REG - Arrow Exploration - Q3 2023 Interim Results
29/11/2023 07:00
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RNS Number : 9777U Arrow Exploration Corp. 29 November 2023
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ARROW ANNOUNCES Q3 2023 INTERIM RESULTS
CALGARY, Nov 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 nine months ended
September 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) .
Q3 2023 Highlights:
· Recorded $13.9 million of total oil and natural gas revenue, net of
royalties, almost double compared to the same period in 2022 (Q3 2022: $7.6
million).
· Net income of $7.1 million and adjusted EBITDA((1)) of $9.8 million,
more than double compared to 2022 (Q3 2022: $2 million and $4.6 million,
respectively).
· Average corporate production up 68% to 2,518 boe/d (Q3 2022: 1,503
boe/d).
· Realized corporate oil operating netbacks((1)) of $52.67/bbl. Q3
operating costs were slightly higher than Q2 due to higher start-up costs at
the Carrizales Norte discovery.
· Cash position of $12.8 million at the end of Q3 2023.
· Generated positive operating cashflows of $6.5 million (Q3 2022: $5.2
million).
· Successfully drilled the Carrizales Norte-2 (CN-2) and Carrizales
Norte-3 (CN-3) wells at the Tapir block, resulting in additional production
and reserves additions.
· Significant increase in reserves from the Carrizales Norte discovery
(CN), adding more than 3.92 MMbbls of 2P reserves.
((1))Non-IFRS measures - see "Non-IFRS Measures" section
Post Period End Highlights:
· The Rio Cravo Este-6 well (RCE-6) has been drilled and is currently
producing from the Carbonera C7 formation.
· The Oso Pardo-3 well (OP-3) has been drilled and is currently
undergoing production testing.
· RCE-7 has reached target depth and is currently being tested. Once
on production, the drilling rig will move to RCE-8 which is expected to be on
production before year end.
· Oso Pardo-4 (OP-4) has been spud and is currently drilling. It is
expected to reach target depth this week.
· In October and November 2023, the Company issued 40,338,307 common
shares related to the exercise of warrants, raising cash proceeds of $4.5
million. At November 1, the Company held $18.5 million cash as a result of the
warrant exercise and operating cash flow. The Company has no further
warrants outstanding.
· The Supreme Court of Colombia ruled that royalties are tax
deductible. Courts are considering other possible changes to tax regulations
which could have positive outcomes for the oil and gas industry.
Outlook:
· Arrow anticipates drilling two additional wells at Rio Cravo Este
(RCE) by year-end.
· Arrow plans to drill another development well on the Oso Pardo Block
in the Middle Magdalena Basin.
· 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. C7 and Gacheta targeted wells will also be part of
the overall development plan at CN.
· In 2024 the Company plans to have a $40 million capital program
including 15 wells. The majority of drilling will be focused on the
Carrizales Norte discovery and will include three horizontal wells. Low risk
step-out and exploration wells are also planned at the Mateguafa Attic and
Baquiano prospects. The 2024 capital program will be self-funded by a
combination of cash flow from operations and cash reserves.
Marshall Abbott, CEO of Arrow Exploration Corp., commented:
"Arrow continues to grow, recording its strongest quarter to date. The 2023
drilling program, including the CN discovery, added significant production
and reserves to the Company and established a new core area. Additional low
risk prospects have been identified using our recently acquired 3D seismic
data. The Company plans to increase operational tempo in aggressively
developing the Carrizale, Ubaque and C7 discoveries while simultaneously
drilling low risk exploration wells along proven fault fairways. The Board
remains confident in the Arrow team to execute on an aggressive exploitation
campaign pursuing our opportunity rich portfolio and getting shareholder value
to the next level."
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended September 30, 2023 Nine months ended September 30, 2023 Three months ended September 30, 2022
(in United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 13,990,353 31,263,494 7,614,336
Funds flow from operations ((1)) 8,690,907 16,209,551 4,606,124
Funds flow from operations ((1)) per share -
Basic($) 0.04 0.07 0.02
Diluted ($) 0.03 0.05 0.00
Net income 7,153,120 9,385,440 2,041,955
Net income per share -
Basic ($) 0.03 0.04 0.01
Diluted ($) 0.02 0.03 0.01
Adjusted EBITDA ((1)) 9,826,997 20,024,747 4,664,345
Weighted average shares outstanding -
Basic 237,919,872 230,537,774 215,967,143
Diluted 295,875,232 295,092,336 288,235,624
Common shares end of period 245,526,041 245,526,041 215,967,143
Capital expenditures 5,471,561 16,613,512 4,836,860
Cash and cash equivalents 12,891,190 12,891,190 11,376,702
Current Assets 18,652,504 18,652,504 16,870,695
Current liabilities 13,321,524 13,321,524 9,478,383
Adjusted working capital((1)) 10,822,475 10,822,475 7,392,312
Long-term portion of restricted cash((2)) 637,793 637,793 598,192
Total assets 62,755,250 62,755,250 46,979,258
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 2,012 2,261 1,917
Natural gas liquids (bbl/d) 4 4 4
Crude oil (bbl/d) 2,178 1,730 1,179
Total (boe/d) 2,518 2,110 1,503
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) $0.18 ($0.11) $0.88
Crude oil ($/bbl) $60.62 $57.64 $73.69
Total ($/boe) $52.67 $47.15 $56.75
((1))Non-IFRS measures - see "Non-IFRS Measures" section
((2))Long term restricted cash not included in working capital
Discussion of Operating Results
The Company increased its production from new wells at CN which allowed the
Company to continue to improve its operating results and EBITDA. There has
been a decrease in the Company's natural gas production in Canada due to
natural declines.
