REG - Arrow Exploration - Q1 2023 INTERIM RESULTS
30/05/2023 07:15
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RNS Number : 8969A Arrow Exploration Corp. 30 May 2023
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JURISDICTION.
ARROW ANNOUNCES Q1 2023 INTERIM RESULTS
CALGARY, May 30, 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 Consolidated Financial Statements and Management's Discussion and
Analysis ("MD&A") for the quarter ended March 31, 2023 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) .
Q1 2023 Highlights:
· Recorded $6.9 million of total oil and natural gas revenue, net of
royalties, more than double compared to 2022 (Q1 2022: $3.4 million).
· Adjusted EBITDA of $4.3 million, more than seven times compared to
2022 (Q1 2022: $0.6 million).
· Average corporate production up 43% to 1,635 boe/d (Q1 2022: 1,144
boe/d).
· Realized corporate oil operating netbacks of $58.31/bbl due to
increased production allowing operating cost to be spread over more barrels.
· Cash position of $12.3 million at the end of Q1 2023.
· Generated positive operating cashflows of $2.4 million (Q1 2022:
negative $0.1 million).
· Drilled three successful wells at Rio Cravo Este (RCE) resulting in
material production additions.
Post Period End Highlights:
· The Carrizales Norte-1 (CN-1) well has been drilled and reached its
target depth, and is currently under production testing.
Outlook
· Arrow anticipates two additional wells to be drilled at Carrizales
Norte by year-end.
· Arrow anticipates two additional wells at RCE by year-end to target
the Gacheta formation which was successfully tested at commercial rates in
RCE-2.
· Arrow plans to drill two development wells at the Oso Pardo Block in
the Middle Magdalena Basin.
Marshall Abbott, CEO of Arrow Exploration Corp., commented:
"Arrow has had a strong start to 2023, including the drilling of three RCE
wells and the CN-1 well, which is expected to have a significant impact on the
Company's production and reserves, as well as establishing a new core area.
The 3D seismic West Tapir project has completed shooting, is currently being
processed and is expected to further evaluate the 2D recognized fault
prospects. The Arrow Team continues to strive towards excellence and
increasing shareholder value."
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended March 31, 2023 Three months ended March 31, 2022
(in United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 6,992,860 3,402,962
Funds flow from operations ((1)) 4,240,603 312,951
Funds flow from operations ((1)) per share -
Basic($) 0.02 0.00
Diluted ($) 0.01 0.00
Net income (loss) 2,989,735 (5,431,865)
Net income (loss) per share -
Basic ($) 0.01 (0.03)
Diluted ($) 0.01 (0.02)
Adjusted EBITDA ((1)) 4,271,726 562,284
Weighted average shares outstanding -
Basic ($) 222,717,847 213,577,686
Diluted ($) 288,639,348 250,941,120
Common shares end of period 228,979,841 213,814,643
Capital expenditures 4,271,693 725,665
Cash and cash equivalents 12,354,424 8,967,197
Current Assets 15,849,150 11,538,944
Current liabilities 13,315,499 3,881,006
Adjusted working capital ((1)) 9,325,680 7,657,938
Long-term portion of restricted cash ((2)) 831,048 742,733
Total assets 53,719,944 39,914,240
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 2,459 4,221
Natural gas liquids (bbl/d) 4 6
Crude oil (bbl/d) 1,222 434
Total (boe/d) 1,635 1,144
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($0.42) $0.73
Crude oil ($/bbl) $58.31 $48.94
Total ($/boe) $42.21 $20.16
((1)Non-IFRS measures - see "Non-IFRS Measures" section of the MD&A)
((2)Long term restricted cash not included in working capital)
Discussion of Operating Results
The Company maintained its overall production and continued improving its
operations. This has allowed the Company to continue to improve its balance
sheet and its business profile. In early 2023, the Company increased
production on its Tapir block through drilling the RCE-3, RCE-4 and RCE-5
wells, offset by the current production shut in at its Ombu block. There has
also been a decrease in the Company's natural gas production in Canada due to
natural declines.
