REG - Arrow Exploration - Arrow Announces Q2 2023 Interim Results
29/08/2023 07:00
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RNS Number : 5491K Arrow Exploration Corp. 29 August 2023
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JURISDICTION.
ARROW ANNOUNCES Q2 2023 INTERIM RESULTS
CALGARY, Aug 29, 2023 - 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 Interim
Condensed (unaudited) Consolidated Financial Statements and Management's
Discussion and Analysis ("MD&A") for the three and six months ended June
30, 2023 which are available on SEDAR (www.sedar.com (http://www.sedar.com) )
and will also be available shortly on Arrow's website
at www.arrowexploration.ca (http://www.arrowexploration.ca) .
Q2 2023 Highlights:
· Recorded $10.3 million of total oil and natural gas revenue, net of
royalties, more than double compared to the same period in 2022 (Q2 2022: $5
million).
· Adjusted EBITDA of $5.8 million, more than double compared to
2022 (Q2 2022: $2.8 million).
· Average corporate production up 120% to 2,169 boe/d (Q2 2022: 980
boe/d).
· Realized corporate oil operating netbacks of $44.21/bbl due to
increased production allowing operating cost to be spread over more barrels.
· Cash position of $10.8 million at the end of Q2 2023.
· Generated positive operating cashflows of $4.9 million (Q2 2022:
negative $0.1 million).
· Successfully drilled the Carrizales Norte-1 (CN-1) exploratory well at
the Tapir block resulting in material production and reserves additions.
Post Period End Highlights:
· The Carrizales Norte-2 (CN-2) well has been successfully drilled
encountering multiple hydrocarbon-bearing intervals and is currently on
production. The Ubaque zone in CN-2 has produced at initial rates exceeding
600 BOPD (net) at low water cuts. Reservoir stewardship is in execution in
voluntarily reducing high initial rates with the well currently producing at a
managed rate of 500 BOPD net. Forecasted rates were 320 BOPD (net) per Ubaque
well which is well below flow capability.
· The Carrizales Norte-3 (CN-3) well has been drilled and is currently
undergoing production testing in the Upper Ubaque. Stabilized flow rates are
expected to be reported in first week of September.
Outlook:
· The preliminary development plan at CN consists of 21 wells, the
majority focusing on the Ubaque formation, to fully exploit the thick
reservoir. The reservoir pay zone is consistently thick (100 feet) across the
fault bounded structure. Gacheta targeted wells will also be part of the
overall development plan at CN.
· Arrow anticipates drilling two additional wells at Rio Cravo Este
(RCE) by year-end to target the Gacheta formation which was successfully
tested at commercial rates in RCE-2.
· Arrow plans to drill two development wells at the Oso Pardo Block in
the Middle Magdalena Basin. Existing wells at Osso Pardo demonstrated initial
rates exceeding 400 BOPD of 23 API gravity crude. This is expected to be
initiated prior to year-end utilizing a second rig.
Marshall Abbott, CEO of Arrow Exploration Corp., commented:
"Arrow continues to gain momentum with strong Q2 2023 results. Our exciting
drilling program, including the drilling of three RCE wells and three CN
wells, is adding significant production and reserves, as well as establishing
a new core area. The 3D seismic West Tapir project is currently being
processed and is expected to further evaluate the 2D recognized fault
prospects. The Board remains confident in the Company's opportunity rich
portfolio and the capability of the Arrow team to increase shareholder value."
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended June 30, 2023 Six months Three months ended June 30, 2022
ended June 30, 2023
(in United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 10,280,280 17,273,140
5,024,604
Funds flow from operations ((1)) 3,278,041 7,518,644 2,613,843
Funds flow from operations ((1)) per share -
Basic($) 0.01 0.03 0.01
Diluted ($) 0.01 0.03 0.00
Net income (loss) (757,416) 2,232,319 768,318
Net income (loss) per share -
Basic ($) (0.00) 0.01 0.00
Diluted ($) (0.00) 0.01 0.00
Adjusted EBITDA ((1)) 5,839,960 10,197,751 2,809,713
Weighted average shares outstanding -
Basic ($) 230,808,547 226,785,547 214,367,388
Diluted ($) 295,446,047 294,694,399 288,231,900
Common shares end of period 234,274,893 234,274,893 214,667,143
Capital expenditures 6,870,258 11,141,951 2,777,611
Cash and cash equivalents 10,801,494 10,801,494 7,368,252
Current Assets 15,159,323 15,159,323 12,190,063
Current liabilities 17,522,710 17,522,710 6,596,035
Adjusted working capital((1)) 6,341,935 6,341,935 5,594,028
Long-term portion of restricted cash((2)) 703,683 703,683 867,047
Total assets 56,305,530 56,305,530 42,670,153
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 2,318 2,388 2,398
Natural gas liquids (bbl/d) 3 4 5
Crude oil (bbl/d) 1,779 1,502 575
Total (boe/d) 2,169 1,904 980
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($0.05) ($0.24) $2.18
Crude oil ($/bbl) $53.64 $55.42 $80.04
Total ($/boe) $44.21 $43.40 $49.18
((1))Non-IFRS measures
((2))Long term restricted cash not included in working capital
Discussion of Operating Results
The Company increased its production from new wells at RCE-3, RCE-4 and RCE-5
and CN-1. These have allowed the Company to continue to improve its operating
results and EBITDA. There has been a decrease in the Company's natural gas
production in Canada due to natural declines.
Average Production by Property
Average Production Boe/d Q2 2023 Q1 2023 Q4 2022 Q3 2022 Q2 2022 Q1 2022
Oso Pardo 130 138 115 104 112 121
Ombu (Capella) - 80 238 215 97 177
Rio Cravo Este (Tapir) 1,592 1,004 832 860 366 136
Carrizales Norte (Tapir) 57 - - - - -
Total Colombia 1,779 1,222 1,185 1,179 575 434
Fir, Alberta 77 74 79 82 86 73
Pepper, Alberta 313 340 472 242 319 636
TOTAL (Boe/d) 2,169 1,635 1,736 1,503 980 1,144
For the three months ended June 30, 2023, the Company's average production was
2,169 boe/d, which consisted of crude oil production in Colombia of 1,779
bbl/d, natural gas production of 2,318 Mcf/d and minor amounts of natural gas
liquids from the Company's Canadian properties. The Company's Q2 2023 total
production was 121% higher than in the same period in 2022.
Discussion of Financial Results
During Q2 2023 the Company continued to realize strong oil prices, offset by
decreased gas prices, as summarized below:
Three months ended June 30
2023 2022 Change
Benchmark Prices
AECO (C$/Mcf) $2.46 $5.42 (55%)
Brent ($/bbl) $74.98 $111.98 (33%)
West Texas Intermediate ($/bbl) $73.75 $108.40 (32%)
Realized Prices
Natural gas, net of transportation ($/Mcf) $1.96 $5.35 (63%)
Natural gas liquids ($/bbl) $55.33 $90.94 (39%)
Crude oil, net of transportation ($/bbl) $67.69 $104.66 (35%)
Corporate average, net of transport ($/boe)((1)) $57.89 $71.06 (19%)
( (1)Non-IFRS measure)
Operating Netbacks
The Company also continued to realize positive operating netbacks, as
summarized below:
Three months ended June 30 Six months ended June 30
2023 2022 2023 2022
Natural Gas ($/Mcf)
Revenue, net of transportation expense $1.96 $5.45 $2.03 $4.32
Royalties $0.20 (0.62) ($0.00) (0.72)
Operating expenses ($2.21) (2.65) ($2.27) (2.33)
Natural Gas operating netback((1)) ($0.05) $2.18 ($0.24) $1.26
Crude oil ($/bbl)
Revenue, net of transportation expense $67.69 $104.66 $69.83 $91.12
Royalties ($8.46) (13.31) ($8.70) (10.20)
Operating expenses ($5.59) (11.31) ($5.71) (14.55)
Crude Oil operating netback((1)) $53.64 $80.04 $55.42 $66.37
Corporate ($/boe)
Revenue, net of transportation expense $57.89 $71.35 $57.62 $54.23
Royalties ($6.76) (8.80) ($6.85) (6.83)
Operating expenses ($6.92) (13.38) ($7.37) (14.13)
Corporate Operating netback((1)) $44.21 $49.18 $43.40 $33.27
( (1))Non-IFRS measure
The operating netbacks of the Company continued to improve in 2023 due to
several factors, principally the increased production from its Colombian
assets, even with decreased crude oil prices.
During 2023, the Company has incurred in $11 million of capital expenditures,
primarily in connection with the drilling of the three RCE and CN wells, civil
works completed in Rio Cravo and shooting 125 km(2) of 3D seismic in the Tapir
block to highlight existing leads and prospects for drilling. This
acceleration in operational tempo is expected to continue during the remainder
of 2023, 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
Brookline Public Relations, Inc.
Shauna MacDonald +1 403 538 5645
Canaccord Genuity (Nominated Advisor and Joint Broker)
Henry Fitzgerald-O'Connor +44 (0)20 7523 8000
James Asensio
Gordon Hamilton
Auctus Advisors (Joint Broker)
Jonathan Wright +44 (0)7711 627449
Rupert Holdsworth Hunt
Camarco (Financial PR)
Andrew Turner +44 (0)20 3781 8331
Rebecca Waterworth
Billy Clegg
About Arrow Exploration Corp.