Average Production by Property
Average Production Boe/d Q3 Q2 2023 Q1 2023 Q4 2022 Q3 2022 Q2 2022
2023
Oso Pardo 93 130 138 115 104 112
Ombu (Capella) - - 80 238 215 97
Rio Cravo Este (Tapir) 1,443 1,592 1,004 832 860 366
Carrizales Norte (Tapir) 642 57 - - - -
Total Colombia 2,178 1,779 1,222 1,185 1,179 575
Fir, Alberta 81 77 74 79 82 86
Pepper, Alberta 259 313 340 472 242 319
TOTAL (Boe/d) 2,518 2,169 1,635 1,736 1,503 980
For the three months ended September 30, 2023, the Company's average
production was 2,518 boe/d, which consisted of crude oil production in
Colombia of 2,178 bbl/d, natural gas production of 2,012 Mcf/d and minor
amounts of natural gas liquids from the Company's Canadian properties. The
Company's Q3 2023 total production was 68% higher than its total production
for the same period in 2022.
Discussion of Financial Results
During Q3 2023 the Company continued to realize good oil prices, offset by
lower gas prices, as summarized below:
( )
Three months ended
September 30
2023 2022 Change
Benchmark Prices
AECO (C$/Mcf) $2.64 $3.83 (31%)
Brent ($/bbl) $92.59 $97.81 (5%)
West Texas Intermediate ($/bbl) $77.35 $91.65 (16%)
Realized Prices
Natural gas, net of transportation ($/Mcf) $1.95 $3.16 (38%)
Natural gas liquids ($/bbl) $67.10 $82.69 (19%)
Crude oil, net of transportation ($/bbl) $77.63 $90.90 (15%)
Corporate average, net of transport ($/boe)((1)) $68.80 $73.02 (6%)
( (1)Non-IFRS measure)
Operating Netbacks
The Company also continued to realize strong oil operating netbacks, as
summarized below:
Three months ended Nine months ended
September 30 September 30
2023 2022 2023 2022
Natural Gas ($/Mcf)
Revenue, net of transportation expense $1.95 $3.16 $2.01 $4.05
Royalties ($0.05) ($0.35) ($0.02) ($0.64)
Operating expenses ($1.72) ($1.93) ($2.10) ($2.24)
Natural Gas operating netback((1)) $0.18 $0.88 ($0.11) $1.18
Crude oil ($/bbl)
Revenue, net of transportation expense $77.63 $90.90 $73.16 $91.00
Royalties ($9.45) ($10.97) ($9.02) ($10.61)
Operating expenses ($7.56) ($6.24) ($6.50) ($10.09)
Crude Oil operating netback((1)) $60.62 $73.69 $57.64 $70.30
Corporate ($/boe)
Revenue, net of transportation expense $68.80 $73.02 $62.14 $61.75
Royalties ($8.21) (8.72) ($7.40) ($7.59)
Operating expenses ($7.92) (7.55) ($7.59) ($11.50)
Corporate Operating netback((1)) $52.67 $56.75 $47.15 $42.66
( (1))Non-IFRS measure
The operating netbacks of the Company remained healthy during 2023 due to
several factors, principally the increase in production from its Colombian
assets, even factoring in decreased crude oil prices. This was offset by
decreases in natural gas prices and operating expenses for natural gas.
During the first nine months of 2023, the Company incurred in $16 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 and into 2024, funded by cash on hand and
cashflow.
For further Information, contact:
Arrow Exploration
Marshall Abbott, CEO +1 403 651 5995
Joe McFarlane, CFO +1 403 818 1033
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
Kirsty Duff
About Arrow Exploration Corp.
Arrow Exploration Corp. (operating in Colombia via a branch of its 100% owned
subsidiary Carrao Energy S.A.) is a publicly traded company with a portfolio
of premier Colombian oil assets that are underexploited, under-explored and
offer high potential growth. The Company's business plan is to expand oil
production from some of Colombia's most active basins, including the Llanos,
Middle Magdalena Valley (MMV) and Putumayo Basin. The asset base is
predominantly operated with high working interests, and the Brent-linked light
oil pricing exposure combines with low royalties to yield attractive potential
operating margins. By way of a private commercial contract with the recognized
interest holder before Ecopetrol S.A., Arrow is entitled to receive 50% of the
production from the Tapir block. The formal assignment to the Company is
subject to Ecopetrol's consent. Arrow's seasoned team is led by a hands-on
executive team supported by an experienced board. Arrow is listed on the AIM
market of the London Stock Exchange and on TSX Venture Exchange under the
symbol "AXL".
Forward-looking Statements
This news release contains certain statements or disclosures relating to Arrow
that are based on the expectations of its management as well as assumptions
made by and information currently available to Arrow which may constitute
forward-looking statements or information ("forward-looking statements") under
applicable securities laws. All such statements and disclosures, other than
those of historical fact, which address activities, events, outcomes, results
or developments that Arrow anticipates or expects may, could or will occur in
the future (in whole or in part) should be considered forward-looking
statements. In some cases, forward-looking statements can be identified by the
use of the words "continue", "expect", "opportunity", "plan", "potential" and
"will" and similar expressions. The forward-looking statements contained in
this news release reflect several material factors and expectations and
assumptions of Arrow, including without limitation, Arrow's evaluation of the
impacts of COVID-19, the potential of Arrow's Colombian and/or Canadian assets
(or any of them individually), the prices of oil and/or natural gas, and
Arrow's business plan to expand oil and gas production and achieve attractive
potential operating margins. Arrow believes the expectations and assumptions
reflected in the forward-looking statements are reasonable at this time, but
no assurance can be given that these factors, expectations, and assumptions
will prove to be correct.