Average Production by Property
Average Production Boe/d Q1 2023 Q4 2022 Q3 2022 Q2 2022 Q1 2022
Oso Pardo 138 115 104 112 121
Ombu (Capella) 80 238 215 97 177
Rio Cravo Este (Tapir) 1,004 832 860 366 136
Total Colombia 1,222 1,185 1,179 575 434
Fir, Alberta 74 79 82 86 73
Pepper, Alberta 340 472 242 319 636
TOTAL (Boe/d) 1,635 1,736 1,503 980 1,144
For the three months ended March 31, 2023, the Company's average production
was 1,635 boe/d, which consisted of crude oil production in Colombia of 1,222
bbl/d, natural gas production of 2,459 Mcf/d and minor amounts of natural gas
liquids from the Company's Canadian properties. The Company's Q1 2023 total
production was 43% higher than its total production for the same period in
2022.
Discussion of Financial Results
During Q1 2023 the Company continued to realize strong oil prices, offset by
decreased gas prices, as summarized below:
Three months ended March 31
2023 2022 Change
Benchmark Prices
AECO ($/Mcf) $2.43 $3.68 -34%
Brent ($/bbl) $79.21 $97.90 -19%
West Texas Intermediate ($/bbl) $76.10 $94.94 -20%
Realized Prices
Natural gas, net of transportation ($/Mcf) $2.11 $3.65 -42%
Natural gas liquids ($/bbl) $66.13 $76.89 -14%
Crude oil, net of transportation ($/bbl) $73.31 $73.87 -1%
Corporate average, net of transport ($/boe) $57.23 $40.13 43%
( (1)Non-IFRS measure)
Operating Netbacks
The Company also continued to realize positive operating netbacks, as
summarized below.
Three months ended
March 31
2023 2022
Natural Gas ($/Mcf)
Revenue, net of transportation expense $2.11 $3.65
Royalties (0.19) (0.79)
Operating expenses (2.34) (2.13)
Natural gas operating netback((1)) ($0.42) $0.73
Crude oil ($/bbl)
Revenue, net of transportation expense $73.31 $73.87
Royalties (9.11) (6.24)
Operating expenses (5.88) (18.69)
Crude oil operating netback((1)) $58.31 $48.94
Corporate ($/boe)
Revenue, net of transportation expense $57.23 $40.13
Royalties (6.98) (5.22)
Operating expenses (8.03) (14.76)
Corporate operating netback((1)) $42.21 $20.16
( (1))Non-IFRS measure
The operating netbacks of the Company continued improving in 2023 due to
increasing production from its Colombian assets, and consistent crude oil
prices, which were offset by decreases in natural gas prices and increases in
royalties and operating expenses for natural gas.
During Q1 2023, the Company incurred in $4.3 million of capital expenditures,
primarily in connection with the drilling of the three RCE wells, civil works
completed in Rio Cravo and shooting 100 km(2) of 3D seismic in the Tapir block
to highlight existing leads and prospects for drilling. This acceleration in
operational tempo is expected throughout 2023, funded by cash on hand and
cashflow.
ARROW PARTICIPATING INTEREST IN THE TAPIR BLOCK
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.
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)
Georgia Edmonds +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 MONTHS ended MARCH 31, 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 months ended March 31, 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 March 31, 2023 December 31, 2022
ASSETS
Current assets
Cash $ 12,354,424 $ 13,060,968
Restricted cash and deposits 3 219,352 210,654
Trade and other receivables 4 863,345 2,568,290
Taxes receivable 5 1,403,546 801,177
Deposits and prepaid expenses 271,071 157,459
Inventory 823,475 705,677
15,935,213 17,504,225
Non-current assets
Deferred income taxes 872,286 872,286
Restricted cash and deposits 3 611,696 608,127
Exploration and evaluation 6 972,692 -
Property and equipment 7 35,328,057 34,205,610
Total Assets $ 53,719,944 $ 53,190,248
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 3,356,144 $ 5,850,823
Lease obligation 9 42,513 41,434
Promissory note 8 1,958,603 1,899,294
Derivative liability 11 6,705,966 9,540,423
Income taxes 1,252,273 1,488,916
13,315,499 18,820,890
Non-current liabilities
Lease obligations 9 11,307 22,317
Other liabilities 80,484 80,484
Deferred income taxes 14 5,066,684 5,066,684
Decommissioning liability 10 3,610,359 3,303,301
Total liabilities 22,084,333 27,293,676
Shareholders' equity
Share capital 12 60,446,219 57,810,735
Contributed surplus 1,702,731 1,570,491
Deficit (29,849,547) (32,839,282)
Accumulated other comprehensive loss (663,792) (645,372)
Total shareholders' equity 31,635,611 25,896,572
Total liabilities and shareholders' equity $ 53,719,944 $ 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 Loss
In United States Dollars
(Unaudited)
For the three months ended March 31, Notes 2023 2022