Arrow Exploration Corp. (operating in Colombia via a branch of its 100% owned
subsidiary Carrao Energy S.A.) is a publicly traded company with a portfolio
of premier Colombian oil assets that are underexploited, under-explored and
offer high potential growth. The Company's business plan is to expand oil
production from some of Colombia's most active basins, including the Llanos,
Middle Magdalena Valley (MMV) and Putumayo Basin. The asset base is
predominantly operated with high working interests, and the Brent-linked light
oil pricing exposure combines with low royalties to yield attractive potential
operating margins. Arrow's 50% interest in the Tapir Block is contingent on
the assignment by Ecopetrol SA of such interest to Arrow. Arrow's seasoned
team is led by a hands-on executive team supported by an experienced board.
Arrow is listed on the AIM market of the London Stock Exchange and on TSX
Venture Exchange under the symbol "AXL".
Forward-looking Statements
This news release contains certain statements or disclosures relating to Arrow
that are based on the expectations of its management as well as assumptions
made by and information currently available to Arrow which may constitute
forward-looking statements or information ("forward-looking statements") under
applicable securities laws. All such statements and disclosures, other than
those of historical fact, which address activities, events, outcomes, results
or developments that Arrow anticipates or expects may, could or will occur in
the future (in whole or in part) should be considered forward-looking
statements. In some cases, forward-looking statements can be identified by the
use of the words "continue", "expect", "opportunity", "plan", "potential" and
"will" and similar expressions. The forward-looking statements contained in
this news release reflect several material factors and expectations and
assumptions of Arrow, including without limitation, Arrow's evaluation of the
impacts of COVID-19, the potential of Arrow's Colombian and/or Canadian assets
(or any of them individually), the prices of oil and/or natural gas, and
Arrow's business plan to expand oil and gas production and achieve attractive
potential operating margins. Arrow believes the expectations and assumptions
reflected in the forward-looking statements are reasonable at this time, but
no assurance can be given that these factors, expectations, and assumptions
will prove to be correct.
The forward-looking statements included in this news release are not
guarantees of future performance and should not be unduly relied upon. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ materially
from those anticipated in such forward-looking statements. The forward-looking
statements contained in this news release are made as of the date hereof and
the Company undertakes no obligations to update publicly or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, unless so required by applicable securities laws.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that
term is defined in policies of the TSX Venture Exchange) accepts
responsibility for the adequacy or accuracy of this release.
Glossary
Bbl/d or bop/d: Barrels per day
$/Bbl: Dollars per barrel
Mcf/d: Thousand cubic feet of gas per day
Mmcf/d: Million cubic feet of gas per day
$/Mcf: Dollars per thousand cubic feet of gas
Mboe: Thousands of barrels of oil equivalent
Boe/d: Barrels of oil equivalent per day
$/Boe: Dollars per barrel of oil equivalent
BOE's may be misleading particularly if used in isolation. A BOE conversion
ratio of 6 Mcf: 1 bblis based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.
Non‐IFRS Measures
The Company uses non-IFRS measures to evaluate its performance which are
measures not defined in IFRS. Working capital, funds flow from operations,
realized prices, operating netback, adjusted EBITDA, and net debt as presented
do not have any standardized meaning prescribed by IFRS and therefore may not
be comparable with the calculation of similar measures for other entities. The
Company considers these measures as key measures to demonstrate its ability to
generate the cash flow necessary to fund future growth through capital
investment, and to repay its debt, as the case may be. These measures should
not be considered as an alternative to, or more meaningful than net income
(loss) or cash provided by operating activities or net loss and comprehensive
loss as determined in accordance with IFRS as an indicator of the Company's
performance. The Company's determination of these measures may not be
comparable to that reported by other companies.
Arrow Exploration Corp.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
IN UNITED STATES DOLLARS
(UNAUDITED)
Notice of No Auditor Review of the Interim Condensed Consolidated Financial
Statements
as at and for the three and six months ended June 30, 2023
Under National Instrument 51-102, Part 4, subsection 4.3 (3)(a), if an auditor
has not performed a review of the interim condensed consolidated financial
statements, they must be accompanied by a notice indicating that an auditor
has not reviewed the financial statements.
The accompanying unaudited interim condensed consolidated financial statements
of the Company have been prepared by and are the responsibility of the
Company's management.
The Company's independent auditor has not performed a review of these
financial statements in accordance with standards established by the Chartered
Professional Accountants of Canada for a review of interim financial
statements by an entity's auditor.
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Financial Position
In United States Dollars
(Unaudited)
As at Notes June 30, 2023 December 31, 2022
ASSETS
Current assets
Cash $ 10,801,494 $ 13,060,968
Restricted cash and deposits 3 218,178 210,654
Trade and other receivables 4 2,100,286 2,568,290
Taxes receivable 5 969,866 801,177
Deposits and prepaid expenses 193,007 157,459
Inventory 876,491 705,677
15,159,322 17,504,225
Non-current assets
Deferred income taxes 533,558 872,286
Restricted cash and deposits 3 703,683 608,127
Exploration and evaluation 6 2,849,427 -
Property and equipment 7 37,059,540 34,205,610
Total Assets $ 56,305,530 $ 53,190,248
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 7,944,326 $ 5,850,823
Lease obligation 9 59,428 41,434
Promissory note 8 - 1,899,294
Derivative liability 11 8,705,321 9,540,423
Income taxes 813,635 1,488,916
17,522,710 18,820,890
Non-current liabilities
Lease obligations 9 171,517 22,317
Other liabilities 264,881 80,484
Deferred income taxes 14 2,505,549 5,066,684
Decommissioning liability 10 3,644,646 3,303,301
Total liabilities 24,109,303 27,293,676
Shareholders' equity
Share capital 12 61,698,396 57,810,735
Contributed surplus 1,861,750 1,570,491
Deficit (30,606,963) (32,839,282)
Accumulated other comprehensive loss (756,956) (645,372)
Total shareholders' equity 32,196,227 25,896,572
Total liabilities and shareholders' equity $ 56,305,530 $ 53,190,248
Commitments and contingencies (Note 13)
The accompanying notes are an integral part of these interim condensed
consolidated financial statements.
On behalf of the Board:
signed "Gage Jull"
Director
signed "Anthony Zaidi" Director
Gage
Jull
Anthony Zaidi
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss)
In United States Dollars
(Unaudited)
For the three months ended June 30 For the six months ended June 30
Notes 2023 2022 2023 2022
Revenue
Oil and natural gas $ 11,637,968 $ 5,731,109 $ 19,602,826 $ 9,642,438
Royalties (1,357,688) (706,505) (2,329,686) (1,214,872)
10,280,280 5,024,604 17,273,140 8,427,566
Expenses
Operating 1,391,490 1,074,435 2,509,080 2,512,916
Administrative 3,248,127 1,128,885 4,866,875 2,481,991
Listing costs (722) 44,958 - 76,323
Share based payments 14 159,018 40,917 291,259 103,836
Financing costs:
Accretion 13 32,139 45,644 61,295 89,975
Interest 61,349 123,741 122,237 244,519
Other 103,172 134,981 148,854 244,029
Derivative loss 2,436,047 724,758 1,081,772 5,512,593
Foreign exchange (gain) loss (41,141) (21,292) (81,956) 4,543
Depletion and depreciation 3,640,189 971,353 6,094,553 1,840,592
Other income (157,434) (12,094) (218,6010) (20,204)
10,872,234 4,256,286 14,875,359 13,091,113
Income (loss) before taxes (591,954) 768,318 2,397,781 (4,663,547)
Income taxes (recovery)
Current 2,387,868 - 2,387,868 -
Deferred (2,222,406) - (2,222,406) -
165,462 - 165,462 -
Net income (loss) for the period (757,416) 768,318 2,232,319 (4,663,547)
Other comprehensive income (loss)
Foreign exchange (93,164) 35,925 (111,584) 80,578
Total comprehensive income (loss) for the period
(850,580) $ 804,243 $ 2,120,735 $(4,582,969)
Net income (loss) per share
- basic $ (0.00) $ 0.00 $ 0.01 $ (0.02)
- diluted $ (0.00) $ 0.00 $ 0.01 $ (0.02)
Weighted average shares outstanding
- basic 230,808,547 68,674,602 226,785,547 213,979,850
- diluted 295,446,047 68,674,602 294,694,399 270,189,255
The accompanying notes are an integral part of these interim condensed
consolidated financial statements.
Arrow Exploration Corp.
Interim Condensed Statements of Changes in Shareholders' Equity
In United States Dollars
(Unaudited)
Accumulated other comprehensive loss
Contributed Surplus
Share Capital Deficit Total Equity
Balance January 1, 2023 $ 57,810,735 $ 1,570,491 $ (645,372) $ (32,839,282) $ 25,896,572
Issuances of common shares, net 3,887,661 - - - 3,887,661
Net income for the period - - - 2,232,319 2,232,319
Othe comprehensive loss for the period
- - (111,584) - (111,584)
Share-based compensation - 291,259 - - 291,259
Balance June 30, 2023 $ 61,698,396 $ 1,861,750 $ (756,956) $ (30,606,963) $ 32,196,227
Accumulated other comprehensive loss
Contributed Surplus
Share Capital Deficit Total Equity
Balance January 1, 2022 $ 56,698,237 $ 1,249,418 $ (803,736) $ (33,185,806) $ 23,958,113
Subscription of common shares, net 234,433 - - - 234,433
Options settled in cash - (6,622) - - (6,622)
Net loss for the period - - - (4,663,547) (4,663,547)
Other comprehensive income for the period - - 80,578 - 80,578
Share based payments - 103,837 - - 103,837
Balance June 30, 2022 $ 56,932,670 $ 1,346,633 $ (723,158) $ (37,849,353) $ 19,706,792
The accompanying notes are an integral part of these interim condensed
consolidated financial statements.