The forward-looking statements included in this news release are not
guarantees of future performance and should not be unduly relied upon. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ materially
from those anticipated in such forward-looking statements. The forward-looking
statements contained in this news release are made as of the date hereof and
the Company undertakes no obligations to update publicly or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, unless so required by applicable securities laws.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that
term is defined in policies of the TSX Venture Exchange) accepts
responsibility for the adequacy or accuracy of this release.
Glossary
Bbl/d or bop/d: Barrels per day
$/Bbl: Dollars per barrel
Mcf/d: Thousand cubic feet of gas per day
Mmcf/d: Million cubic feet of gas per day
$/Mcf: Dollars per thousand cubic feet of gas
Mboe: Thousands of barrels of oil equivalent
Boe/d: Barrels of oil equivalent per day
$/Boe: Dollars per barrel of oil equivalent
MMbbls: Million of barrels
BOE's may be misleading particularly if used in isolation. A BOE conversion
ratio of 6 Mcf: 1 bblis based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.
Non‐IFRS Measures
The Company uses non-IFRS measures to evaluate its performance which are
measures not defined in IFRS. Working capital, funds flow from operations,
realized prices, operating netback, adjusted EBITDA, and net debt as presented
do not have any standardized meaning prescribed by IFRS and therefore may not
be comparable with the calculation of similar measures for other entities. The
Company considers these measures as key measures to demonstrate its ability to
generate the cash flow necessary to fund future growth through capital
investment, and to repay its debt, as the case may be. These measures should
not be considered as an alternative to, or more meaningful than net income
(loss) or cash provided by operating activities or net loss and comprehensive
loss as determined in accordance with IFRS as an indicator of the Company's
performance. The Company's determination of these measures may not be
comparable to that reported by other companies.
Arrow Exploration Corp.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 nine months ended September 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 September 30, 2023 December 31, 2022
ASSETS
Current assets
Cash $ 12,891,190 $ 13,060,968
Restricted cash and deposits 3 218,178 210,654
Trade and other receivables 4 2,797,577 2,568,290
Taxes receivable 5 1,735,143 801,177
Deposits and prepaid expenses 124,899 157,459
Inventory 885,517 705,677
18,652,504 17,504,225
Non-current assets
Deferred income taxes 1,933,639 872,286
Restricted cash and deposits 3 637,793 608,127
Exploration and evaluation 6 3,182,010 -
Property and equipment 7 38,349,304 34,205,610
Total Assets $ 62,755,250 $ 53,190,248
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 6,549,995 $ 5,850,823
Lease obligation 9 103,718 41,434
Promissory note 8 - 1,899,294
Derivative liability 11 5,491,495 9,540,423
Income taxes 1,176,316 1,488,916
13,321,524 18,820,890
Non-current liabilities
Lease obligations 9 219,611 22,317
Other liabilities 588,393 80,484
Deferred income taxes 2,198,419 5,066,684
Decommissioning liability 10 3,759,347 3,303,301
Total liabilities 20,087,294 27,293,676
Shareholders' equity
Share capital 12 64,833,800 57,810,735
Contributed surplus 2,010,851 1,570,491
Deficit (23,453,842) (32,839,282)
Accumulated other comprehensive loss (722,853) (645,372)
Total shareholders' equity 42,667,956 25,896,572
Total liabilities and shareholders' equity $ 62,755,250 $ 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 "Ian Langley"
Director
Gage
Jull
Ian Langley
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss)
In United States Dollars
(Unaudited)
For the three months ended For the nine months ended
September 30 September 30
Notes 2023 2022 2023 2022
Revenue
Oil and natural gas $ 15,884,660 $ 8,647,846 $ 35,487,485 $ 18,290,284
Royalties (1,894,307) (1,033,510) (4,223,991) (2,248,382)
13,990,353 7,614,336 31,263,494 16,041,902
Expenses
Operating 1,829,833 894,160 4,338,913 3,407,076
Administrative 1,924,089 2,322,291 6,790,964 4,880,605
Environmental 356,857 - 356,857 -
Share based payments 12 149,102 110,876 440,360 214,712
Financing costs:
Accretion 10 34,343 54,272 95,638 144,247
Interest 9,461 123,394 131,697 367,913
Other 89,281 41,075 238,135 285,104
Derivative loss (gain) 11 (1,191,385) (543,659) (109,613) 4,968,934
Foreign exchange gain (28,003) (234,068) (109,959) (229,526)
Depletion and depreciation 3,972,850 1,809,340 10,067,403 3,649,932
Other expense (income) (99,595) (32,393) (318,203) (52,595)
Transaction costs 180,175 - 180,175 -
7,227,008 4,545,288 22,102,367 17,636,402
Income (loss) before taxes 6,763,345 3,069,048 9,161,127 (1,594,500)
Income taxes (recovery)
Current 1,317,437 1,027,093 3,705,305 1,027,093
Deferred (1,707,212) - (3,929,618) -
(389,775) 1,027,093 (224,313) 1,027,093
Net income (loss) for the period 7,153,120 2,041,955 9,385,440 (2,621,593)
Other comprehensive income (loss)
Foreign exchange 34,103 173,067 (77,481) 253,645
Net income (loss) and comprehensive income (loss) for the period
$ 7,187,223 $ 2,215,022 $ 9,307,959 $ (2,367,948)
Net income (loss) per share
- basic $ 0.03 $ 0.01 $ 0.04 $ (0.01)
- diluted $ 0.02 $ 0.01 $ 0.03 $ (0.01)
Weighted average shares outstanding
- basic 237,919,872 215,967,143 230,537,774 214,687,656
- diluted 295,875,232 288,235,624 295,092,336 276,272,070
