Arrow's
operations in Colombia, Arrow may be subject to the exclusive jurisdiction of
foreign courts or may not be successful in subjecting foreign persons to the
jurisdictions of the courts of Canada or enforcing Canadian judgments in such
other jurisdictions. Arrow may also be hindered or prevented from enforcing
its rights with respect to a governmental instrumentality because of the
doctrine of sovereign immunity. Accordingly, Arrow's exploration, development
and production activities in Colombia could be substantially affected by
factors beyond the Company's control, any of which could have a material
adverse effect on Arrow.
Acquiring interests and conducting exploration and development operations in
foreign jurisdictions often require compliance with numerous and extensive
procedures and formalities. These procedures and formalities may result in
unexpected or lengthy delays in commencing important business activities.
In some cases, failure to follow such formalities or obtain relevant evidence
may call into question the validity of the entity or the actions taken.
Management is unable to predict the effect of additional corporate and
regulatory formalities which may be adopted in the future including whether
any such laws or regulations would materially increase Arrow's cost of doing
business or affect its operations in any area. Arrow believes that
management's experience operating both in Colombia and in other international
jurisdictions helps reduce these risks. In Colombia, the government has a long
history of democracy and an established legal framework that, in Arrow's
opinion, minimizes political risks.
Social risks
The Company's activities are subject to social risks, including protests or
blockades by groups located near some of the Company's operations. Despite the
fact that the Company is committed to operating in a socially responsible
manner, the Company may face opposition from local communities and
non-governmental organizations with respect to its current and future
projects, which could adversely affect the Company's business, results of
operations and financial condition. No certainty can be given that the Company
will be able to reach an agreement with the different communities or special
interest groups, such as environmentalists and ethnic communities. Reaching
such an agreement may also incur unanticipated costs. The Company could also
be exposed to similar delays due to opposition from local communities in other
countries where the Company carries out its activities.
Geopolitical Risks
The Company's results may be adversely impacted by political, legal, or
regulatory developments in Canada and elsewhere that affect local operations
and local and international markets. The Corporation's business may be
adversely affected by geopolitical conflicts abroad:
Russia-Ukraine Conflict
Following the invasion of Russia of Ukraine, numerous and varying levels of
financial and trade sanctions have been placed against Russia by certain
countries including Canada, the United States and many European nations. No
comprehensive settlement has been reached, and territorial and security
issues remain unresolved. These developments pose ongoing risks to regional
stability, global energy and industrial supply chains, and international
markets, which could negatively impact the world economy, the Canadian oil and
gas industry, and the Company.
Middle Eastern Conflict
The ongoing instability in the Middle East has had and may continue to have
wide-ranging consequences on the world economy and in particular the oil and
gas industry. In June 2025, U.S. airspace strikes targeted Iranian nuclear
facilities at Fordow, Natanz, and Isfahan, prompting Iranian missile attacks
on U.S. assets in Qatar. Most recently, Israel, together with the United
States, conducted a major joint military operation in Iran, which triggered a
military response from Iran against Israel and other countries in the region,
including the United Arab Emirates, Bahrain and Qatar, as well as against U.S.
targets in the Middle East. Iran immediately retaliated with missile attacks
targeting U.S. and Israeli assets across the region, heightening the risk of
broader conflict and potential disruptions to global energy supply and
transportation routes. These developments pose ongoing risks to regional
stability in the Middle East, a key hub for global oil production. Continued
conflict or escalation could disrupt energy supply chains and drive volatility
in oil and natural gas markets. Such instability could materially impact the
global economy, the Canadian oil and gas industry, and the Company. To date,
these events have not impacted the Company's ability to carry on business, and
there have been no significant delays or direct security issues affecting the
Company's operations. The long-term impacts of the conflict remain
uncertain.
Alternatives to/Changing Demand for Petroleum Products
Fuel conservation measures, alternative fuel requirements, increasing consumer
demand for alternatives to oil and natural gas, and technological advances in
fuel economy and energy generation devices will reduce the demand for crude
oil, natural gas and other liquid hydrocarbons. The Company cannot predict
the impact of changing demand for oil and natural gas products and any major
changes would have a material adverse effect on the Company's business,
financial condition, results of operations and cash flow.