Revenue
Oil and natural gas 15 $ 7,964,857 $ 3,911,329
Royalties (971,997) (508,366)
Total oil and natural gas revenue, net of royalties 6,992,860 3,402,963
Expenses
Operating 1,117,590 1,438,482
Administrative 1,618,748 1,353,106
Listing costs 722 31,365
Share based payments 12 132,240 62,919
Financing costs:
Accretion 10 29,156 44,331
Interest 8 60,887 120,778
Other 45,682 109,048
(Gain) loss on derivative liability 11 (1,354,275) 4,787,835
Foreign exchange loss (gain) (40,816) 25,835
Depletion and depreciation 7 2,454,364 869,239
Other income (61,173) (8,110)
4,003,125 8,834,828
Net income (loss) 2,989,735 (5,431,865)
Other comprehensive (loss) income:
Foreign exchange (18,420) 44,652
Total other comprehensive income (loss) (18,420) 44,652
Total comprehensive income (loss) 2,971,315 $ (5,387,213)
Net income (loss) per share:
Basic $ 0.01 $ (0.03)
Diluted $ 0.01 $ (0.02)
Weighted average shares outstanding:
Basic 222,717,847 213,577,686
Diluted 288,639,348 250,941,120
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 2,635,484 - - - 2,635,484
Net income for the period - - - 2,989,735 2,989,735
Comprehensive loss for the period - - (18,420) - (18,420)
Share-based compensation - 132,240 - - 132,240
Balance March 31, 2023 $ 60,446,219 $ 1,702,731 $ (663,792) $ (29,849,547) $ 31,635,611
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 6,489 - - - 6,489
Options settled in cash - (6,622) - - (6,622)
Net loss for the period - - - (5,431,865) (5,431,865)
Comprehensive income for the period - - 44,652 - 44,652
Share-based compensation - 62,919 - - 62,919
Balance March 31, 2022 $ 56,704,726 $ 1,305,715 $ (759,084) $ (38,617,671) $ 18,633,686
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 the three months ended March 31, 2023 2022
Cash flows provided by (used in) operating activities
Net income (loss) $ 2,989,735 $ (5,431,865)
Items not involving cash:
Share based payment 132,240 62,919
Depletion and depreciation 2,454,364 869,239
Interest on leases 1,596 2,158
Interest on promissory note, net of forgiveness 60,887 118,620
Accretion 29,156 44,331
Foreign exchange gain (73,101) (50,351)
(Gain) loss on derivative liability (1,354,275) 4,787,835
Payment of asset decommissioning obligations - (89,933)
Changes in non‑cash working capital balances:
Restricted cash (12,266) -
Trade and other receivables 1,704,944 (165,185)
Taxes receivable (602,369) (307,563)
Deposits and prepaid expenses (113,612) (92,688)
Inventory (117,798) (78,317)
Accounts payable and accrued liabilities (2,482,665) 233,092
Income tax payable (236,642) -
Cash provided by (used in) operating activities 2,380,195 (97,708)
Cash flows used in investing activities
Additions to exploration and evaluation assets (972,692) -
Additions to property and equipment (3,299,001) (725,665)
Changes in non-cash working capital (11,916) (1,225,935)
Cash flows used in investing activities (4,283,609) (1,951,600)
Cash flows provided by (used in) financing activities
Issuance of common shares 1,147,827 6,489
Lease payments (11,586) (9,186)
Cash flows provided by (used in) financing activities 1,136,241 (2,697)
Effect of changes in the exchange rate on cash 60,628 140,694
Decrease in cash (706,545) (1,911,311)
Cash, beginning of period 13,060,969 10,878,508
Cash, end of period 12,354,424 8,967,197
Supplemental information
Interest paid $ - $ -
Taxes paid $ - $ -
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 550, 333 -
11th Ave SW, Calgary, Alberta, Canada, T2R 1L9 and the registered office is
located at 1600, 421 - 7th Avenue SW, Calgary, Alberta, Canada, T2P 4K9.
2. Basis of Presentation
Statement of compliance
These interim condensed consolidated financial statements (the "Financial
Statements") have been prepared in accordance with International Accounting
Standard ("IAS") 34 Interim Financial Reporting. These Financial Statements
were authorized for issue by the board of directors of the Company on May 29,
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 consolidated 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
March 31, December 31, 2022
2023
Colombia (i) $ 257,160 $ 248,462
Canada (ii) 573,888 570,319
Sub-total 831,048 818,781
Long-term portion (611,696) (608,127)
Current portion of restricted cash and deposits $ 219,352 $ 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 $317,123 (CAD $429,182; 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 $256,765 pertain to commercial deposits
with customers, lease and other deposits held in Canada.