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 7,023,065 - - - 7,023,065
Net income for the period - - - 9,385,440 9,385,440
Othe comprehensive loss for the period
- - (77,481) - (77,481)
Share-based compensation - 440,360 - - 440,360
Balance September 30, 2023 $ 64,833,800 $ 2,010,851 $ (722,853) $ (23,453,842) $ 42,667,956
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 603,147 - - - 603,147
Options settled in cash - (6,621) - - (6,621)
Net loss for the period - - - (2,621,593) (2,621,593)
Other comprehensive income for the period
- - 253,645 - 253,645
Share based payments - 214,712 - - 214,712
Balance September 30, 2022 $ 57,301,384 $ 1,457,509 $ (550,091) $ (35,807,399) $ 22,401,403
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 nine months ended September 30, 2023 2022
Cash flows provided by operating activities
Net income (loss) $ 9,385,440 $ (2,621,593)
Items not involving cash:
Share based payment 440,360 214,712
Deferred income tax (3,929,618) -
Depletion and depreciation 10,067,403 3,649,932
Interest on leases 12,237 7,932
Interest on promissory note, net of forgiveness 119,460 359,981
Accretion 95,638 144,247
Foreign exchange gain (224,264) (133,342)
(Gain) loss on derivative liability (109,613) 4,968,934
Environmental provision 356,857 -
Gain in long-term debt forgiveness - (7,798)
Changes in non‑cash working capital balances:
Restricted cash (37,190) 134,360
Trade and other receivables (229,288) (3,448,281)
Taxes receivable (933,966) (361,267)
Deposits and prepaid expenses 32,561 160,428
Inventory (179,840) (458,575)
Accounts payable and accrued liabilities (654,363) 1,465,021
Income tax payable (312,600) 1,027,093
Settlement of decommissioning obligations (4,349) (77,180)
Cash provided by operating activities 13,894,865 5,024,604
Cash flows used in investing activities
Additions to exploration and evaluation assets (3,182,010) -
Additions to property and equipment (13,431,502) (5,562,525)
Changes in non-cash working capital 1,538,033 691,963
Cash flows used in investing activities (15,075,479) (4,870,562)
Cash flows provided by financing activities
Common shares issued 3,025,568 280,072
Payment of promissory note, principal and interests (2,018,577) (23,394)
Lease payments (54,813) (29,774)
Cash flows provided by financing activities 952,178 226,904
Effect of changes in the exchange rate on cash 58,658 117,248
(Decrease) increase in cash (169,778) 498,194
Cash, beginning of period 13,060,968 10,878,508
Cash, end of period 12,891,190 11,376,702
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 November
27, 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
September 30, December 31, 2022
2023
Colombia (i) $ 255,986 $ 248,462
Canada (ii) 599,985 570,319
Sub-total 855,971 818,781
Long-term portion (637,793) (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 $325,399 (CAD $439,966; 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
September 30, December 31, 2022
2023
Trade receivables, net of advances $ 2,402,045 $ 847,432
Other accounts receivable 395,532 1,720,858
$ 2,797,577 $ 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
September 30, December 31, 2022
2023
Value-added tax (VAT) credits recoverable $ 175,217 $ -
Income tax withholdings and advances, net 1,559,926 801,177
$ 1,735,143 $ 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
September 30, December 31, 2022
2023
Balance, beginning of the period $ - $ 6,964,506
Additions, net 3,182,010 -
Reclassification to Property and Equipment - (6,964,506)
Balance, end of the period $ 3,182,010 $ -
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 13,446,292 310,061 13,756,353
Decommissioning adjustment 442,757 - 442,757
Balance, September 30, 2023 $ 61,434,075 $ 544,217 $ 61,978,292
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 10,017,547 49,856 10,067,403
Balance, September 30, 2023 $ 23,171,256 $ 211,092 $ 23,382,348
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 12,771 (784) 11,987
Balance, September 30, 2023 $ (237,137) $ (9,503) $ (246,640)
Net Book Value
Balance December 31, 2022 $ 34,141,409 $ 64,201 $ 34,205,610
Balance, September 30, 2023 $ 38,025,682 $ 323,622 $ 38,349,304
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 2023, the Company entered in a new office and vehicles leases for its
corporate offices for $302,930 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:
September 30, December 31, 2022
2023
Obligation, beginning of the period $ 63,751 $ 54,692
Additions 302,930 -
Changes in existing lease - 44,701
Lease payments (54,813) (39,697)
Interest 12,237 9,696
Effects of movements in foreign exchange rates (776) (5,641)
Obligation, end of the period $ 323,329 $ 63,751
Current portion (103,718) (41,434)
Long-term portion $ 219,611 $ 22,317
As at September 30, 2023, the Company has the following future lease
obligations:
Less than one year $ 105,113
2 - 5 years 336,198
Total lease payments 441,311
Amounts representing interest over the term (117,982)
Present value of the net obligation $ 323,329
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.
September 30, December 31, 2022
2023
Obligation, beginning of the period $ 3,303,301 $ 2,470,239
Change in estimated cash flows 554,238 756,541
Payments or settlements (4,349) (76,131)
Accretion expense 95,638 199,521
Disposals (191,648) -
Effects of movements in foreign exchange rates 2,167 (46,869)
Obligation, end of the period $ 3,759,347 $ 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 $4,943,923 (2022:
$4,480,074).