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Cash Flows
In United States Dollars
(Unaudited)
For six months ended June 30, 2023 2022
Cash flows provided by (used in) operating activities
Net income (loss) $ 2,232,319 $ (4,663,547)
Items not involving cash:
Share based payment 291,259 103,836
Deferred income tax (2,222,406) -
Depletion and depreciation 6,094,553 1,840,592
Interest on leases 2,954 5,946
Interest on promissory note, net of forgiveness 119,283 238,573
Accretion 61,295 89,975
Foreign exchange loss (gain) (138,235) (111,604)
Loss on derivative liability 1,081,772 5,512,593
Changes in non‑cash working capital balances:
Restricted cash (103,080) (157,481)
Trade and other receivables 468,003 (2,350,855)
Taxes receivable (168,689) (303,003)
Deposits and prepaid expenses (35,548) (11,182)
Inventory (170,814) (228,776)
Accounts payable and accrued liabilities 537,898 (72,391)
Income tax payable (675,281) -
Settlement of decommissioning obligations (4,150) (89,569)
Cash provided by (used in) operating activities 7,371,133 (196,893)
Cash flows used in investing activities
Additions to exploration and evaluation assets (2,849,427) -
Additions to property and equipment (8,292,524) (3,503,276)
Changes in non-cash working capital 1,740,101 (48,227)
Cash flows used in investing activities (9,401,850) (3,551,503)
Cash flows (used in) provided by financing activities
Common shares issued 1,775,003 118,260
Payment of promissory note, principal and interests (2,018,577) -
Lease payments (23,259) (19,544)
Cash flows (used in) provided by financing activities (266,833) 98,716
Effect of changes in the exchange rate on cash 38,075 139,424
Decrease in cash (2,259,475) (3,510,256)
Cash, beginning of period 13,060,969 10,878,508
Cash, end of period 10,801,494 7,368,252
Supplemental information
Interest paid $ 415,026 $ -
Taxes paid $ 1,119,208 $ -
The accompanying notes are an integral part of these interim condensed
consolidated financial statements.
1. Corporate Information
Arrow Exploration Corp. ("Arrow" or "the Company") is a public junior oil and
gas company engaged in the acquisition, exploration and development of oil and
gas properties in Colombia and in Western Canada. The Company's shares trade
on the TSX Venture Exchange and the AIM Market of the London Stock Exchange
plc under the symbol AXL. The head office of Arrow is located at 203, 2303 -
4th Street SW, Calgary, Alberta, Canada, T2S 2S7 and the registered office is
located at 600, 815 - 8th Avenue SW, Calgary, Alberta, Canada, T2P 3P2.
2. Basis of Presentation
Statement of compliance
These interim condensed consolidated financial statements (the "Financial
Statements") have been prepared in accordance with International Accounting
Standard ("IAS") 34 Interim Financial Reporting. These Financial Statements
were authorized for issue by the board of directors of the Company on August
25, 2023. They do not contain all disclosures required by International
Financial Reporting Standards ("IFRS") for annual financial statements and,
accordingly, should be read in conjunction with the audited consolidated
financial statements as at December 31, 2022.
These Financial Statements have been prepared on the historical cost basis,
except for financial assets and liabilities recorded in accordance with IFRS
9. The Financial Statements have been prepared using the same accounting
policies and methods as the consolidated financial statements for the year
ended December 31, 2022, except for the adoption of new accounting standards
effective January 1, 2023. In preparing these condensed consolidated financial
statements, the significant judgements made by management in applying the
group's accounting policies and the key sources of estimation uncertainty were
the same as those that applied to the financial statements for the year ended
December 31, 2022.
Adoption of New Accounting Standards
The Company adopted amendments published by IASB to IAS 8 Changes in Estimates
vs Changes in Accounting Policies and to IAS 1 Presentation of Financial
Statements and IFRS Practice Statement 2 Making Materiality Judgements. These
amendments were adopted by the Company from January 1, 2023 but they did not
have a material impact on the Consolidated Financial Statements.
3. Restricted Cash and deposits
June 30, December 31, 2022
2023
Colombia (i) $ 255,986 $ 248,462
Canada (ii) 665,875 570,319
Sub-total 921,861 818,781
Long-term portion (703,683) (608,127)
Current portion of restricted cash and deposits $ 218,178 $ 210,654
(i) Balance comprised of deposits held as collateral to guarantee
abandonment expenditures in the Tapir and Santa Isabel blocks.
(ii) Pursuant to Alberta government regulations, the Company was required to
keep a $328,058 (CAD $434,341; 2022: $424,398) deposit for the Company's
liability rating management ("LMR"), which is held by a bank with interest
paid to the Company. The remaining $337,818 pertain to commercial deposits
with customers, lease and other deposits held in Canada.
4. Trade and other receivables
June 30, December 31, 2022
2023
Trade receivables, net of advances $ 1,536,092 $ 847,432
Other accounts receivable 564,194 1,720,858
$ 2,100,286 $ 2,568,290
As at December 31, 2022, other accounts receivable included a $1,070,825
receivable from a partner in the Tapir block and corresponds to reimbursable
capital expenditures incurred on the Tapir block, which have been subsequently
recovered.
5. Taxes receivable
June 30, December 31, 2022
2023
Value-added tax (VAT) credits recoverable $ 62,464 $ -
Income tax withholdings and advances, net 907,402 801,177
$ 969,866 $ 801,177
The VAT recoverable balance pertains to non-compensated value-added tax
credits originated in Colombia as operational and capital expenditures are
incurred. The Company is entitled to compensate or claim for the reimbursement
of these VAT credits.
6. Exploration and Evaluation
June 30, December 31, 2022
2023
Balance, beginning of the period $ - $ 6,964,506
Additions, net 2,849,427 -
Reclassification to Property and Equipment - (6,964,506)
Balance, end of the period $ 2,849,427 $ -
During 2023, the Company incurred in exploration and evaluation assets related
to the acquisition and interpretation of 135 square kilometers of 3D seismic
data in the Tapir block to confirm or identify leads to additional prospective
areas within such block.
7. Property and Equipment
Oil and Gas Properties Right of Use and Other Assets
Cost Total
Balance, December 31, 2021 $ 32,160,917 $ 183,485 $ 32,344,402
Additions 7,663,062 50,671 7,713,733
Transfers from exploration and evaluation assets 6,964,506 - 6,964,506
Decommissioning adjustment 756,541 - 756,541
Balance, December 31, 2022 $ 47,545,026 $ 234,156 $ 47,779,182
Additions 8,302,444 190,266 8,492,710
Decommissioning adjustment 350,611 - 350,611
Balance, June 30, 2023 $ 56,198,081 $ 424,422 $ 56,622,503
Accumulated depletion and depreciation and impairment
Balance, December 31, 2021 $ 16,692,145 $ 114,965 $ 16,807,110
Depletion and depreciation 5,482,218 46,271 5,528,489
Reversals net of impairment loss (9,020,654) - (9,020,654)
Balance, December 31, 2022 $ 13,153,709 $ 161,236 $ 13,314,945
Depletion and depreciation 6,068,960 25,502 6,094,462
Balance, June 30, 2023 $ 19,222,669 $ 186,738 $ 19,409,407
Foreign exchange
Balance December 31, 2021 $ 318,617 $ (3,457) $ 315,160
Effects of movements in foreign
exchange rates (568,525) (5,262) (573,787)
Balance December 31, 2022 $ (249,908) $ (8,719) $ (258,627)
Effects of movements in foreign
exchange rates 101,025 4,046 105,071
Balance, June 30, 2023 $ (148,883) $ (4,673) $ (153,556)
Net Book Value
Balance December 31, 2022 $ 34,141,409 $ 64,201 $ 34,205,610
Balance, June 30, 2023 $ 38,826,529 $ 233,011 $ 37,059,540
Effective February 9, 2023, the Agencia Nacional de Hidrocarburos ("ANH")
approved the suspension of the obligations and operations of the OMBU contract
due to force majeure circumstances generated by the blockades and social
unrest around the Capella field. The suspension was for an initial term of
three months, but it has been extended for nine additional months. The
Company, together with its partner and the ANH, is monitoring this suspension
to define next steps.
During the three months ended June 30, 2023, the Company entered in a new
office lease for its corporate offices for $183,135 and has been recognized as
a right-of-use assets (see note 9).
8. Promissory Note
The promissory note was issued to Canacol Energy Ltd. ("Canacol"), a related
party to the Company, as partial consideration in the acquisition of Carrao
Energy S.A. from Canacol. The promissory note bore interest at 15% per annum,
and, on October 18, 2021, Arrow and Canacol entered into a Seventh Amended and
Restated Promissory Note agreement. On June 30, 2023, the Company paid the
remaining balance of $2,018,577, including interest, and no other obligation
is pending with Canacol under the Promissory Note.
9. Lease Obligations
A reconciliation of the discounted lease obligation is set forth below:
2023 2022
Obligation, beginning of the period $ 63,751 $ 54,692
Additions 186,392 -
Changes in existing lease - 44,701
Lease payments (23,259) (39,697)
Interest 2,953 9,696
Effects of movements in foreign exchange rates 1,108 (5,641)
Obligation, end of the period $ 230,945 $ 63,751
Current portion (59,428) (41,434)
Long-term portion 171,517 $ 22,317
As at June 30, 2023, the Company has the following future lease obligations:
Less than one year $ 61,879
2 - 5 years 282,651
Total lease payments 344,530
Amounts representing interest over the term (113,585)
Present value of the net obligation $ 230,945
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.