Exploration, Development and Production Risks
Oil and natural gas exploration involves a high degree of risk, for which even
a combination of experience, knowledge and careful evaluation may not be able
to overcome. There is no assurance that expenditures made on future
exploration by Arrow will result in new discoveries of oil or natural gas in
commercial quantities. It is difficult to project the costs of implementing an
exploratory drilling program due to the inherent uncertainties of drilling in
unknown formations, the costs associated with encountering various drilling
conditions such as over-pressured zones, tools lost in the hole and changes in
drilling plans and locations as a result of prior exploratory wells or
additional seismic data and interpretations thereof. The long-term commercial
success of Arrow will depend on its ability to find, acquire, develop and
commercially produce oil and natural gas reserves. No assurance can be given
that Arrow will be able to locate satisfactory properties for acquisition or
participation. Moreover, if such acquisitions or participations are
identified, Arrow may determine that current markets, terms of acquisition and
participation or pricing conditions make such acquisitions or participations
uneconomic.
Future oil and gas exploration may involve unprofitable efforts, not only from
dry wells, but from wells that are productive but do not produce sufficient
net revenues to return a profit after drilling, operating and other costs.
Completion of a well does not assure a profit on the investment or recovery of
drilling, completion and operating costs. In addition, drilling hazards or
environmental damage could greatly increase the cost of operations, and
various field operating conditions may adversely affect the production from
successful wells. These conditions include delays in obtaining governmental
approvals or consents, shut-ins of connected wells resulting from extreme
weather conditions, insufficient storage or transportation capacity or other
geological and mechanical conditions. While diligent well supervision and
effective maintenance operations can contribute to maximizing production rates
over time, production delays and natural reservoir performance declines cannot
be eliminated and can be expected to adversely affect revenue and cash flow
levels to varying degrees.
In addition, oil and gas operations are subject to the risks of exploration,
development and production of oil and natural gas properties, including
encountering unexpected formations or pressures, premature declines of
reservoirs, blow-outs, sour gas releases, fires and spills. Losses resulting
from the occurrence of any of these risks could have a materially adverse
effect on future results of operations, liquidity and financial condition.
Arrow attempts to minimize exploration, development and production risks by
utilizing a technical team with extensive experience to assure the highest
probability of success in its drilling efforts.
The collaboration of a team of seasoned veterans in the oil and gas business,
each with a unique expertise in the various upstream to downstream technical
disciplines of prospect generation to operations, provides the best assurance
of competency, risk management and drilling success. A full cycle economic
model is utilized to evaluate all hydrocarbon prospects. Detailed geological
and geophysical techniques are regularly employed including 3D seismic,
petrography, sedimentology, petrophysical log analysis and regional geological
evaluation.
Governmental Regulation
The oil and gas business is subject to regulation and intervention by
governments in such matters as the awarding of exploration and production
interests, the imposition of specific drilling obligations, environmental
protection controls, control over the development and abandonment of fields
(including restrictions on production) and possible expropriation or
cancellation of contract rights, as well as with respect to prices, taxes,
export quotas, royalties and the exportation of oil and natural gas. Such
regulations may be changed from time to time in response to economic or
political conditions. The implementation of new regulations or the
modification of existing regulations affecting the oil and gas industry could
reduce demand for oil and natural gas, increase Arrow's costs and have a
material adverse effect on Arrow.