11. Derivative liability
Derivative liability includes warrants issued and outstanding as follows:
September 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 (27,124,110) (3,997,497) (4,637,288) (598,509)
Fair value adjustment - (109,613) - 5,974,674
Foreign exchange - 58,182 - (528,045)
Balance end of the period 40,713,308 $ 5,491,495 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 September
30, 2023 and December 31, 2022 was estimated using the following assumptions:
September 30, December 31, 2022
2023
Number outstanding re-valued warrants 40,713,308 67,837,418
Fair value of warrants outstanding £0.1104 £0.1157
Risk free interest rate 4.82% 3.41%
Expected life 0.07 years 0.82 years
Expected volatility 133% 147%
The following table summarizes the warrants outstanding and exercisable at
September 30, 2023:
Number of
warrants Exercise price Expiry date
40,219,260 £0.09 October 24, 2023
494,048 £0.09 November 22, 2023
40,713,308
12. Share Capital
(a) Authorized: Unlimited number of common shares without par value
(b) Issued:
September 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 27,124,110 7,023,065 4,637,288 1,094,574
Issued from options exercised - - 375,000 17,924
Balance at end of the period 245,526,041 64,833,800 218,401,931 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 and changes of the Company stock option plan is presented below:
September 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 1,650,000 $0.33 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 20,865,000 $0.24 20,590,000 $0.24
Exercisable, end of period 5,403,331 $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
September 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 Mar. 20, 2030 1,200,000
April 13, 2020 2,000,000 $0.05 April 13, 2030 2,000,000
December 13, 2021 5,966,668 $0.13 June 13, 2024 and 2025 -
June 9, 2022 2,300,000 $0.28 Dec. 9, 2023, 2024 and 2025 766,665
September 7, 2022 1,250,000 $0.26 Mar. 7, 2024, 2025 and 2026 416,666
December 21, 2022 5,478,332 $0.28 June 21, 2024, 2025 and 2026 -
January 23, 2023 650,000 $0.32 July 23, 2024, 2025 and 2026 -
September 21, 2023 1,000,000 $0.33 Mar. 21, 2025, 2026 and 2027 -
Total 20,865,000 $0.23 2.44 years 5,403,331
The Company recognized $149,102 and $440,360 as share-based compensation
expense for the three and nine months ended September 30, 2023 (2022: $110,876
and $214,712), 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 September 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 September 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:
September 30, December 31,
2023 2022
Working capital (deficit) $ 5,330,980 $ (1,316,665)
Derivative liability 5,491,495 9,540,423
$ 10,822,475 $ 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 and nine months ended and as at September 30:
Three months ended September 30, 2023 Colombia Canada Total
Revenue:
Oil Sales $ 15,496,501 $ - $ 15,496,501
Natural gas and liquid sales - 388,159 388,159
Royalties (1,885,968) (8,339) (1,894,307)
Expenses (6,339,173) (887,835) (7,227,008)
Income tax recovery 389,775 - 389,775
Net income (loss) $ 7,661,135 $ (508,015) $ 7,153,120
Nine months ended September 30, 2023 Colombia Canada Total
Revenue:
Oil Sales $ 34,177,223 $ - $ 34,177,223
Natural gas and liquid sales - 1,310,262 1,310,262
Royalties (4,214,621) (9,370) (4,223,991)
Expenses (14,799,562) (7,302,805) (22,102,367)
Income tax recovery 224,313 - 224,313
Net income (loss) $ 15,387,353 $ (6,001,913) $ 9,385,440
As at September 30, 2023 Colombia Canada Total
Current assets $ 17,392,681 $ 1,259,823 $ 18,652,504
Non-current:
Deferred income taxes 1,933,639 - 1,933,639
Restricted cash 37,808 599,985 637,793
Exploration and evaluation 3,182,010 - 3,182,010
Property, plant and equipment 34,003,518 4,345,786 38,349,304
Total Assets $ 56,549,656 $ 6,205,594 $ 62,755,250
Current liabilities $ 7,137,935 $ 6,183,589 $ 13,321,524
Non-current liabilities:
Deferred income taxes 2,198,419 - 2,198,419
Other liabilities 588,393 - 588,393
Lease obligation - 219,611 219,611
Decommissioning liability 3,202,198 557,149 3,759,347
Total liabilities $ 13,126,945 $ 6,960,349 $ 20,087,294
Three months ended September 30, 2022 Colombia Canada Total
Revenue:
Oil Sales $ 8,056,780 $ - $ 8,056,780
Natural gas and liquid sales - 591,066 591,066
Royalties (972,243) (61,267) (1,033,510)
Expenses (2,435,749) (2,109,539) (4,545,288)
Income tax (1,027,093) - (1,027,093)
Net income (loss) $ 3,621,695 $ (1,579,740) $ (2,041,955)
Nine months ended September 30, 2022 Colombia Canada Total
Revenue:
Oil Sales $ 15,013,222 $ - $ 15,013,222
Natural gas and liquid sales - 3,277,062 3,277,062
Royalties (1,750,960) (497,422) (2,248,382)
Expenses (5,593,170) (12,043,232) (17,636,402)
Income tax (1,027,093) - (1,027,093)
Net income (loss) $ 6,641,999 $ (9,263,592) $ (2,621,593)
As at September 30, 2022 Colombia Canada Total
Current assets $ 12,900,256 $ 3,970,439 $ 16,870,695
Non-current:
Deferred income taxes 4,839,785 - 4,839,785
Restricted cash 37,808 560,384 598,192
Exploration and evaluation 6,964,506 - 6,964,506
Property and equipment 12,378,156 5,327,924 17,706,080
Total Assets $ 37,120,511 $ 9,858,747 $ 46,979,258
Current liabilities $ 4,622,600 $ 4,855,783 $ 9,478,383
Non-current liabilities:
Other liabilities 177,500 - 177,500
Deferred income taxes 3,371,935 - 3,371,935
Lease obligation - 32,676 32,676
Decommissioning liability 2,296,091 535,310 2,831,401
Derivative liability - 8,685,960 8,685,960
Total liabilities $ 10,468,126 $ 14,109,729 $ 24,577,855
16. Subsequent events
On November 17, 2023, the ANH confirmed the termination by mutual agreement of
the Macaya block exploration and production contract. This contract included
minimum work commitments for $3,830,000 for the Company, which have been
waived by the ANH according to the terms of termination.