4. Trade and other receivables
March 31, December 31, 2022
2023
Trade receivables, net of advances $ 198,531 $ 847,432
Other accounts receivable 664,814 1,720,858
$ 863,345 $ 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.
5. Taxes receivable
March 31, December 31, 2022
2023
Value-added tax (VAT) credits recoverable $ 643,469 $ -
Income tax withholdings and advances, net 760,077 801,177
$ 1,403,546 $ 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
March 31, December 31, 2022
2023
Balance, beginning of the period $ - $ 6,964,506
Additions, net 972,692 -
Reclassification to Property and Equipment - (6,964,506)
Balance, end of the period $ 972,692 $ -
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 3,299,001 - 3,299,001
Decommissioning adjustment 277,309 - 277,309
Balance, December 31, 2023 $ 51,121,336 $ 234,156 $ 51,355,492
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 2,441,790 12,573 2,454,363
Balance, December 31, 2023 $ 15,595,499 $ 173,809 $ 15,769,308
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 448 52 500
Balance, December 31, 2023 $ (249,460) $ (8,667) $ (258,127)
Net Book Value
Balance December 31, 2022 $ 34,141,409 $ 64,201 $ 34,205,610
Balance, December 31, 2023 $ 35,276,377 $ 51,680 $ 35,328,057
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 is for an initial term of
three months and the Company, together with its partner and the ANH, is
monitoring this suspension to define next steps.
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 bears interest at 15% per annum,
and, on October 18, 2021, Arrow and Canacol entered into a Seventh Amended and
Restated Promissory Note agreement with a current balance payable of $
1,958,603 as at March 31, 2023 which shall be paid no later than June 30,
2023. The Company has granted a general security interest to Canacol for the
obligations under the Promissory Note.
9. Lease Obligations
A reconciliation of the discounted lease obligation is set forth below:
2023 2022
Obligation, beginning of the period $ 63,751 $ 54,692
Changes in existing lease - 44,701
Lease payments (11,586) (39,697)
Interest 1,596 9,696
Effects of movements in foreign exchange rates 59 (5,641)
Obligation, end of the period $ 53,820 $ 63,751
Current portion (42,513) (41,434)
Long-term portion 11,307 $ 22,317
As at March 31, 2023, the Company has the following future lease obligations:
Less than one year $ 45,982
2 - 5 years 11,495
Total lease payments 57,477
Amounts representing interest over the term (3,657)
Present value of the net obligation $ 53,820
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.
March 31, December 31, 2022
2023
Obligation, beginning of the period $ 3,303,301 $ 2,470,239
Change in estimated cash flows 277,309 756,541
Payments or settlements - (76,131)
Accretion expense 29,156 199,521
Effects of movements in foreign exchange rates 593 (46,869)
Obligation, end of the period $ 3,610,359 $ 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 $5,006,281 (2022:
$4,480,074).