June 30, December 31, 2022
2023
Obligation, beginning of the period $ 3,303,301 $ 2,470,239
Change in estimated cash flows 461,927 756,541
Payments or settlements (4,150) (76,131)
Accretion expense 61,295 199,521
Disposals (191,365) -
Effects of movements in foreign exchange rates 13,638 (46,869)
Obligation, end of the period $ 3,644,646 $ 3,303,301
The obligation was calculated using a risk-free discount rate range of 2.50%
to 3.75% in Canada (2022: 2.50% to 3.75%) and between 3.55% and 4.13% in
Colombia (2022: 3.55% and 4.13%) with an inflation rate of 3.0% and 3.5%,
respectively (2022: 3.0% and 3.5%). The majority of costs are expected to
occur between 2023 and 2033. The undiscounted amount of cash flows, required
over the estimated reserve life of the underlying assets, to settle the
obligation, adjusted for inflation, is estimated at $4,855,989 (2022:
$4,480,074).
11. Derivative liability
Derivative liability includes warrants issued and outstanding as follows:
June 30, December 31,
2023 2022
Warrants Number Amounts Number Amounts
Balance beginning of the period 67,837,418 $ 9,540,423 72,474,706 $ 4,692,303
Exercised (15,872,962) (2,112,658) (4,637,288) (598,509)
Fair value adjustment - 1,081,772 - 5,974,674
Foreign exchange - 195,784 - (528,045)
Balance end of the period 51,964,456 $ 8,705,321 67,837,418 $ 9,540,423
Each warrant is exercisable at £0.09 per new common share for 24 months from
the issuance date and are measured at fair value quarterly using the
Black-Scholes options pricing model. The fair value of warrants at June 30,
2023 and December 31, 2022 was estimated using the following assumptions:
June 30, December 31, 2022
2023
Number outstanding re-valued warrants 51,964,456 67,837,418
Fair value of warrants outstanding £0.1326 £0.1157
Risk free interest rate 4.88% 3.41%
Expected life 0.40 years 0.82 years
Expected volatility 136% 147%
The following table summarizes the warrants outstanding and exercisable at
June 30, 2023:
Number of
warrants Exercise price Expiry date
51,411,807 £0.09 October 24, 2023
552,649 £0.09 November 22, 2023
51,964,456
12. Share Capital
(a) Authorized: Unlimited number of common shares without par value
(b) Issued:
June 30, 2023 December 31, 2022
Common shares Shares Amounts Shares Amounts
Balance beginning of the year 218,401,931 57,810,735 213,389,643 56,698,237
Issued from warrants exercised 15,872,962 3,887,661 4,637,288 1,094,574
Issued from options exercised - - 375,000 17,924
Balance at end of the period 234,274,893 61,698,396 218,401,931 57,810,735
(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 common shares that are
outstanding. The exercise price is based on the closing price of the Company's
common shares on the day prior to the day of the grant. A summary of the
status of the Company stock option plan as at June 30, 2023 and December 31,
2022 and changes during the respective periods ended on those dates is
presented below:
June 30, 2023 December 31, 2022
Stock Options Number of options Weighted average Number of options Weighted average
exercise Price exercise price
(CAD $) (CAD $)
Beginning of period 20,590,000 $0.24 17,114,000 $0.18
Granted 650,000 $0.32 10,028,332 $0.27
Expired/Forfeited (1,375,000) $0.46 (2,794,000) $0.12
Exercised - - (3,758,332) $0.11
End of period 19,865,000 $0.23 20,590,000 $0.24
Exercisable, end of period 4,986,665 $0.26 3,395,000 $0.42
Date of Grant Number Outstanding Exercise Price Weighted Date of Number
(CAD $) Average Remaining Contractual Life Expiry Exercisable
June 30, 2023
October 22, 2018 750,000 $1.15 Oct. 22, 2028 750,000
May 3, 2019 270,000 $0.31 May 3, 2029 270,000
March 20, 2020 1,200,000 $0.05 March 20, 2030 1,200,000
April 13, 2020 2,000,000 $0.05 April 13, 2030 2,000,000
December 13, 2021 2,983,332 $0.13 June 13, 2024 -
December 13, 2021 2,983,336 $0.13 June 13, 2025 -
June 9, 2022 766,665 $0.28 December 9, 2023 766,665
June 9, 2022 766,667 $0.28 December 9, 2024 -
June 9, 2022 766,668 $0.28 December 9, 2025 -
September 7, 2022 416,666 $0.26 March 7, 2024 -
September 7, 2022 416,666 $0.26 March 7, 2025 -
September 7, 2022 416,668 $0.26 March 7, 2026 -
December 21, 2022 1,826,110 $0.28 June 13, 2023 -
December 21, 2022 1,826,110 $0.28 June 13, 2024 -
December 21, 2022 1,826,112 $0.28 June 13, 2025 -
January 23, 2023 216,667 $0.32 July 23, 2024 -
January 23, 2023 216,667 $0.32 July 23, 2025 -
January 23, 2023 216,666 $0.32 July 23, 2026 -
Total 19,865,000 $0.23 2.69 years 4,986,665
The Company recognized $159,018 and $291,258 as share-based compensation
expense for the three and six months ended June 30, 2023 (2022: $40,917 and
$103,836), with a corresponding effect in the contributed surplus account.
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. In aggregate, the Company has
outstanding exploration commitments of $17.8 million as at June 30, 2023. The
Company have made applications to cancel its commitments on the COR-39, Macaya
and Los Picachos blocks.
Block Less than 1 year 1-3 years Thereafter Total
COR-39 - 12,000,000 - 12,000,000
Los Picachos - 1,970,000 - 1,970,000
Macaya - 3,830,000 - 3,830,000
Total - - 17,800,000
17,800,000
Contingencies
From time to time, the Company may be involved in litigation or has claims
sought against it in the normal course of business operations. Management of
the Company is not currently aware of any claims or actions that would
materially affect the Company's reported financial position or results from
operations. Under the terms of certain agreements and the Company's by-laws
the Company indemnifies individuals who have acted at the Company's request to
be a director and/or officer of the Company, to the extent permitted by law,
against any and all damages, liabilities, costs, charges or expenses suffered
by or incurred by the individuals as a result of their service.
Letters of Credit
At June 30, 2023, the Company had obligations under Letters of Credit ("LC's")
outstanding totaling $2.8 million to guarantee work commitments on exploration
blocks and other contractual commitments. In the event the Company fails to
secure the renewal of the letters of credit underlying the ANH guarantees, or
any of them, the ANH could decide to cancel the underlying exploration and
production contract for a particular block, as applicable.
Current Outstanding Letters of Credit
Contract Beneficiary Issuer Type Amount Renewal Date
(US $)
SANTA ISABEL ANH Carrao Energy Abandonment $563,894 April 14, 2024
ANH Carrao Energy Financial Capacity $1,672,162 December 31, 2023
CORE - 39 ANH Carrao Energy Compliance $100,000 December 31, 2023
OMBU ANH Carrao Energy Financial Capacity $436,300 April 14, 2024
Total $2,772,356
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
Commodity price risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate as a result of changes in commodity
prices. Lower commodity prices can also impact the Company's ability to
raise capital. Commodity prices for crude oil are impacted by world economic
events that dictate the levels of supply and demand. From time to time the
Company may attempt to mitigate commodity price risk through the use of
financial derivatives. There were no derivative contracts during 2023 and
2022.
(b) Credit Risk
Credit risk reflects the risk of loss if counterparties do not fulfill their
contractual obligations. The majority of the Company's account receivable
balances relate to petroleum and natural gas sales and balances receivables
with partners in areas operated by the Company. The Company's policy is to
enter into agreements with customers that are well established and well
financed entities in the oil and gas industry such that the level of risk is
mitigated.
In Colombia, a significant portion of the sales is with a producing company
under an existing sale/offtake agreement with prepayment provisions and priced
using the Brent benchmark. The Company's trade account receivables primarily
relate to sales of crude oil and natural gas, which are normally collected
within 25 days (in Canada) and up to 15 days in advance (in Colombia) of the
month of production. Other accounts receivable mainly relate to balances
owed by the Company's partner in one of its blocks, and are mainly recoverable
through join billings. The Company has historically not experienced any
collection issues with its customers and partners.
(c) Market Risk
Market risk is comprised of two components: foreign currency exchange risk and
interest rate risk.
i) Foreign Currency Exchange Risk
The Company operates on an international basis and therefore foreign exchange
risk exposures arise from transactions denominated in currencies other than
the United States dollar. The Company is exposed to foreign currency
fluctuations as it holds cash and incurs expenditures in exploration and
evaluation and administrative costs in foreign currencies. The Company incurs
expenditures in Canadian dollars, United States dollars and the Colombian peso
and is exposed to fluctuations in exchange rates in these currencies. There
are no exchange rate contracts in place.
ii) Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a
result of changes in market interest rates. The Company is not currently
exposed to interest rate risk as it borrows funds at a fixed coupon rate of
15% on the promissory notes.
(d) Liquidity Risk
Liquidity risk includes the risk that, as a result of the Company's
operational liquidity requirements:
· The Company will not have sufficient funds to settle a
transaction on the due date;
· The Company will be forced to sell financial assets at a value
less than market value; or
· The Company may be unable to settle or recover a financial asset.
The Company's approach to managing its liquidity risk is to ensure, within
reasonable means, sufficient liquidity to meet its liabilities when due, under
both normal and unusual conditions, without incurring unacceptable losses or
jeopardizing the Company's business objectives.
The Company prepares annual capital expenditure budgets which are monitored
regularly and updated as considered necessary. Petroleum and natural gas
production is monitored daily to provide current cash flow estimates and the
Company utilizes authorizations for expenditures on projects to manage capital
expenditures. Any funding shortfall may be met in a number of ways, including,
but not limited to, the issuance of new debt or equity instruments, further
expenditure reductions and/or the introduction of joint venture partners.
