You may not be familiar with the name Arrow Exploration Corp. (AXL:TSX.V; AXL:LSE). This Canada-based junior oil and gas company is engaged in acquiring, exploring, and developing oil and gas properties in Colombia and Western Canada, with a different segment in each area. It operates in Colombia via a branch of its 100-per-cent-owned subsidiary Carrao Energy SA.
Its asset base operates with high working interests, and its Brent-linked light oil pricing exposure combined with low royalties yields attractive potential operating margins.
In the Llanos Basin, the Company is engaged in exploring, developing, and producing oil within the Tapir block. Its assets include Tapir Block, Santa Isabel (Oso Pardo), and Capella Field.
Arrow Explorations owns a 50% interest in Tapir Block, with approximately 65,154 gross acres under its control (some 32,577 acres net). The firm's Oso Pardo Field is located in the Santa Isabel Block in the Middle Magdalena Valley Basin.
The Company also owns approximately 10% interest in the Ombu Block, which contains the Capella discovery. The Capella Field produces approximately 2,250 barrels of oil daily, netting Arrow Exploration some 225 barrels from that take. Arrow lays claim to some 4 million barrels of proven reserves at Capella.
The Catalyst: More Producing Wells
On June 8, the company announced that it is nearing completion of the Carrizales Norte-1 (CN-1) exploration well on the Tapir block, where Arrow holds a 50% beneficial interest.
The firm has commenced completion operations at CN-1, and management expects to proceed with putting the C7A and C7 reserves into production during the course of next week.
The C7 reservoirs were the primary target of the CN-1 exploration project, as they displayed excellent reservoir characteristics.
A successful test of the 45-foot-thick Ubaque pay zone showed stabilized rates over 1,100 barrels per day gross, and preliminary interpretation suggests aggregate reserve capture materially exceeds initial expectations. CN-1 is expected to produce at rates exceeding 1,000 barrels gross daily.
A recent report from Economist Intelligence explains that "Global energy consumption will grow by just 1.3% in 2023, amid a slowing economy and high energy prices. Waning gas supplies and extreme weather events will force many countries to fall back on fossil fuels, delaying the green energy transition."
Once CN-1 is producing the rig will move over to spud the Carrizales Norte-2 (CN-2) well. Spud to target depth time is ten to 12 days and has decreased throughout the company's drilling program, with costs coming in consistently under budget.
Arrow CEO Marshall Abbott explains, "The Carrizales Norte-1 discovery in both the C7 and Ubaque reservoirs are extremely important and material events for Arrow, with both the C7 and Ubaque reservoirs exceeding expectations."
"These results expand and accelerate the Carrizales Norte development plan beyond three wells. As well, Arrow is planning to complete a new reserve report once the Carrizales Norte 2 and 3 wells have been completed."
"Our expectation is that the Carrizales Norte wells will be quick to payout in the current oil price environment and add to shareholder value. This is a very exciting time for Arrow, and we look forward to providing further updates on our progress."
Why This Sector: Non-Russian Oil Isn't Going Anywhere Soon
While green tech may be all the rage, nothing (other than highly hazardous nascent nuclear technologies) can match the sheer energy density that oil and oil-derived fuels provide. With that in mind, it's easy to understand why so much of current green thinking involves not simply replacing oil but using it in more environmentally friendly ways.
A recent report from Economist Intelligence explains that "Global energy consumption will grow by just 1.3% in 2023, amid a slowing economy and high energy prices. Waning gas supplies and extreme weather events will force many countries to fall back on fossil fuels, delaying the green energy transition."
A recent analysis from Auctus Advisors states, "We continue to anticipate YE23 production of ~5 mboe/d, including all the CN wells. Excluding additional CN wells, YE23 production would be 3.5-4.0 mboe/d. Pending further visibility on the discovered volumes in the Ubaque at Carrizales Norte, we reiterate our target price of £0.50 per share."
In addition, the ongoing war in Ukraine, and its accompanying sanctions on Russian petrochemical products, have created a tighter and more profitable market for non-Russian producers.
As GEP reports, "After Russia invaded Ukraine in February 2022, the U.S. government [banned] imports of Russian oil, natural gas, and coal."