11. Derivative liability
Derivative liability includes warrants issued and outstanding as follows:
March 31, 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 (10,577,910) (1,487,657) (4,637,288) (598,509)
Fair value adjustment - (1,354,275) - 5,974,674
Foreign exchange - 7,475 - (528,045)
Balance end of the period 57,259,508 $ 6,705,966 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 March 31,
2023 and December 31, 2022 was estimated using the following assumptions:
March 31, December 31, 2022
2023
Number outstanding re-valued warrants 57,259,508 67,837,418
Fair value of warrants outstanding £0.0948 £0.1157
Risk free interest rate 3.75% 3.41%
Expected life 0.65 years 0.82 years
Expected volatility 138% 147%
The following table summarizes the warrants outstanding and exercisable at
March 31, 2023:
Number of
warrants Exercise price Expiry date
56,606,859 £0.09 October 24, 2023
652,649 £0.09 November 22, 2023
57,259,508
12. Share Capital
(a) Authorized: Unlimited number of common shares without par value
(b) Issued:
March 31, 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 10,577,910 2,635,483 4,637,288 1,094,574
Issued from options exercised - - 375,000 17,924
Balance at end of the period 228,979,841 60,446,219 218,401,931 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 March 31, 2023 and December 31,
2022 and changes during the respective periods ended on those dates is
presented below:
March 31, 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 3,420,000 $0.31 3,395,000 $0.42
Date of Grant Number Outstanding Exercise Price Weighted Date of Number
(CAD $) Average Remaining Contractual Life Expiry Exercisable
March 31, 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 1,200,000
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 -
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 2.94 years 3,420,000
The Company recognized $132,240 as share-based compensation expense (2022 -
recovery of $62,919) for the three months ended March 31, 2023, 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 March 31, 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 March 31, 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 June 30, 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:
March 31, 2023 December 31, 2022
Working capital $ 2,619,715 $ (1,316,665)
Derivative liability 6,705,966 9,540,423
$ 9,325,681 $ 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 March 31:
Three months ended March 31, 2023 Colombia Canada Total
Revenue:
Oil Sales $ 7,473,836 $ - $ 7,473,836
Natural gas and liquid sales - 491,021 491,021
Royalties (929,033) (42,964) (971,997)
Expenses (3,190,316) (812,809) (4,003,125)
Net income (loss) $ 3,354,487 $ (364,752) $ 2,989,735
As at March 31, 2023 Colombia Canada Total
Current assets $ 14,119,230 $ 1,815,983 $ 15,935,213
Non-current:
Deferred income taxes 872,286 - 872,286
Restricted cash 37,808 573,888 611,696
Exploration and evaluation 972,692 - 972,692
Property, plant and equipment 30,678,708 4,649,349 35,328,057
Total Assets $ 46,680,724 $ 7,039,220 $ 53,719,944
Current liabilities $ 3,755,781 $ 9,559,718 $ 13,315,499
Non-current liabilities:
Deferred income taxes 5,066,684 - 5,066,684
Other liabilities 80,484 - 80,484
Lease obligation - 11,307 11,307
Decommissioning liability 2,869,359 741,000 3,610,359
Total liabilities $ 13,189,670 $ 14,104,006 $ 22,084,333
Three months ended March 31, 2022 Colombia Canada Total
Revenue:
Oil Sales $ 2,480,797 $ - $ 2,480,797
Natural gas and liquid sales 1,430,532 1,430,532
Royalties (209,492) (298,874) (508,366)
Expenses (1,616,403) (7,218,425) (8,834,828)
Net income (loss) $ 654,901 $ (6,086,767) $ (5,431,865)
As at March 31, 2022 Colombia Canada Total
Current assets $ 5,086,336 $ 6,452,608 $ 11,538,944
Non-current:
Deferred income taxes - 4,839,785 4,839,785
Restricted cash 53,726 689,007 742,733
Exploration and evaluation 6,954,506 6,954,506
Property, plant and equipment 10,120,646 5,707,626 15,828,272
Total Assets $ 27,064,998 $ 12,849,241 $ 39,914,240
Current liabilities $ 986,650 $ 2,894,356 $ 3,881,006
Non-current liabilities:
Long-term debt - 32,012 32,012
Lease obligation 58,292 - 58,292
Other liabilities - 177,500 177,500
Deferred income taxes 3,371,935 - 3,371,935
Decommissioning liability 1,863,626 569,298 2,432,924
Promissory note - 1,718,071 1,718,071
Derivative liability - 9,608,814 9,608,814
Total liabilities $ 6,399,711 $ 14,880,843 $ 21,280,554
Arrow Exploration Corp.