Arrow Exploration Corp.
MANAGEMENT's DISCUSSION AND ANALYSIS
THREE AND NINE MONTHS ENDED SEPTEMBER 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 November 27, 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 nine months ended September 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 September 30, 2023 Nine months ended September 30, 2023 Three months ended September 30, 2022
(in United States dollars)
Net income (loss) 7,153,120 9,385,440 2,041,955
Add/(subtract):
Share based payments 149,102 440,360 110,876
Financing costs:
Accretion on decommissioning obligations 34,343 95,638 54,272
Interest 9,461 131,697 123,394
Other 89,281 238,135 41,075
Depreciation and depletion 3,972,850 10,067,403 1,809,340
Derivative gain (1,191,385) (109,613) (543,659)
Income tax (recovery) expense, current and deferred (389,775) (224,313) 1,027,093
Adjusted EBITDA ((1)) 9,826,997 20,024,747 4,664,345
Cash flows provided by operating activities 6,523,732 13,894,865 5,221,497
Minus - Changes in non‑cash working capital balances:
Trade and other receivables 697,291 229,288 1,097,426
Restricted cash (65,890) 37,190 (291,841)
Taxes receivable 765,277 933,966 58,264
Deposits and prepaid expenses (68,109) (32,561) (171,610)
Inventory 9,026 179,840 229,799
Accounts payable and accrued liabilities 1,192,261 654,363 (1,537,411)
Income tax payable (362,681) 312,600 -
Funds flow from operations ((1)) 8,690,907 16,209,551 4,606,124
( (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 September 30, 2023 Nine months ended September 30, 2023 Three months ended September 30, 2022
(in United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 13,990,353 31,263,494 7,614,336
Funds flow from operations ((1)) 8,690,907 16,209,551 4,606,124
Funds flow from operations ((1)) per share -
Basic($) 0.04 0.07 0.02
Diluted ($) 0.03 0.05 0.00
Net income 7,153,120 9,385,440 2,041,955
Net income per share -
Basic ($) 0.03 0.04 0.01
Diluted ($) 0.02 0.03 0.01
Adjusted EBITDA ((1)) 9,826,997 20,024,747 4,664,345
Weighted average shares outstanding -
Basic 237,919,872 230,537,774 215,967,143
Diluted 295,875,232 295,092,336 288,235,624
Common shares end of period 245,526,041 245,526,041 215,967,143
Capital expenditures 5,471,561 16,613,512 4,836,860
Cash and cash equivalents 12,891,190 12,891,190 11,376,702
Current Assets 18,652,504 18,652,504 16,870,695
Current liabilities 13,321,524 13,321,524 9,478,383
Adjusted working capital((1)) 10,822,475 10,822,475 7,392,312
Long-term portion of restricted cash((2)) 637,793 637,793 598,192
Total assets 62,755,250 62,755,250 46,979,258
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 2,012 2,261 1,917
Natural gas liquids (bbl/d) 4 4 4
Crude oil (bbl/d) 2,178 1,730 1,179
Total (boe/d) 2,518 2,110 1,503
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) $0.18 ($0.11) $0.88
Crude oil ($/bbl) $60.62 $57.64 $73.69
Total ($/boe) $52.67 $47.15 $56.75
((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 September 30, 2023 Financial and Operational Highlights
· Arrow recorded $13,990,353 in revenues, net of royalties, on
crude oil sales of 199,617 bbls, 399 bbls of natural gas liquids ("NGL's") and
185,128 Mcf of natural gas sales;
· Funds flow from operations of $8,690,907;
· Net income of $7,153,120 and adjusted EBITDA was $9,826,997;
· Completed drilling of the Carrizales Norte-2 (CN-2) and
Carrizales Norte-3 (CN-3) wells
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 Q3 2023 Q2 2023 Q1 2023 Q4 2022 Q3 2022 Q2 2022
Oso Pardo 93 130 138 115 104 112
Ombu (Capella) - - 80 238 215 97
Rio Cravo Este (Tapir) 1,443 1,592 1,004 832 860 366
Carrizales Norte (Tapir) 642 57 - - - -
Total Colombia 2,178 1,779 1,222 1,185 1,179 575
Fir, Alberta 81 77 74 79 82 86
Pepper, Alberta 259 313 340 472 242 319
TOTAL (Boe/d) 2,518 2,169 1,635 1,736 1,503 980
For the three months ended September 30, 2023, the Company's average
production was 2,518 boe/d, which consisted of crude oil production in
Colombia at 2,178 bbl/d, natural gas production of 2,012 Mcf/d and minor
amounts of natural gas liquids from the Company's Canadian properties. The
Company's Q3 2023 total production was 68% higher than its total production
for the same period in 2022.
