Oil Discovery Could Add More Reserves Than First Thought
Research Report

Arrow Exploration Corp. (AXL:TSX.V; AXL:LSE) provided an update on the Carrizales Norte-1 (CN-1) discovery in Colombia's Llanos basin, in which it holds a 50% beneficial interest, reported Auctus Advisors analyst Stephane Foucaud in a June 8 research note.

117% upside from here

Foucaud noted that the potential return for investors in Arrow is significant, at about 117%. This upside is implied in the difference between the current share price of the Alberta, Canada-based energy company, of about £0.23, and Auctus' target price on it, of £0.50 per share.

Prospective zones do not flow

In one bit of news regarding the CN-1 well discovery, the Gacheta zones in the area failed to produce any oil when recently tested, wrote Foucaud. This was surprising given they are above the Ubaque reservoirs that did produce, flowing at 1,100 barrels or more per day.

Arrow's management is working to determine why the Gacheta zones did not flow and intends to revisit them down the line with additional wells.

Next, though, the energy company will put the primary zones at CN-1, which are C7A and C7, into production over the next week, reported Foucaud.

After Arrow gets the CN-1 well producing, the analyst relayed, it will move the rig to and spud the Carrizales Norte-2 well, followed by the Carrizales Norte-3 well. After that, an updated reserve estimate will be prepared.

Original estimates low

The second piece of news regarding the CN-1 discovery is that "aggregate reserve capture materially exceeds initial expectations," Foucaud highlighted, thanks to flows from the Ubaque and the C7 proving to be greater than first anticipated.

"The development of Carrizales Norte could now be expanded beyond the three wells initially envisaged," wrote Foucaud.

This could ultimately translate into Carrizales Norte having greater value, added Foucaud. Currently, Auctus forecasts net resources from Carrizales Norte to be about 1,800,000 barrels (1.8 MMbbl). Should they actually be, say, 50% greater, about 2.7 MMbbl, they would boost Auctus' core net asset value of Carrizales Norte by about £0.05 per share.