(e) Capital Management
The Company's objective is to maintain a capital base sufficient to provide
flexibility in the future development of the business and maintain investor,
creditor and market confidence. The Company manages its capital structure
and makes adjustments in response to changes in economic conditions and the
risk characteristics of the underlying assets. The Company considers its
capital structure to include share capital, bank debt (when available),
promissory notes and working capital, defined as current assets less current
liabilities.
In order to maintain or adjust the capital structure, from time to time the
Company may issue common shares or other securities, sell assets or adjust its
capital spending to manage current and projected debt levels. The Company
monitors leverage and adjusts its capital structure based on its net debt
level. Net debt is defined as the principal amount of its outstanding debt,
less working capital items. In order to facilitate the management of its net
debt, the Company prepares annual budgets, which are updated as necessary
depending on varying factors including current and forecast crude oil prices,
changes in capital structure, execution of the Company's business plan and
general industry conditions. The annual budget is approved by the Board of
Directors and updates are prepared and reviewed as required. The Company's
capital includes the following:
June 30, 2023 December 31, 2022
Working capital deficit $ (2,363,388) $ (1,316,665)
Derivative liability 8,705,321 9,540,423
$ 6,341,933 $ 8,223,758
15. Segmented Information
The Company has two reportable operating segments: Colombia and Canada. The
Company, through its operating segments, is engaged primarily in oil
exploration, development and production, and the acquisition of oil and gas
properties. The Canada segment is also considered the corporate segment. The
following tables show information regarding the Company's segments for the
three months ended and as at June 30:
Three months ended June 30, 2023 Colombia Canada Total
Revenue:
Oil Sales $ 11,206,886 $ - $ 11,206,886
Natural gas and liquid sales - 431,082 431,082
Royalties (1,399,621) 41,933 (1,357,688)
Expenses (5,270,072) (5,502,162) (10,872,234)
Income taxes (165,462) - (165,462)
Net income (loss) $ 4,371,731 $ (5,129,147) $ (757,416)
Six months ended June 30, 2023 Colombia Canada Total
Revenue:
Oil Sales $ 18,680,723 $ - $ 18,680,723
Natural gas and liquid sales - 922,103 922,103
Royalties (2,328,654) (1,032) (2,329,686)
Expenses (8,460,388) (6,414,971) (14,875,359)
Income taxes (165,462) - (165,462)
Net income (loss) $ 7,726,219 $ (5,493,900) $ 2,232,319
As at June 30, 2023 Colombia Canada Total
Current assets $ 13,847,131 $ 1,312,191 $ 15,159,322
Non-current:
Deferred income taxes 533,558 - 533,558
Restricted cash 37,808 665,875 703,683
Exploration and evaluation 2,849,427 - 2,849,427
Property, plant and equipment 32,495,634 4,563,906 37,059,540
Total Assets $ 49,763,558 $ 6,541,972 $ 56,305,530
Current liabilities $ 8,150,721 $ 9,371,989 $ 17,522,710
Non-current liabilities:
Deferred income taxes 2,505,549 - 2,505,549
Other liabilities 264,881 - 264,881
Lease obligation - 171,517 171,517
Decommissioning liability 3,080,832 563,814 3,644,646
Total liabilities $ 14,001,983 $ 10,107,320 $ 24,109,303
Three months ended June 30, 2022 Colombia Canada Total
Revenue:
Oil Sales $ 4,475,645 $ - $ 4,475,645
Natural gas and liquid sales 1,255,464 1,255,464
Royalties (569,224) (137,281) (706,505)
Expenses (1,541,018) (2,715,267) (4,256,286)
Net loss $ 2,365,403 $ (1,597,084) $ 768,318
Six months ended June 30, 2022 Colombia Canada Total
Revenue:
Oil Sales $ 6,956,442 $ - $ 6,956,442
Natural gas and liquid sales - 2,685,996 2,685,996
Royalties (778,717) (436,155) (1,214,872)
Expenses 3,157,421 9,933,692 (13,091,113)
Net income (loss) $ 3,020,304 $ (7,683,851) $ (4,663,547)
As at June 30, 2022 Colombia Canada Total
Current assets $ 6,491,047 $ 5,699,016 $ 12,190,063
Non-current:
Deferred income taxes 4,839,785 - 4,839,785
Restricted cash 195,289 671,758 867,047
Exploration and evaluation 6,964,506 - 6,964,506
Property and equipment 12,530,568 5,278,184 17,808,752
Total Assets $ 31,021,195 $ 11,648,958 $ 42,670,153
Current liabilities $ 2,196,394 $ 4,399,641 $ 6,596,035
Non-current liabilities:
Other liabilities 177,500 - 177,500
Deferred income taxes 3,371,935 - 3,371,935
Lease obligation - 45,773 45,773
Decommissioning liability 2,244,675 554,904 2,799,579
Long-term debt - 31,040 31,040
Derivative liability - 9,941,499 9,941,499
Total liabilities $ 7,990,505 $ 14,972,857 $ 22,963,362
Arrow Exploration Corp.
MANAGEMENT's DISCUSSION AND ANALYSIS
THREE AND SIX MONTHS ENDED JUNE 30, 2023
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") as provided by the
management of Arrow Exploration Corp. ("Arrow" or the "Company"), is dated as
of August 25, 2023 and should be read in conjunction with Arrow's interim
condensed (unaudited) consolidated financial statements and related notes as
at and for the three and six months ended June 30, 2023 and 2022. Additional
information relating to Arrow, including its annual consolidated financial
statements and related notes for the years ended December 31, 2022 and 2021
(the "Annual Financial Statements"), is available under Arrow's profile on
www.sedar.com (http://www.sedar.com) .
Advisories
Basis of Presentation
The condensed consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS"), and all
amounts herein are expressed in United States dollars, unless otherwise noted,
and all tabular amounts are expressed in United States dollars, unless
otherwise noted. Additional information for the Company may be found on
SEDAR at www.sedar.com.
Advisory Regarding Forward‐Looking Statements
This MD&A contains certain statements or disclosures relating to Arrow
that are based on the expectations of its management as well as assumptions
made by and information currently available to Arrow which may constitute
forward-looking statements or information ("forward-looking statements") under
applicable securities laws. All such statements and disclosures, other than
those of historical fact, which address activities, events, outcomes, results
or developments that Arrow anticipates or expects may, could or will occur in
the future (in whole or in part) should be considered forward-looking
statements. In some cases, forward-looking statements can be identified by the
use of the words "believe", "continue", "could", "expect", "likely", "may",
"outlook", "plan", "potential", "will", "would" and similar expressions. In
particular, but without limiting the foregoing, this MD&A contains
forward-looking statements pertaining to the following: the COVID-19 pandemic
and its impact; tax liability; capital management strategy; capital structure;
credit facilities and other debt; performance by Canacol (as defined herein)
and the Company in connection with the Note (as defined herein) and letters of
credit; Arrow's costless collar structure;; cost reduction initiatives;
potential drilling on the Tapir block; capital requirements; expenditures
associated with asset retirement obligations; future drilling activity and the
development of the Rio Cravo Este structure on the Tapir Block. Statements
relating to "reserves" and "resources" are deemed to be forward-looking
information, as they involve the implied assessment, based on certain
estimates and assumptions, that the reserves and resources described exist in
the quantities predicted or estimated and can be profitably produced in the
future.
The forward-looking statements contained in this MD&A reflect several
material factors and expectations and assumptions of Arrow including, without
limitation: current and anticipated commodity prices and royalty regimes; the
impact of the COVID-19 pandemic; the financial impact of Arrow's costless
collar structure; availability of skilled labour; timing and amount of capital
expenditures; future exchange rates; commodity prices; the impact of
increasing competition; general economic conditions; availability of drilling
and related equipment; receipt of partner, regulatory and community approvals;
royalty rates; 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 the COVID-19 pandemic; the impact of general
economic conditions; volatility in commodity prices; industry conditions
including changes in laws and regulations including adoption of new
environmental laws and regulations, and changes in how they are interpreted
and enforced; competition; lack of availability of qualified personnel; the
results of exploration and development drilling and related activities;
obtaining required approvals of regulatory authorities; counterparty risk;
risks associated with negotiating with foreign governments as well as country
risk associated with conducting international activities; commodity price
volatility; fluctuations in foreign exchange or interest rates; environmental
risks; changes in income tax laws or changes in tax laws and incentive
programs; changes to pipeline capacity; ability to secure a credit facility;
ability to access sufficient capital from internal and external sources; risk
that Arrow's evaluation of its existing portfolio of development and
exploration opportunities is not consistent with future results; that
production may not necessarily be indicative of long term performance or of
ultimate recovery; and certain other risks detailed from time to time in
Arrow's public disclosure documents including, without limitation, those risks
identified in Arrow's 2018 AIF, a copy of which is available on Arrow's SEDAR
profile at www.sedar.com. Readers are cautioned that the foregoing list of
factors is not exhaustive and are cautioned not to place undue reliance on
these forward-looking statements.
Non‐IFRS Measures
The Company uses non-IFRS measures to evaluate its performance which are
measures not defined in IFRS. Working capital, funds flow from operations,
realized prices, operating netback, adjusted EBITDA, and net debt as presented
do not have any standardized meaning prescribed by IFRS and therefore may not
be comparable with the calculation of similar measures for other entities. The
Company considers these measures as key measures to demonstrate its ability to
generate the cash flow necessary to fund future growth through capital
investment, and to repay its debt, as the case may be. These measures should
not be considered as an alternative to, or more meaningful than net income or
cash provided by (used in) operating activities or net income and
comprehensive income as determined in accordance with IFRS as an indicator of
the Company's performance. The Company's determination of these measures may
not be comparable to that reported by other companies.