Global Pandemic
Arrow's business, financial condition and results of operations could be
materially and adversely affected by the outbreak of epidemics, pandemics and
other public health crises in geographic areas in which we have operations,
suppliers, customers or employees. The past COVID-19 pandemic, and actions
that may be taken by governmental authorities in response thereto, has
resulted, and may continue to result in, among other things: increased
volatility in financial markets and foreign currency exchange rates;
disruptions to global supply chains; labour shortages; reductions in trade
volumes; temporary operational restrictions and restrictions on gatherings
greater than a certain number of individuals, shelter-in- place declarations
and quarantine orders, business closures and travel bans; an overall slowdown
in the global economy; political and economic instability; and civil unrest. A
prolonged period of affected demand for, and prices of, these commodities, and
any applicable storage constraints, could also result in us voluntarily
curtailing or shutting in production and a decrease in our refined product
volumes and refinery utilization rates, which could adversely impact our
business, financial condition and results of operations. Arrow is also subject
to risks relating to the health and safety of our people, as well as the
potential for a slowdown or temporary suspension of our operations in
locations impacted by an outbreak, increased labour and fuel costs, and
regulatory changes. Such a suspension in operations could also be mandated by
governmental authorities in response to a pandemic. This could negatively
impact Arrow's production volumes and revenues for a sustained period of time,
which would adversely impact our business, financial condition and results of
operations.
Credit Exposure
Recent economic conditions have increased the risk that certain counterparties
for the Company's oil and gas sales and our joint venture partners may fail to
pay. Arrow mitigates these increased risks through diversification and a
review process of the credit worthiness of our counterparties. Arrow's policy
to mitigate credit risk associated with product sales is to maintain marketing
relationships with large, established and reputable purchasers that are
considered creditworthy. Arrow has not experienced any collection issues with
its petroleum and natural gas marketers. Joint venture receivables are
typically collected within two to three months of the joint venture bill being
issued to the partner. Arrow attempts to mitigate the risk from joint venture
receivables by obtaining partner approval of significant capital and operating
expenditures prior to expenditure and in certain circumstances may require
cash deposits in advance of incurring financial obligations on behalf of joint
venture partners.
Health, Safety and Environment
All phases of the oil and natural gas business present environmental risks and
hazards and are subject to environmental regulation pursuant to a variety of
federal, provincial/state and local laws and regulations. Environmental
legislation provides for, among other things, restrictions and prohibitions on
spills, releases or emissions of various substances produced in association
with oil and natural gas operations. The legislation also requires that wells
and facility sites be operated, maintained, abandoned and reclaimed to the
satisfaction of applicable regulatory authorities.
Compliance with such legislation can require significant expenditures and a
breach of applicable environmental legislation may result in the imposition of
fines and penalties, some of which may be material. Environmental legislation
is evolving in a manner expected to result in stricter standards and
enforcement, larger fines and liability and potentially increased capital
expenditures and operating costs. The discharge of oil, natural gas or other
pollutants into the air, soil or water may give rise to liabilities to
governments and third parties and may require the Company to incur costs to
remedy such discharge. There are potential risks to the environment inherent
in the business activities of the Company. Arrow has developed and implemented
policies and procedures to mitigate health, safety and environment (HS&E)
risks. Arrow mitigates HS&E risks by maintaining its wells and complying
with all regulations. Regular field inspections are also carried out to ensure
that all field personnel and third party contractors comply with all company
and regulatory guidelines. An action plan has been developed to ensure
inactive wells are suspended properly and abandoned in a timely fashion. The
above noted policies and procedures are designed to protect and maintain the
environment and to ensure that the employees, contractors, subcontractors and
the public at large are kept safe at all times.
Foreign Exchange and Currency Risks
The Company is exposed to foreign exchange and currency risk as a result of
fluctuations in exchange rates between Colombian peso and the Canadian dollar.
Most of the Company's revenues and funds from financing activities are
expected to be received in reference to US dollar denominated prices while a
portion of its operating, capital, and general and administrative costs are
denominated in the Colombian peso and the Canadian dollar.