MANAGEMENT's DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 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 May 29, 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 months ended March 31, 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 March 31, 2023 Three months ended March 31, 2022
(in United States dollars)
Net income (loss) 2,989,735 (5,431,865)
Add/(subtract):
Share based payments 132,240 62,919
Financing costs:
Accretion on decommissioning obligations 29,156 44,331
Interest 60,887 120,778
Other 45,682 109,048
Depreciation and depletion 2,454,364 869,239
Derivative loss (1,354,275) 4,787,835
Adjusted EBITDA ((1)) 4,357,790 562,284
Cash flows provided by (used in) operating activities 2,380,195 (97,708)
Minus - Changes in non‑cash working capital balances:
Trade and other receivables (1,704,944) 165,185
Restricted cash 12,266 -
Taxes receivable 602,369 307,563
Deposits and prepaid expenses 113,612 92,688
Inventory 117,798 78,317
Accounts payable and accrued liabilities 2,482,665 (233,092)
Income tax payable 236,642 -
Funds flow from operations ((1)) 4,240,603 312,951
( (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 March 31, 2023 Three months ended March 31, 2022
(in United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 6,992,860 3,402,962
Funds flow from operations ((1)) 4,240,603 312,951
Funds flow from operations ((1)) per share -
Basic($) 0.02 0.00
Diluted ($) 0.01 0.00
Net income (loss) 2,989,735 (5,431,865)
Net income (loss) per share -
Basic ($) 0.01 (0.03)
Diluted ($) 0.01 (0.02)
Adjusted EBITDA ((1)) 4,271,726 562,284
Weighted average shares outstanding -
Basic ($) 222,717,847 213,577,686
Diluted ($) 288,639,348 250,941,120
Common shares end of period 228,979,841 213,814,643
Capital expenditures 4,271,693 725,665
Cash and cash equivalents 12,354,424 8,967,197
Current Assets 15,849,150 11,538,944
Current liabilities 13,315,499 3,881,006
Adjusted working capital ((1)) 9,325,680 7,657,938
Long-term portion of restricted cash ((2)) 831,048 742,733
Total assets 53,719,944 39,914,240
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 2,459 4,221
Natural gas liquids (bbl/d) 4 6
Crude oil (bbl/d) 1,222 434
Total (boe/d) 1,635 1,144
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($0.42) $0.73
Crude oil ($/bbl) $58.31 $48.94
Total ($/boe) $42.21 $20.16
( (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 March 31, 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.
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 March 31, 2023 Financial and Operational Highlights
· Arrow recorded $6,992,960 in revenues, net of royalties, on crude
oil sales of 101,951bbls, 350 bbls of natural gas liquids ("NGL's") and
221,296 Mcf of natural gas sales;
· Funds flow from operations of $4,240,603;
· Net income of $2,989,735 and adjusted EBITDA was $4,357,790;
Results of Operations
The Company maintained its overall production and continued improving its
operations overall. These have allowed the Company to continue improving its
balance sheet and its business profile. In early 2023, the Company increased
its production in its Tapir block from drilling of the RCE-3 and RCE-4 wells,
offset by the current production shut in at its Ombu block. Also, there has
been a decrease in the Company's natural gas production in Canada.
Average Production by Property
Average Production Boe/d Q1 2023 Q4 2022 Q3 2022 Q2 2022 Q1 2022
Oso Pardo 138 115 104 112 121
Ombu (Capella) 80 238 215 97 177
Rio Cravo Este (Tapir) 1,004 832 860 366 136
Total Colombia 1,222 1,185 1,179 575 434
Fir, Alberta 74 79 82 86 73
Pepper, Alberta 340 472 242 319 636
TOTAL (Boe/d) 1,635 1,736 1,503 980 1,144
For the three months ended March 31, 2023, the Company's average production
was 1,635 boe/d, which consisted of crude oil production in Colombia at 1,222
bbl/d, natural gas production of 2,459 Mcf/d and minor amounts of natural gas
liquids from the Company's Canadian properties. The Company's Q1 2023 total
production was 43% higher than its total production for the same period in
2022.
Average Daily Natural Gas and Oil Production and Sales Volumes
Three months ended
March 31
2023 2022
Natural Gas (Mcf/d)
Natural gas production 2,459 4,221
Natural gas sales 2,459 4,221
Realized Contractual Natural Gas Sales 2,459 4,221
Crude Oil (bbl/d)
Crude oil production 1,222 434
Inventory movements and other (89) (61)
Crude Oil Sales 1,133 373
Corporate
Natural gas production (boe/d) 410 703
Natural gas liquids(bbl/d) 4 6
Crude oil production (bbl/d) 1,222 434
Total production (boe/d) 1,635 1,144
Inventory movements and other (boe/d) (89) (61)
Total Corporate Sales (boe/d) 1,546 1,083
During the three months ended March 31, 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
March 31
2023 2022
Natural Gas
Natural gas revenues $ 467,876 $ 1,386,738
NGL revenues 23,145 43,794
Royalties (42,964) (298,874)
Revenues, net of royalties 448,057 1,131,658
Oil
Oil revenues $ 7,473,836 $ 2,480,797
Royalties (929,033) (209,492)
Revenues, net of royalties 6,544,803 2,271,304
Corporate
Natural gas revenues $ 467,876 $ 1,386,738
NGL revenues 23,145 43,794
Oil revenues 7,473,836 2,480,797
Total revenues 7,964,857 3,911,329
Royalties (971,997) (508,367)
Natural gas and crude oil revenues, net of royalties, as reported $ 6,992,860 $ 3,402,962
Natural gas and crude oil revenues, net of royalties, for the three months
ended March 31, 2023 was $6,992,860 (2022: $3,402,962), which represents an
increase of 105%. This significant increase is mainly due to increased oil
production in Colombia, offset by decrease in production and natural gas
prices in Canada.