Average Daily Natural Gas and Oil Production and Sales Volumes
Three months ended Nine months ended
September 30 September 30
2023 2022 2023 2022
Natural Gas (Mcf/d)
Natural gas production 2,012 1,917 2,261 2,853
Natural gas sales 2,012 1,917 2,261 2,853
Realized Contractual Natural Gas Sales 2,012 1,917 2,261 2,853
Crude Oil (bbl/d)
Crude oil production 2,178 1,179 1,730 730
Inventory movements and other (8) (216) (19) (264)
Crude Oil Sales 2,170 963 1,711 466
Corporate
Natural gas production (boe/d) 336 319 376 475
Natural gas liquids(bbl/d) 4 4 4 5
Crude oil production (bbl/d) 2,178 1,179 1,730 730
Total production (boe/d) 2,518 1,503 2,110 1,211
Inventory movements and other (boe/d) (8) (216) (19) (264)
Total Corporate Sales (boe/d) 2,510 1,287 2,091 946
During the three and nine months ended September 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 Nine months ended
September 30 September 30
2023 2022 2023 2022
Natural Gas
Natural gas revenues 361,381 557,445 1,242,889 3,157,295
NGL revenues 26,778 33,621 67,373 119,766
Royalties (8,339) (61,267) (9,370) (497,422)
Revenues, net of royalties 379,820 529,799 1,300,892 2,779,640
Oil
Oil revenues 15,496,501 8,056,780 34,177,223 15,013,222
Royalties (1,885,968) (972,243) (4,214,621) (1,750,960)
Revenues, net of royalties 13,610,533 7,084,537 29,962,602 13,262,262
Corporate
Natural gas revenues 361,381 557,445 1,242,889 3,157,295
NGL revenues 26,778 33,621 67,373 119,766
Oil revenues 15,496,501 8,056,780 34,177,223 15,013,222
Total revenues 15,884,660 8,647,846 35,487,485 18,290,284
Royalties (1,894,307) (1,033,510) (4,223,991) (2,248,382)
Natural gas and crude oil revenues, net of royalties 13,990,353 7,614,336 31,263,494 16,041,902
Natural gas and crude oil revenues, net of royalties, for the three and nine
months ended September 30, 2023 was $13,990,353 (2022: $7,614,336) and
$31,263,494 (2022: $16,041,902), respectively, which represents an increase of
95%. This significant increase is mainly due to increased oil production in
Colombia, offset by decrease in oil prices and revenue in Canada.
Average Benchmark and Realized Prices
Three months ended Nine months ended
September 30 September 30
2023 2022 Change 2023 2022 Change
Benchmark Prices
AECO (C$/Mcf) $2.64 $3.83 (31%) $2.77 $4.31 (36%)
Brent ($/bbl) $92.59 $97.81 (5%) $82.26 $102.33 (20%)
West Texas Intermediate ($/bbl) $77.35 $91.65 (16%) $82.20 $98.15 (16%)
Realized Prices
Natural gas, net of transportation ($/Mcf) $1.95 $3.16 (38%) $2.01 $4.05 (50%)
Natural gas liquids ($/bbl) $67.10 $82.69 (19%) $63.30 $83.54 (24%)
Crude oil, net of transportation ($/bbl) $77.63 $90.90 (15%) $73.16 $91.00 (20%)
Corporate average, net of transport ($/boe)((1)) $68.80 $73.02 (6%) $62.14 $61.75 1%
( (1)Non-IFRS measure)
The Company realized prices of $68.80 and $62.14 per boe during the three and
nine months ended September 30, 2023 (2022: $73.02 and $61.75), respectively,
as commodity prices decreased in 2023 compared with 2022.
Operating Expenses
Three months ended Nine months ended
September 30 September 30
2023 2022 2023 2022
Natural gas & NGL's 319,439 341,156 1,302,246 1,742,933
Crude oil 1,510,394 553,004 3,036,667 1,664,143
Total operating expenses 1,829,833 894,160 4,338,913 3,407,076
Natural gas ($/Mcf) $1.72 $1.93 $2.10 $2.24
Crude oil ($/bbl) $7.56 $6.24 $6.50 $10.09
Corporate ($/boe)((1)) $7.92 $7.55 $7.59 $11.50
( (1)Non-IFRS measure)
During the three and nine months ended September 30, 2023, Arrow incurred
operating expenses of $1,829,833 and $4,338,913 (2022: $894,160 and
$3,407,076), respectively. This increase is mainly due to operating expenses
incurred in the Company's new Carrizales Norte field in the Tapir block.
Operating Netbacks
Three months ended Nine months ended
September 30 September 30
2023 2022 2023 2022
Natural Gas ($/Mcf)
Revenue, net of transportation expense $1.95 $3.16 $2.01 $4.05
Royalties ($0.05) ($0.35) ($0.02) ($0.64)
Operating expenses ($1.72) ($1.93) ($2.10) ($2.24)
Natural Gas operating netback((1)) $0.18 $0.88 ($0.11) $1.18
Crude oil ($/bbl)
Revenue, net of transportation expense $77.63 $90.90 $73.16 $91.00
Royalties ($9.45) ($10.97) ($9.02) ($10.61)
Operating expenses ($7.56) ($6.24) ($6.50) ($10.09)
Crude Oil operating netback((1)) $60.62 $73.69 $57.64 $70.30
Corporate ($/boe)
Revenue, net of transportation expense $68.80 $73.02 $62.14 $61.75
Royalties ($8.21) (8.72) ($7.40) ($7.59)
Operating expenses ($7.92) (7.55) ($7.59) ($11.50)
Corporate Operating netback((1)) $52.67 $56.75 $47.15 $42.66
( (1))Non-IFRS measure
The operating netbacks of the Company continued within healthy levels during
2023 due to several factors, mostly increasing production from its Colombian
assets, even factoring in 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 Nine months ended
September 30 September 30
2023 2022 2023 2022
General & administrative expenses 2,069,314 2,490,114 7,259,939 5,139,135
G&A recovered from 3(rd) parties (145,225) (222,735) (468,975) (389,765)
Total G&A 1,924,089 2,267,379 6,790,964 4,749,370
Cost per boe $8.33 $30.74 $11.89 $16.03
For the three and nine months ended September 30, 2023, G&A expenses
before recoveries totaled $2,069,314 and $7,259,939 (2022: $2,490,114 and
$5,139,135), respectively, which represent a decrease and an increase,
respectively, when compared to the same periods in 2022. These variances 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 $11.89/boe when compared to $16.03/boe for the nine months ended
September 30, 2022.