Sanctions by the United States on Colombia
Colombia is among several nations whose eligibility to receive foreign aid
from the United States is dependent on its progress in stemming the production
and transit of illegal drugs, which is subject to an annual certification by
the President of the United States of America. Although Colombia has received
a current certification, there can be no assurance that, in the future,
Colombia will receive certification or a national interest waiver. The failure
to receive certification or a national interest waiver may result in any of
the following: all bilateral aid, except anti-narcotics and humanitarian aid,
would be suspended; the Export-Import Bank of the United States and the
Overseas Private Investment Company would not approve financing for new
projects in Colombia; United States representatives at multilateral lending
institutions would be required to vote against all loan requests from
Colombia, although such votes would not constitute vetoes, and the President
of the United States and Congress would retain the right to apply future
economic and trade sanctions. Each of these outcomes could result in adverse
economic consequences in Colombia, could further heighten the political and
economic risks associated with operations there, and could threaten the
Company's ability to obtain any necessary financing to develop its Colombian
properties. There can be no assurance that the United States will not impose
sanctions on Colombia in the future, nor can the effect in Colombia that these
sanctions might cause be accurately predicted.
Economic and Political Developments in Colombia
The Company's core properties and projects are located in Colombia. As such,
it is subject to certain risks, including currency fluctuations, possible
political or economic instability. The quality of the Company's assets,
financial condition and results of operations significantly depend on
macroeconomic and political conditions prevailing in Colombia (such as price
instabilities, currency fluctuations, inflation, interest rates, regulation,
taxation, social instabilities, political unrest and other developments in or
affecting Colombia) over which the Company has no control. In addition, the
Company's exploration and production activities may be affected in varying
degrees by political stability and government regulations relating to the
natural gas industry. Decreases in the growth rate of the Colombian economy,
periods of negative growth, material increases in inflation or interest rates
or significant fluctuations in the exchange rate could result in lower demand
for, or affect the pricing of, the Company's services and products.
In the past, Colombia has experienced periods of weak economic activity and
deterioration in economic conditions. There is no assurance that such
conditions will not return or that such conditions will not have a material
adverse effect on the Company's business, financial condition or results of
operations. The Company's financial condition and results of operations may
also be affected by changes in the political climate in Colombia to the extent
that such changes affect the nation's economic policies, growth, stability or
regulatory environment, including any changes in Colombian tax regulations.
Exploration may be affected in varying degrees by government regulations with
respect to restrictions on future exploitation
and production, price controls, export controls, foreign exchange controls,
income taxes, wealth taxes, expropriation of property, environmental
legislation and site safety. There can be no assurance that the government of
Colombia will continue to pursue business friendly and open-market economic
policies or policies that stimulate economic growth and social stability. Any
changes in Colombia's economy or the government's economic policies, in
particular as they relate to the oil and gas industry, may have a negative
impact on the Company's business, financial condition and results of
operations.
Violence and Instability in Colombia
Colombia has experienced periods of violence over the past five decades,
primarily due to armed conflict between government forces, guerrillas,
paramilitary groups and drug cartels. Insurgents activity continues in many
parts of the country, despite the Colombian government efforts and security
policies. Any possible escalation of the violence associated with these
activities may have a negative impact on the Colombian economy and the
Company's operations. Within the framework of total peace, the Colombian
government has been attempting to advance peace dialogues with different armed
groups to achieve peace in the territories through the solution of the armed
conflict in Colombia. Among the organized armed structures of high impact
crime with which the Government has been attempting to advance peace talks
and/or dialogue approaches are: Ejército de Liberación Nacional (ELN),
Disidencias de las FARC, Estado Mayor Central, Segunda Marquetalia,
Autodefensas Gaitanistas de Colombia (AGC), Autodefensas Conquistadoras de la
Sierra Nevada, Criminal Gangs of Medellin, Quibdó and Buenaventura. President
Petro has promoted several cease fires with most of the aforementioned groups
which have not achieved reduction of violence or actual progress in peace
dialogues. Currently most of the cease fires have been ended by the government
and in some cases criminal judiciary processes against outlaw peace
negotiators have been reactivated. In January 2025, intensified combats
between ELN and FARC dissidents related to territorial and drug trafficking
control, increased exponentially homicide and internal displacement in the
northeastern Catatumbo region resulting in a humanitarian crisis. President
Gustavo Petro declared an internal state of emergency in the affected
northeastern Catatumbo region and suspended peace negotiations with ELN.