Average Benchmark and Realized Prices
Three months ended March 31
2023 2022 Change
Benchmark Prices
AECO ($/Mcf) $2.43 $3.68 -34%
Brent ($/bbl) $79.21 $97.90 -19%
West Texas Intermediate ($/bbl) $76.10 $94.94 -20%
Realized Prices
Natural gas, net of transportation ($/Mcf) $2.11 $3.65 -42%
Natural gas liquids ($/bbl) $66.13 $76.89 -14%
Crude oil, net of transportation ($/bbl) $73.31 $73.87 -1%
Corporate average, net of transport ($/boe) $57.23 $40.13 43%
( (1)Non-IFRS measure)
The Company realized a price of $57.23 per boe during the three months ended
March 31, 2023 (2022: $40.13) as commodity prices decreased in 2023 compared
with 2022.
Operating Expenses
Three months ended
March 31
2023 2022
Natural gas & NGL's 517,653 810,845
Crude oil 599,937 627,637
Total operating expenses 1,117,590 1,438,482
Natural gas ($/Mcf) $2.34 $2.13
Crude oil ($/bbl) $5.88 $18.69
Corporate ($/boe)((1)) $8.03 $14.76
((1)Non-IFRS measure)
During the three months ended March 31, 2023, Arrow incurred operating
expenses of $1,117,590 (2022: $1,438,482), at an average cost of $8.03 per boe
(2022: $14.76) which is reflective of the Company's increase in production
volumes and decrease on a per barrel basis when compared to 2022 levels.
Operating Netbacks
Three months ended
March 31
2023 2022
Natural Gas ($/Mcf)
Revenue, net of transportation expense $2.11 $3.65
Royalties (0.19) (0.79)
Operating expenses (2.34) (2.13)
Natural gas operating netback((1)) ($0.42) $0.73
Crude oil ($/bbl)
Revenue, net of transportation expense $73.31 $73.87
Royalties (9.11) (6.24)
Operating expenses (5.88) (18.69)
Crude oil operating netback((1)) $58.31 $48.94
Corporate ($/boe)
Revenue, net of transportation expense $57.23 $40.13
Royalties (6.98) (5.22)
Operating expenses (8.03) (14.76)
Corporate operating netback((1)) $42.21 $20.16
( (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, and
consistent crude oil prices, which were offset by decreases in natural gas
prices and increases in royalties and operating expenses for natural gas.
General and Administrative Expenses (G&A)
Three months ended
March 31
2023 2022
General & administrative expenses 1,752,947 1,373,106
G&A recovered from 3(rd) parties (134,199) (20,000)
Total G&A 1,618,748 1,353,106
Total G&A per boe $11.63 $37.97
For the three months ended March 31, 2023, G&A expenses before recoveries
totaled $1,752,647 (2022: $1,373,106), which represents an increase when
compared to the same period in 2022. This increase is mainly due to increased
in personnel and professional services during 2023, as well as increase in
marketing and legal expenses. Despite these increased expenses, and due to the
Company's increased production, there is a decrease in G&A expenses on a
per barrel basis to $11.63 p/boe when compared to $37.97 in 2022.
Share-based Compensation
Three months ended
March 31
2023 2022
Share-based Compensation expense 132,240 62,919
Share-based compensation expense for the three months ended March 31, 2023
totaled $132,240 (2022: $62,919). During 2023, the Company granted 650,000
options (2022: nil) 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
March 31
2023 2022
Financing expense paid or payable 106,570 229,826
Non-cash financing costs 29,156 44,331
Net financing costs 135,726 274,157
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
March 31
2023 2022
Depletion and depreciation 2,454,364 869,239
Depletion and depreciation expense for the three months ended March 31, 2023
totaled $2,454,364 (2022: $869,239). The increases is due to increased
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.
(Gain) loss on Derivative Liability
Three months ended
March 31
2023 2022
(Gain) Loss on Derivative Liability (1,354,275) 4,787,835
During the three months ended March 31, 2023, the Company recorded a gain in
derivative liability of $1,354,275 and (2022: loss of $4,787,835) 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.