"The United Kingdom followed suit, announcing its intention to ban hydrocarbon products from Russia. The European Union also said it would cut Russian oil imports by two-thirds. Both the invasion of Ukraine and the series of reactions from Western countries sent the prices of oil and gas soaring."
"The demand for hydrocarbons has increased as economies reopen and enter recovery phases.
Hydrocarbon output before the invasion of Ukraine by Russia was stagnant due to low demand and stalled economic activity as a result of the COVID-19 pandemic."
"A global disruption in oil and gas supply due to the Russia-Ukraine war affected not only the prices of these commodities but also every economic activity reliant on hydrocarbons. Stock exchanges in different markets also sank, including exchanges in Germany and France, the FTSE 100 in London, and the Dow Jones and S&P 500 in the U.S."
Why This Company? Well Financed and Producing
The fact that it's already producing oil for sale is one thing that sets this junior company apart from other exploration-only concerns. In addition, Arrow Exploration is in a comfortable place financially. On May 30, the firm reported that in Q1 2023, it had recorded US$6.9 million in total oil and natural gas revenue, net of royalties — more than double the US$3.4 million earned in Q1 2022.
Furthermore, the company's adjusted earnings before interest, taxes, depreciation, and amortization of US$4.3 million was more than sevenfold the US$600,000 reported in Q1 2022. Average corporate production was up 43% to 1,635 barrels of oil equivalent per day, compared to 1,144 the year before.
As production increased, the company realized corporate oil operating netbacks of US$58.31 per barrel as management spread operating costs over more barrels. The upshot is that the company ended Q1 2023 with a US$12.3 million cash position.
Why Now? More Catalysts on the Horizon
Over the past year, the company generated positive operating cash flows of US$2.4 million and drilled three successful wells at Rio Cravo Este (RCE), resulting in material production additions. The CN-1 well has now been drilled and reached its target depth, with production incipient.
With those accomplishments complete, Arrow anticipates two additional wells to be drilled at Carrizales Norte, as well as two additional wells at RCE by year-end to target the Gacheta formation there, which was successfully tested at commercial rates in RCE-2. The firm also plans to drill two development wells at the Oso Pardo block in the Middle Magdalena basin.
CEO Abbott explains, "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 3-D seismic West Tapir project has completed shooting, is currently being processed, and is expected to further evaluate the 2-D recognized fault prospects. The Arrow team continues to strive towards excellence and increasing shareholder value."
A recent analysis from Auctus Advisors states, "We continue to anticipate YE23 production of ~5 mboe/d, including all the CN wells. Excluding additional CN wells, YE23 production would be 3.5-4.0 mboe/d. Pending further visibility on the discovered volumes in the Ubaque at Carrizales Norte, we reiterate our target price of £0.50 per share."
Streetwise Ownership Overview*
Arrow Exploration Corp. (AXL:TSX.V; AXL:LSE)
Ownership and Share Structure
According to Reuters, Institutional investors hold some 12.03% of the company. Edale Capital LLP. has 8.69%, with 20.05 million shares. Yacktman Asset Management LP has 2.77%, with 6.40 million, and Crux Asset Management Ltd. has 0.56%, with 1.30 million.
Strategic investor Canacol Energy Ltd. owns 18.08%, with 41.72 million shares, and strategic investor, Spreadex Ltd. has 0.98%, with 2.25 million.
The remaining 7.65% of voting shares are in the hands of company management and insiders. Executive Chairman Jull Gage has 1.73%, with 4 million shares, and CEO Marshall Abbott has 1.55%, with 3.58 million, and
Analysts covering Arrow Explorations include Stephane Foucaus of Auctus Advisors, Daniel Slater of Arden Partners, Christopher Jones of Haywood Securities, and Charlie Sharp Canaccord Genuity Limited.
Arrow Exploration Corp. has a market cap of US$50.75 million and US$12 million in cash. It has 229 million shares in circulation on a 303 million share fully-diluted base and a proven reserve of some 7.7 million barrels of oil still in the ground. According to Market Watch, it trades in the 52-week range between CA$0.19 and CA$0.43.
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