This state of emergency enabled the Executive to issue legislative decrees
including special and temporary taxes, all of which are being reviewed by the
Constitutional Court. The Colombian government's biggest challenge is
perceived to be ensuring that the negotiations lead to a long-lasting peace
and that demobilized members of the FARC and ELN rejoin civilian life, rather
than regrouping in criminal bands. Continuing attempts to reduce or prevent
guerrilla activity may not be successful and guerrilla activity may disrupt
the Company's operations in the future. The Company may not be able to
establish or maintain the safety of its operations and personnel in Colombia
and this violence may affect its operations in the future. Continued or
heightened security concerns in Colombia could also result in a significant
loss to Arrow and/or costs exceeding current expectations.
Competition
Arrow actively competes for reserve acquisitions, exploration leases, licenses
and concessions and skilled industry personnel with a substantial number of
other oil and gas companies, many of which have significantly greater
financial and personnel resources than Arrow. Arrow's competitors include
major integrated oil and natural gas companies and numerous other independent
oil and natural gas companies and individual producers and operators. Certain
of Arrow's customers and potential customers are themselves exploring for oil
and natural gas, and the results of such exploration efforts could affect
Arrow's ability to sell or supply oil or gas to these customers in the future.
Arrow's ability to successfully bid on and acquire additional property rights,
to discover reserves, to participate in drilling opportunities and to identify
and enter into commercial arrangements with customers will be dependent upon
developing and maintaining close working relationships with its future
industry partners and joint operators and its ability to select and evaluate
suitable properties and to consummate transactions in a highly competitive
environment.
Climate Change
There is growing international concern regarding climate change and there has
been a significant increase in focus on the timing and pace of the transition
to a lower-carbon economy. Governments, financial institutions, insurance
companies, environmental and governance organizations, institutional
investors, social and environmental activists, and individuals, are
increasingly seeking to implement, among other things, regulatory and policy
changes, changes in investment patterns, and modifications in energy
consumption habits and trends which, individually and collectively are
intended to or have the effect of accelerating the reduction in the global
consumption of carbon based energy, the conversion of energy usage to less
carbon-intensive forms and the general migration of energy usage away from
carbon-based forms of energy. Climate change and its associated impacts may
increase the Company's exposure to, and magnitude of, each of the risks
identified in this MD&A. Overall, the Company is not able to estimate at
this time the degree to which climate change related regulatory, climatic
conditions, and climate-related transition risks could impact the Company's
financial and operating results. The Company's business, financial condition,
results of operations, cash flows, reputation, access to capital, access to
insurance, cost of borrowing, access to liquidity and ability to fund business
plans may, in particular, without limitation, be adversely impacted as a
result of climate change and its associated impacts.
Social License to Operate
Heightened public monitoring and regulation of hydrocarbon resource producers,
refiners, distributors and commercial/retail sellers, especially where their
activities carry the potential for having negative impacts on communities and
the environment, involves varying degrees of risk to the Company's reputation,
relations with landowners and regulators, and in extreme cases even the
ability to operate. Arrow maintains an active website that complies with
Exchange requirements for timely disclosure and together with its press
releases and other SEDAR filings, is the primary means of communicating to the
general public.
While media attention and public perception remains largely beyond the control
of Arrow's executive, employees, contractors and directors, the Company makes
every effort in its corporate and field operations to engage all stakeholders
in a respectful and transparent manner.
Internal Controls over Financial Reporting
The CEO and CFO, along with participation from other members of management,
are responsible for establishing and maintaining adequate Internal Control
over Financial Reporting ("ICFR") to provide reasonable assurance regarding
the reliability of financial statements prepared in accordance with IFRS. The
Company's CEO and CFO, with support of management have assessed the design and
operating effectiveness of the Company's ICFR as at December 31, 2025 based on
criteria described in "Internal Control - Integrated Framework" issued in 2013
by the Committee of Sponsoring Organization of the Treadway Commission. Based
on this assessment, it was concluded that the design and operation of the
Company's ICFR are effective as at December 31, 2025. During the three months
ended December 31, 2025, there has been no change in the Company's ICFR that
has materially affected, or is reasonably likely to materially affect, the
Company's ICFR.
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