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 March 31, 2023, the Company has an adjusted working capital of
$9,325,680. The Company has continued improving its working capital, using its
operational cash flows 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 March 31, 2023 the Company's net debt (net cash) was calculated as
follows:
March 31, 2023
Current assets $ 15,935,213
Less:
Accounts payable and accrued liabilities 3,356,144
Promissory Note 1,958,603
Income taxes 1,252,273
Net debt (Net cash) ((1)) $ (9,368,193)
((1))Non-IFRS measure
Adjusted Working Capital
As at March 31, 2023 the Company's adjusted working capital was calculated as
follows:
March 31, 2023
Current assets:
Cash and restricted cash $ 12,354,424
Restricted cash and deposits 219,352
Trade and other receivables 863,345
Taxes receivable 1,403,546
Other current assets 1,094,546
Less:
Accounts payable and accrued liabilities 3,356,144
Lease obligation 42,513
Promissory note 1,958,603
Income tax payable 1,252,273
Adjusted Working capital((1)) $ 9,325,681
((1))Non-IFRS measure
Debt Capital
As at March 31, 2023, the Company currently has $1.9 million in outstanding
debt in the form of a promissory note payable to Canacol and its final payment
is due no later than June 30, 2023.
Letters of Credit
As at March 31, 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 June 30, 2023
OMBU ANH Carrao Energy Financial Capacity $436,300 April 14, 2024
Total $2,772,356
Share Capital
As at March 31, 2023, the Company had 228,979,841 common shares, 57,259,508
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 March
31, 2023:
Less than 1 year 1-3 years Thereafter Total
Promissory Note $ 1,958,603 - - 1,958,603
Exploration and production contracts - 17,800,000 - 17,800,000
$ 1,958,603 17,800,000 - 19,758,603
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 $17.8 million. The Company, in
conjunction with its partners, have made applications to cancel its
commitments on the COR-39, Macaya and Los Picachos blocks.
SUMMARY OF THREE MONTHS RESULTS
2023 2022 2021
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
Oil and natural gas sales, net of royalties 3,911,329
6,992,860 8,931,562 7,614,336 5,024,604 3,038,832 1,684,609 941,620
Net income (loss) 2,989,735 2,968,117 2,041,955 768,318 (5,431,865) 6,960,035 (21,782) (734,317)
Income (loss) per share -
basic 0.01 0.01 0.02 0.00 (0.03) 0.04 (0.00) (0.01)
diluted 0.01 0.01 0.00 0.00 (0.02) 0.04 (0.00) (0.01)
Working capital (deficit) 2,619,715 (1,316,665) 7,392,310 5,594,027 7,657,938 8,006,074 783,707 3,141,217
Total assets 53,719,944 53,190,248 46,979,259 42,670,153 39,914,240 41,195,798 25,362,323 25,948,551
Net capital expenditures 4,271,693 2,106,463 4,836,860 2,777,611 725,665 1,991,163 148,528 (15,378)
Average daily production (boe/d) 1,635 1,736 1,503 980 1,144 712 575 331
The Company's oil and natural gas sales have increased in 2023 when compared
to Q1 2022 due to increased production in its existing assets, improved oil
and gas prices and positive fluctuations in realized oil price differentials.
The Company's production levels in Colombia have progressively improved 2022.
Trends in the Company's net income are also impacted most significantly by
operating expenses, financing costs, income taxes, depletion, depreciation and
impairment of oil and gas properties, and other income.
OUTSTANDING SHARE DATA
At May 29, 2023, the Company had the following securities issued and
outstanding:
Number Exercise Price Expiry Date
Common shares 229,479,841 n/a n/a
Warrants 56,844,455 GBP 0.09 Oct. and Nov, 2023
Stock options 750,000 CAD$ 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
During 2022, the Company deployed a portion of the capital raised at the time
of the Admission to AIM on a successful two well drilling campaign at Rio
Cravo on the Tapir Block. These results, and the subsequent generation of
positive cashflows in Q3 and Q4 2022, provide Arrow with the funds required
for its $32 million capital program for 2023, including drilling of 10 wells,
seismic acquisition and the development of production facilities.
To date, the Company has already drilled the first four wells of the 2023
budget, three at Rio Cravo and its first Carrizales Norte well, which have
added production to the Tapir Block, 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.
Arrow continues to focus on growth and improving its balance sheet and free
cash flow.
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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