Adjusted working capital is calculated as current assets minus current
liabilities, excluding non-cash liabilities; funds from operations is
calculated as cash flows from (used in) operating activities adjusted to
exclude changes in non-cash working capital balances; realized price is
calculated by dividing gross revenue by gross production, by product, in the
applicable period; operating netback is calculated as total natural gas and
crude revenues minus royalties, transportation costs and operating
expenditures; adjusted EBITDA is calculated as net income adjusted for
interest, income taxes, depreciation, depletion, amortization and other
similar non-recurring or non-cash charges; and net debt (net cash) is defined
as the principal amount of its outstanding debt, less working capital items
excluding non-cash liabilities.
The Company also presents funds from operations per share, whereby per share
amounts are calculated using weighted- average shares outstanding consistent
with the calculation of net income per share.
A reconciliation of the non-IFRS measures is included as follows:
Three months ended June 30, 2023 Six months ended June 30, 2023 Three months ended June 30, 2022
(in United States dollars)
Net income (loss) (757,416) 2,232,319 768,318
Add/(subtract):
Share based payments 159,018 291,259 40,917
Financing costs:
Accretion on decommissioning obligations 32,139 61,295 45,644
Interest 61,349 122,237 123,741
Other 103,172 148,854 134,981
Depreciation and depletion 3,640,189 6,094,553 971,353
Derivative loss 2,436,047 1,081,772 724,758
Income taxes, current and deferred 165,462 165,462 -
Adjusted EBITDA ((1)) 5,839,960 10,197,751 2,809,713
Cash flows provided by (used in) operating activities 4,990,938 7,371,133 (99,185)
Minus - Changes in non‑cash working capital balances:
Trade and other receivables 1,236,941 (468,003) 2,185,670
Restricted cash 90,814 103,080 157,481
Taxes receivable (433,680) 168,689 (4,560)
Deposits and prepaid expenses (78,064) 35,548 (81,506)
Inventory 53,016 170,814 150,459
Accounts payable and accrued liabilities (3,020,563) (537,898) 305,484
Income taxes 438,639 675,281 -
Funds flow from operations ((1)) 3,278,041 7,518,644 2,613,843
( (1))Non-IFRS measures
The term barrel of oil equivalent ("boe") is used in this MD&A. Boe may
be misleading, particularly if used in isolation. A boe conversion ratio of
6 thousand cubic feet ("Mcf") of natural gas to one barrel of oil ("bbl") is
used in the MD&A. This conversion ratio of 6:1 is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended June 30, 2023 Six months Three months ended June 30, 2022
ended June 30, 2023
(in United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 10,280,280 17,273,140 5,024,604
Funds flow from operations ((1)) 3,278,041 7,518,644 2,613,843
Funds flow from operations ((1)) per share -
Basic($) 0.01 0.03 0.01
Diluted ($) 0.01 0.03 0.00
Net income (loss) (757,416) 2,232,319 768,318
Net income (loss) per share -
Basic ($) (0.00) 0.01 0.00
Diluted ($) (0.00) 0.01 0.00
Adjusted EBITDA ((1)) 5,839,960 10,197,751 2,809,713
Weighted average shares outstanding -
Basic ($) 230,808,547 226,785,547 214,367,388
Diluted ($) 295,446,047 294,694,399 288,231,900
Common shares end of period 234,274,893 234,274,893 214,667,143
Capital expenditures 6,870,258 11,141,951 2,777,611
Cash and cash equivalents 10,801,494 10,801,494 7,368,252
Current Assets 15,159,322 15,159,322 12,190,063
Current liabilities 17,522,710 17,522,710 6,596,035
Adjusted working capital((1)) 6,341,935 6,341,935 5,594,028
Long-term portion of restricted cash((2)) 703,683 703,683 867,047
Total assets 56,305,530 56,305,530 42,670,153
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 2,318 2,388 2,398
Natural gas liquids (bbl/d) 3 4 5
Crude oil (bbl/d) 1,779 1,502 575
Total (boe/d) 2,169 1,904 980
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($0.05) ($0.24) $2.18
Crude oil ($/bbl) $53.64 $55.42 $80.04
Total ($/boe) $44.21 $43.40 $49.18
((1))Non-IFRS measures - see "Non-IFRS Measures" section within this MD&A
((2))Long term restricted cash not included in working capital
The Company
Arrow is a junior oil and gas company engaged in the acquisition, exploration
and development of oil and gas properties in Colombia and Western Canada. The
Company's shares trade on the TSX Venture Exchange and the London AIM exchange
under the symbol AXL.
The Company and Arrow Exploration Ltd. entered into an arrangement agreement
dated June 1, 2018, as amended, whereby the parties completed a business
combination pursuant to a plan of arrangement under the Business Corporations
Act (Alberta) ("ABCA") on September 28, 2018. Arrow Exploration Ltd. and Front
Range's then wholly-owned subsidiary, 2118295 Alberta Ltd., were amalgamated
to form Arrow Holdings Ltd., a wholly-owned subsidiary of the Company (the
"Arrangement"). On May 31, 2018, Arrow Exploration Ltd. entered in a share
purchase agreement, as amended, with Canacol Energy Ltd. ("Canacol"), to
acquire Canacol's Colombian oil properties held by its wholly-owned subsidiary
Carrao Energy S.A. ("Carrao"). On September 27, 2018, Arrow Exploration Ltd.
closed the agreement with Canacol.
On May 31, 2018, Arrow Exploration Ltd., entered into a purchase and sale
agreement to acquire a 50% beneficial interest in a contract entered into with
Ecopetrol S.A. pertaining to the exploration and production of hydrocarbons in
the Tapir block from Samaria Exploration & Production S.A. ("Samaria"). On
September 27, 2018, Arrow Exploration Ltd. closed the agreement with Samaria.
As at June 30, 2023 the Company held an interest in six oil blocks in Colombia
and oil and natural gas leases in seven areas in Canada as follows:
Gross Acres Working Interest Net Acres
COLOMBIA
Tapir Operated(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
Los Picachos Non-operated 52,772 37.5% 19,790
Macaya Non-operated 195,255 37.5% 73,221
Total Colombia 465,417 227,005
CANADA
Ansell Operated 640 100% 640
Fir Non operated 7,680 32% 2,457
Penhold Non-operated 480 13% 61
Pepper Operated 23,680 100% 23,680
Wapiti Non-operated 1,280 13% 160
Total Canada 33,760 26,998
TOTAL 499,177 254,003
The Company's primary producing assets are located in Colombia in the Tapir,
Oso Pardo and Ombu blocks, with natural gas production in Canada at Fir and
Pepper, Alberta.
Llanos Basin
Within the Llanos Basin, the Company is engaged in the exploration,
development and production of oil within the Tapir block. In the Llanos Basin
most oil accumulations are associated with three-way dip closure against
NNE-SSW trending normal faults and can have pay within multiple reservoirs.
The Tapir block contain large areas not yet covered by 3D seismic, and in
Management's opinion offer substantial exploration upside.
(1)The Company's interest in the Tapir block is held through a private
contract with Petrolco, who holds a 50% participating interest in, and is the
named operator of, the Tapir contract with Ecopetrol. The formal assignment to
the Company is subject to Ecopetrol's consent. The Company is the de facto
operator pursuant to certain agreements with Petrolco (details of which are
set out in Paragraph 16.13 of the Company's AIM Admission Document dated
October 20, 2021).
Middle Magdalena Valley ("MMV") Basin
Oso Pardo Field
The Oso Pardo Field is located in the Santa Isabel Block in the MMV Basin.
It is a 100% owned property operated by the Company. The Oso Pardo field is
located within a Production Licence covering 672 acres. Three wells have been
drilled to date within the licensed area.
Ombu E&P Contract - Capella Conventional Heavy Oil Discovery
The Caguan Basin covers an area of approximately 60,000 km(2) and lies between
the Putumayo and Llanos Basins. The primary reservoir target is the Upper
Eocene aged Mirador formation. The Capella structure is a large, elongated
northeast-southwest fault-related anticline, with approximately 17,500 acres
in closure at the Mirador level. The field is located approximately 250 km
away from the nearest offloading station at Neiva, where production from
Capella is trucked.
The Capella No. 1 discovery well was drilled in July 2008 and was followed by
a series of development wells. The Company earned a 10% working interest in
the Ombu E&P Contract by paying 100% of all activities associated with the
drilling, completion, and testing of the Capella No. 1 well. The Capella field
is currently suspended and temporarily shut in.
Fir, Alberta
The Company has an average non-operated 32% WI in 12 gross (3.84 net) sections
of oil and natural gas rights and 17 gross (4.5 net) producing natural gas
wells at Fir. The wells produce raw natural gas into the Cecilia natural gas
plant where it is processed.
Pepper, Alberta
The Company holds a 100% operated WI in 37 sections of Montney P&NG rights
on its Pepper asset in West Central Alberta. The 6-26-53-23W5M Montney gas
well (West Pepper) is tied into the Galloway gas plant for processing. The
3-21-52-22W5M Montney gas well (East Pepper) is currently tied into the
Sundance gas plant for processing. The majority of lands have tenure extending
into 2025.