Share-based Compensation
Three months ended Nine months ended
September 30 September 30
2023 2022 2023 2022
Share-based Payments 149,102 110,876 440,360 214,712
Share-based compensation expense for the three and nine months ended September
30, 2023 totaled $149,102 and $440,360 (2022: $110,876 and $214,712),
respectively. During 2023, the Company has granted 1,650,000 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 Nine months ended
September 30 September 30
2023 2022 2023 2022
Financing expense paid or payable 98,742 164,469 369,833 653,017
Non-cash financing costs 34,343 54,272 95,638 144,247
Net financing costs 133,085 218,740 465,471 797,264
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 repayment 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 Nine months ended
September 30 September 30
2023 2022 2023 2022
Depletion and depreciation 3,972,850 1,809,340 10,067,403 3,649,932
Depletion and depreciation expense for the three and nine months ended
September 30, 2023 totaled $3,972,850 and $10,067,403 (2022: $1,809,340 and
$3,649,932), respectively. The increase is due to higher carrying value of
depletable property, plant and equipment and increased production. The Company
uses the unit of production method and proved plus probable reserves to
calculate its depletion and depreciation expense.
Gain (loss) on Derivative Liability
Three months ended Nine months ended
September 30 September 30
2023 2022 2023 2022
Gain (loss) on Derivative Liability (1,191,385) (543,659) (109,613) 4,968,934
During the three and nine months ended September 30, 2023, the Company
recorded gains in derivative liability of $1,191,385 and $109,613 (2022:
$543,659 and loss of $4,968,934), 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 September 30, 2023, the Company has an adjusted working capital of
$10,822,475. 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 September 30, 2023 the Company's net debt (net cash) was calculated as
follows:
September 30, 2023
Current assets $ 18,652,504
Less:
Accounts payable and accrued liabilities 6,549,995
Income taxes 1,176,316
Net debt (Net cash) ((1)) $ (10,296,193)
((1))Non-IFRS measure
Adjusted Working Capital
As at September 30, 2023 the Company's adjusted working capital was calculated
as follows:
September 30, 2023
Current assets:
Cash and restricted cash $ 12,891,190
Restricted cash and deposits 218,178
Trade and other receivables 2,797,577
Taxes receivable 1,735,143
Other current assets 1,010,416
Less:
Accounts payable and accrued liabilities 6,549,995
Lease obligation 103,718
Promissory note -
Income tax payable 1,176,316
Adjusted Working capital((1)) $ 10,822,475
((1))Non-IFRS measure
Debt Capital
During 2023, the Company has paid off its a promissory note payable to
Canacol.
Letters of Credit
As at September 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 September 30, 2023, the Company had 245,526,041 common shares,
40,713,308 warrants and 20,865,000 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
September 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.
On November 17, 2023, the ANH confirmed the termination by mutual agreement of
the Macaya block exploration and production contract. This contract included
minimum work commitments for $3,830,000 for the Company, which have been
waived by the ANH according to the terms of termination.
SUMMARY OF THREE MONTHS RESULTS
2023 2022 2021
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
Oil and natural gas sales, net of royalties 3,911,329
13,990,353 11,637,968 6,992,860 8,931,562 7,614,336 5,024,604 3,038,832
Net income (loss) 7,153,120 (757,416) 2,989,735 2,968,117 2,041,955 768,318 (5,431,865) 6,960,035
Income (loss) per share -
basic 0.03 (0.00) 0.01 0.01 0.02 0.00 (0.03) 0.04
diluted 0.02 (0.00) 0.01 0.01 0.00 0.00 (0.02) 0.04
Working capital (deficit) 10,822,475 (2,363,388) 2,619,715 (1,316,665) 7,392,310 5,594,027 7,657,938 8,006,074
Total assets 62,755,250 56,305,530 53,719,944 53,190,248 46,979,259 42,670,153 39,914,240 41,195,798
Net capital expenditures 5,471,561 6,870,258 4,271,693 2,106,463 4,836,860 2,777,611 725,665 1,991,163
Average daily production (boe/d) 2,518 2,169 1,635 1,736 1,503 980 1,144 712
The Company's oil and natural gas sales have increased 84% in 2023 when
compared to Q3 2022 due to increased production in its existing assets and
healthy oil and gas prices. The Company's production levels in Colombia
continue growing. Trends in the Company's net income are also impacted most
significantly by operating expenses, financing costs, income taxes, depletion,
depreciation and impairment of oil and gas properties, and other income.
OUTSTANDING SHARE DATA
At November 27, 2023, the Company had the following securities issued and
outstanding:
Number Exercise Price Expiry Date
Common shares 285,864,348 n/a n/a
Stock options 750,000 CAD$ 1.15 October 22, 2028
Stock options 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 5,966,668 GBP 0.07625 June 13, 2024 and 2025
Stock options 2,300,000 CAD$0.28 Dec. 9, 2023, 2024 and 2025
Stock options 1,250,000 CAD$0.26 Mar. 7, 2024, 2025 and 2026
Stock options 5,478,332 GBP 0.1675 June 21, 2024, 2025 and 2026
Stock options 650,000 GBP 0.1925 July 23, 2024, 2025 and 2026
Stock options 1,000,000 CAD $0.33 Mar. 21, 2024, 2025 and 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 capital program for 2023.
To date, the Company has already drilled eight wells of its 2023 budget (four
at Rio Cravo, three at Carrizales Norte and one in Oso Pardo), which have
increased overall production and more wells being drilled in Q4 2024. This
confirms 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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