Three Months Ended June 30, 2023 Financial and Operational Highlights
· Arrow recorded $10,280,280 in revenues, net of royalties, on
crude oil sales of 165,565 bbls, 315 bbls of natural gas liquids ("NGL's") and
210,932 Mcf of natural gas sales;
· Funds flow from operations of $3,278,041;
· Net loss of $757,415 and adjusted EBITDA was $5,839,960;
· Completed acquisition of 125 km(2) of 3D seismic in the Tapir
block, currently under interpretation
· Completed drilling of the RCE-5 and Carrizales Norte-1 (CN-1)
well
· Paid off outstanding balance on the Canacol Promissory Note
Results of Operations
The Company increased its production from new wells at Rio Cravo Este (RCE-3,
RCE-4 and RCE-5) and CN-1. These have allowed the Company to continue to
improve its operating results and EBITDA. There has also been a decrease in
the Company's natural gas production in Canada due to natural declines.
Average Production by Property
Average Production Boe/d Q2 2023 Q1 2023 Q4 2022 Q3 2022 Q2 2022 Q1 2022
Oso Pardo 130 138 115 104 112 121
Ombu (Capella) - 80 238 215 97 177
Rio Cravo Este (Tapir) 1,592 1,004 832 860 366 136
Carrizales Norte (Tapir) 57 - - - - -
Total Colombia 1,779 1,222 1,185 1,179 575 434
Fir, Alberta 77 74 79 82 86 73
Pepper, Alberta 313 340 472 242 319 636
TOTAL (Boe/d) 2,169 1,635 1,736 1,503 980 1,144
For the three months ended June 30, 2023, the Company's average production was
2,169 boe/d, which consisted of crude oil production in Colombia at 1,779
bbl/d, natural gas production of 2,318 Mcf/d and minor amounts of natural gas
liquids from the Company's Canadian properties. The Company's Q2 2023 total
production was 121% higher than its total production for the same period in
2022.
Average Daily Natural Gas and Oil Production and Sales Volumes
Three months ended Six months ended
June 30 June 30
2023 2022 2023 2022
Natural Gas (Mcf/d)
Natural gas production 2,318 2,398 2,388 3,329
Natural gas sales 2,318 2,398 2,388 3,329
Realized Contractual Natural Gas Sales 2,318 2,398 2,388 3,329
Crude Oil (bbl/d)
Crude oil production 1,779 575 1,502 505
Inventory movements and other 40 (105) (24) (142)
Crude Oil Sales 1,819 470 1,478 364
Corporate
Natural gas production (boe/d) 386 400 398 555
Natural gas liquids(bbl/d) 4 5 4 6
Crude oil production (bbl/d) 1,779 575 1,502 505
Total production (boe/d) 2,169 980 1,904 1,066
Inventory movements and other (boe/d) 40 (105) (24) (142)
Total Corporate Sales (boe/d) 2,209 874 1,880 924
During the three and six months ended June 30, 2023 the majority of production
was attributed to Colombia, where most of Company's blocks were producing. In
Canada, the Company has two operated and two non-operated properties located
in the province of Alberta at Fir, Pepper, Harley and Wapiti.
Natural Gas and Oil Revenues
Three months ended Six months ended
June 30 June 30
2023 2022 2023 2022
Natural Gas
Natural gas revenues 413,632 1,218,731 881,508 2,599,851
NGL revenues 17,450 42,528 40,595 86,145
Royalties 41,933 (138,491) (1,032) (436,155)
Revenues, net of royalties 473,015 1,122,768 921,071 2,249,841
Oil
Oil revenues 11,206,886 4,475,645 18,680,723 6,956,442
Royalties (1,399,621) (569,224) (2,328,654) (778,717)
Revenues, net of royalties 9,807,265 3,906,421 16,352,069 6,177,725
Corporate
Natural gas revenues 413,632 1,218,731 881,508 2,599,851
NGL revenues 17,450 42,528 40,595 86,145
Oil revenues 11,206,886 4,475,645 18,680,723 6,956,442
Total revenues 11,637,968 5,736,905 19,602,826 9,642,438
Royalties (1,357,688) (707,716) (2,329,686) (1,214,871)
Natural gas and crude oil revenues, net of royalties 10,280,280 5,029,189 17,273,140 8,427,566
Natural gas and crude oil revenues, net of royalties, for the three and six
months ended June 30, 2023 was $10,280,280 (2022: $5,029,189) and $17,273,140
(2022: $8,427,566), respectively, which represents an increase of 105%. This
significant increase is mainly due to increased oil production in Colombia,
offset by decrease in oil prices and revenue in Canada.
Average Benchmark and Realized Prices
Three months ended June 30 Six months ended June 30
2023 2022 Change 2023 2022 Change
Benchmark Prices
AECO (C$/Mcf) $2.46 $5.42 (55%) $2.85 $4.55 (37%)
Brent ($/bbl) $74.98 $111.98 (33%) $77.10 $104.59 (26%)
West Texas Intermediate ($/bbl) $73.75 $108.40 (32%) $74.90 $101.45 (26%)
Realized Prices
Natural gas, net of transportation ($/Mcf) $1.96 $5.35 (63%) $2.03 $4.28 (52%)
Natural gas liquids ($/bbl) $55.33 $90.94 (39%) $61.01 $83.15 (27%)
Crude oil, net of transportation ($/bbl) $67.69 $104.66 (35%) $69.83 $91.12 (23%)
Corporate average, net of transport ($/boe)((1)) $57.89 $71.06 (19%) $57.62 $54.10 6%
( (1)Non-IFRS measure)
The Company realized prices of $57.89 and $57.62 per boe during the three and
six months ended June 30, 2023 (2022: $71.06 and $54.10), respectively, as
commodity prices decreased in 2023 compared with 2022.
Operating Expenses
Three months ended June 30 Six months ended June 30
2023 2022 2023 2022
Natural gas & NGL's 465,154 590,932 982,807 1,401,777
Crude oil 926,336 483,503 1,526,273 1,111,139
Total operating expenses 1,391,490 1,074,435 2,509,080 2,512,916
Natural gas ($/Mcf) $2.21 $2.65 $2.27 $2.33
Crude oil ($/bbl) $5.59 $11.31 $5.71 $14.55
Corporate ($/boe)((1)) $6.92 $13.38 $7.37 $14.13
( (1)Non-IFRS measure)
During the three and six months ended June 30, 2023, Arrow incurred operating
expenses of $1,391,490 and $2,509,080 (2022: $1,074,435 and $2,512,916),
respectively. This reflects the Company's growth in production volumes,
especially in crude oil, and a significant decrease on a per barrel basis when
compared to 2022 levels.
Operating Netbacks
Three months ended June 30 Six months ended June 30
2023 2022 2023 2022
Natural Gas ($/Mcf)
Revenue, net of transportation expense $1.96 $5.45 $2.03 $4.32
Royalties $0.20 (0.62) ($0.00) (0.72)
Operating expenses ($2.21) (2.65) ($2.27) (2.33)
Natural Gas operating netback((1)) ($0.05) $2.18 ($0.24) $1.26
Crude oil ($/bbl)
Revenue, net of transportation expense $67.69 $104.66 $69.83 $91.12
Royalties ($8.46) (13.31) ($8.70) (10.20)
Operating expenses ($5.59) (11.31) ($5.71) (14.55)
Crude Oil operating netback((1)) $53.64 $80.04 $55.42 $66.37
Corporate ($/boe)
Revenue, net of transportation expense $57.89 $71.35 $57.62 $54.23
Royalties ($6.76) (8.80) ($6.85) (6.83)
Operating expenses ($6.92) (13.38) ($7.37) (14.13)
Corporate Operating netback((1)) $44.21 $49.18 $43.40 $33.27
( (1))Non-IFRS measure
The operating netbacks of the Company continued improving in 2023 due to
several factors, mostly increasing production from its Colombian assets, even
with decreased crude oil prices, which were offset by decreases in natural gas
prices and operating expenses for natural gas.
General and Administrative Expenses (G&A)
Three months ended June 30 Six months ended June 30
2023 2022 2023 2022
General & administrative expenses 3,437,678 1,275,915 5,190,625 2,649,021
G&A recovered from 3(rd) parties (189,551) (147,030) (323,750) (167,030)
Total operating overhead recovery (189,551) (147,030) (323,750) (167,030)
Total G&A 3,248,127 1,128,885 4,866,875 2,481,991
Cost per boe $23.34 $15.30 $14.31 $13.96
For the three and six months ended June 30, 2023, G&A expenses before
recoveries totaled $3,437,678 and $5,190,625 (2022: $1,275,915 and
$2,649,021), respectively, which represent increases when compared to the same
periods in 2022. These increases are mainly due to additional personnel and
legal services during 2023, payment of performance bonuses to management and
employees, as well as increase in marketing expenses. Despite these increased
expenses, and due to the Company's increased production, G&A expenses
remain consistent, on a per barrel basis, to $14.31/boe when compared to
$13.96/boe for the six months ended June 30, 2022.
Share-based Compensation
Three months ended June 30 Six months ended June 30
2023 2022 2023 2022
Share-based Payments 159,018 40,917 291,259 103,836
Share-based compensation expense for the three and six months ended June 30,
2023 totaled $159,018 and $291,259 (2022: $40,917 and 103,836), respectively.
During 2023, the Company granted 650,000 options to its personnel, which was
offset by reversal of expenses from cancelled options due to resignations of
option holders. The share-based compensation expense is the result of the
progressive vesting of the options granted to the Company's employees, plus
the effect of cashless exercising, and net of cancellations and forfeitures,
according to the company's stock-based compensation plan.
Financing Costs
Three months ended June 30 Six months ended June 30
2023 2022 2023 2022
Financing expense paid or payable 164,521 258,723 271,091 488,549
Non-cash financing costs 32,139 45,644 61,295 89,975
Net financing costs 196,660 304,367 332,386 578,524
The finance expense paid or payable represents mostly interest on the
promissory note due to Canacol, as partial payment for the acquisition of
Carrao Energy SA, and have decreased due to partial payment of the outstanding
balance. The non-cash finance cost represents an increase in the present value
of the decommissioning obligation for the current periods. The amount of this
expense will fluctuate commensurate with the asset retirement obligation as
new wells are drilled or properties are acquired or disposed.
Depletion and Depreciation
Three months ended Six months ended
June 30 June 30
2023 2022 2023 2022
Depletion and depreciation 3,640,189 371,353 6,094,553 1,840,592
Depletion and depreciation expense for the three and six months ended June 30,
2023 totaled $3,640,189 and $69,094,553 (2022: $371,353 and $1,840,592),
respectively. The increase is due to higher carrying value of depletable
property, plant and equipment and increased production. Company uses the unit
of production method and proved plus probable reserves to calculate its
depletion and depreciation expense.
Loss on Derivative Liability
Three months ended June 30 Six months ended June 30
2023 2022 2023 2022
Loss on Derivative Liability 2,436,047 724,758 1,081,772 5,512,593
During the three and six months ended June 30, 2023, the Company recorded a
loss in derivative liability of $2,436,047 and $1,081,772 (2022: $724,758 and
$5,512,593), respectively, related to the valuation of its outstanding
warrants issued during its AIM listing and private placement completed in
2021. These warrants provide the right to holders to convert them into common
shares at a fixed price set in a currency different to the Company's
functional currency and, therefore, they are considered a liability and
measured at fair value with changes recognized in the statements of operations
and comprehensive income (loss).
LIQUIDITY AND CAPITAL RESOURCES
Capital Management
The Company's objective is to maintain a capital base sufficient to provide
flexibility in the future development of the business and maintain investor,
creditor and market confidence. The Company manages its capital structure
and makes adjustments in response to changes in economic conditions and the
risk characteristics of the underlying assets. The Company considers its
capital structure to include share capital, debt and adjusted working capital.
In order to maintain or adjust the capital structure, from time to time the
Company may issue common shares or other securities, sell assets or adjust its
capital spending to manage current and projected debt levels.
As at June 30, 2023, the Company has an adjusted working capital of
$6,341,933. The Company has continued improving its working capital, using its
operational cash flows to settle its obligations and to continue growing its
operations. The overall improvement in energy commodity prices has also
positively impacted the Company's capacity to generate sufficient financial
resources to sustain its operations and growth.
As at June 30, 2023 the Company's net debt (net cash) was calculated as
follows:
June 30, 2023
Current assets $ 15,159,323
Less:
Accounts payable and accrued liabilities 7,944,326
Income taxes 813,635
Net debt (Net cash) ((1)) $ (6,401,362)
((1))Non-IFRS measure
Adjusted Working Capital
As at June 30, 2023 the Company's adjusted working capital was calculated as
follows:
June 30, 2023
Current assets:
Cash and restricted cash $ 10,801,494
Restricted cash and deposits 218,178
Trade and other receivables 2,100,286
Taxes receivable 969,866
Other current assets 1,069,498
Less:
Accounts payable and accrued liabilities 7,944,326
Lease obligation 59,428
Promissory note -
Income tax payable 813,635
Adjusted Working capital((1)) $ 6,341,933
((1))Non-IFRS measure
Debt Capital
As at June 30, 2023, the Company has paid off its a promissory note payable to
Canacol.
Letters of Credit
As at June 30, 2023, the Company had obligations under Letters of Credit
("LC's") outstanding totaling $2.7 million to guarantee work commitments on
exploration blocks and other contractual commitments. In the event the Company
fails to secure the renewal of the letters of credit underlying the ANH
guarantees, or any of them, the ANH could decide to cancel the underlying
exploration and production contract for a particular block, as applicable. In
this instance, the Company could risk losing its entire interest in the
applicable block, including all capital expended to date and could possibly
also incur additional abandonment and reclamation costs if applied by the ANH.
Current Outstanding Letters of Credit
Contract Beneficiary Issuer Type Amount Renewal Date
(US $)
SANTA ISABEL ANH Carrao Energy Abandonment $563,894 April 14, 2024
ANH Carrao Energy Financial Capacity $1,672,162 December 31, 2023
CORE - 39 ANH Carrao Energy Compliance $100,000 December 31, 2023
OMBU ANH Carrao Energy Financial Capacity $436,300 April 14, 2024
Total $2,772,356
Share Capital
As at June 30, 2023, the Company had 234,274,893 common shares, 51,964,456
warrants and 19,865,000 stock options outstanding.
CONTRACTUAL OBLIGATIONS
The following table provides a summary of the Company's cash requirements to
meet its financial liabilities and contractual obligations existing at June
30, 2023:
Less than 1 year 1-3 years Thereafter Total
Exploration and production contracts - 17,800,000 - 17,800,000
Exploration and Production Contracts
The Company has entered into a number of exploration contracts in Colombia
which require the Company to fulfill work program commitments and issue
financial guarantees related thereto. In aggregate, the Company has
outstanding exploration commitments of $17.8 million. The Company, in
conjunction with its partners, have made applications to cancel its
commitments on the COR-39, Macaya and Los Picachos blocks.
SUMMARY OF THREE MONTHS RESULTS
2023 2022 2021
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
Oil and natural gas sales, net of royalties 3,911,329
11,637,968 6,992,860 8,931,562 7,614,336 5,024,604 3,038,832 1,684,609
Net income (loss) (757,416) 2,989,735 2,968,117 2,041,955 768,318 (5,431,865) 6,960,035 (21,782)
Income (loss) per share -
basic (0.00) 0.01 0.01 0.02 0.00 (0.03) 0.04 (0.00)
diluted (0.00) 0.01 0.01 0.00 0.00 (0.02) 0.04 (0.00)
Working capital (deficit) (2,363,388) 2,619,715 (1,316,665) 7,392,310 5,594,027 7,657,938 8,006,074 783,707
Total assets 56,305,530 53,719,944 53,190,248 46,979,259 42,670,153 39,914,240 41,195,798 25,362,323
Net capital expenditures 6,870,258 4,271,693 2,106,463 4,836,860 2,777,611 725,665 1,991,163 148,528
Average daily production (boe/d) 2,169 1,635 1,736 1,503 980 1,144 712 575
The Company's oil and natural gas sales have increased 114% in 2023 when
compared to Q2 2022 due to increased production in its existing assets,
improved oil and gas prices and positive fluctuations in realized oil price
differentials. The Company's production levels in Colombia have progressively
improved since 2022. Trends in the Company's net income are also impacted most
significantly by operating expenses, financing costs, income taxes, depletion,
depreciation and impairment of oil and gas properties, and other income.
OUTSTANDING SHARE DATA
At August 25, 2023, the Company had the following securities issued and
outstanding:
Number Exercise Price Expiry Date
Common shares 239,531,097 n/a n/a
Warrants 46,708,251 GBP 0.09 Oct. and Nov, 2023
Stock options 750,000 CAD$ 1.15 October 22, 2028
Stock options 270,000 CAD$ 0.31 May 3, 2029
Stock options 1,200,000 CAD$ 0.05 March 20, 2030
Stock options 2,000,000 CAD$ 0.05 April 13, 2030
Stock options 2,983,332 GBP 0.07625 June 13, 2024
Stock options 2,983,336 GBP 0.07625 June 13, 2025
Stock options 766,665 CAD$0.28 December 9, 2023
Stock options 766,667 CAD$0.28 December 9, 2024
Stock options 766,668 CAD$0.28 December 9, 2025
Stock options 416,666 CAD$0.26 March 7, 2024
Stock options 416,666 CAD$0.26 March 7, 2025
Stock options 416,668 CAD$0.26 March 7, 2026
Stock options 1,826,110 GBP 0.1675 June 13, 2023
Stock options 1,826,111 GBP 0.1675 June 13, 2024
Stock options 1,826,111 GBP 0.1675 June 13, 2025
Stock options 216,667 GBP 0.1925 July 23, 2024
Stock options 216,667 GBP 0.1925 July 23, 2025
Stock options 216,666 GBP 0.1925 July 23, 2026
OUTLOOK
The Company has deployed the capital raised at the time of the Admission to
AIM on a successful drilling campaigns at Rio Cravo and Carrizales Norte on
the Tapir Block. These successful campaigns have translated into production
growth and in positive cashflows during 2022 and 2023, providing Arrow with
the funds required to continue with its $32 million capital program for 2023.
To date, the Company has already drilled six wells of its 2023 budget, three
at Rio Cravo and three at Carrizales Norte, which have added production to the
Tapir Block, with more wells being added to the current campaign as drilling
results are reviewed and interpreted. This confirms confirming Arrow's
commitment to increase production and shareholder value. The Company is able
to support the remaining planned 2023 CAPEX program with current cash on hand
and cashflow from operations.
CRITICAL ACCOUNTING ESTIMATES
A summary of the Company's critical accounting estimates is contained in Note
3 of the Annual Financial Statements. These accounting policies are subject to
estimates and key judgements about future events, many of which are beyond
Arrow's control.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is included in the
Annual Financial Statements. These accounting policies are consistent with
those of the previous financial year.
RISKS AND UNCERTAINTIES
The Company is subject to financial, business and other risks, many of which
are beyond its control and which could have a material adverse effect on the
business and operations of the Company. Please refer to "Risk Factors" in the
MD&A for the year ended December 31, 2022 for a description of the
financial, business and other risk factors affecting the Company which are
available on SEDAR at www.sedar.com
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