Auctus maintains 50 cents TPARROW EXPLORATION CORP (AIM: AXL) Share price: £0.08 Target: £0.30
Production on track. Drilling to start in Colombia in March. Potential additional well in Canada.
• Overall net production of 1,320 boe/d (as at 01/01/2022) is on track with our expectations with ~1,110 boe/d over 1Q22 (our forecasts exclude any contribution of the Capella field that is currently producing 191 bbl/d and that we anticipate will be sold).
• Net production includes 137 bbl/d from the RCE-1 well (Tapir Block), 125 bbl/d from Oso Pardo, and 191 bbl/d from Capella.
Overall net production in Canada was 868 boe/d as at 01/01/2022. West Pepper was producing 775 boe/d (~4.6 mmcf/d) as at 22/01/2022, down from 6.2 mmcf/d as at 10th of December. This is in line with expectations given initial flush production
. • Given the strength of natural gas prices in Canada, Arrow is considering tying-in another gas well in Canada (East Pepper)
. • Spudding of the Rio Cravo Este-2 development well is expected in March with Rio Cravo Este-3 to be drilled in April. We model the combined IP rates of these two wells at ~800 bbl/d net to Arrow
. • We re-iterate our target price of £0.30 per share
. • At the current share price we forecast that at US$65/bbl Brent, the company’s net cash would be equal to the current market cap by ~YE23. At US$80/bbl, nearer $35 mm (~US$10 mm above the current market cap). This compares with an estimated enterprise value of ~US$15 mm at YE21.
East Pepper
The East Pepper well could add a further ~500 boe/d net initial production that we currently do not carry in our model. Capex would be ~US$1.3 mm with operating cashflow of ~US$2.1 mm (on strip prices) over the first year of production. Combined production of East Pepper and West Pepper is expected to ~400 boe/d by YE23 with very shallow decline.
Investment profile unchanged
Cashflow and newsflow With the RCE-1 and RCE-2 to be spud in March and April respectively, we have delayed their contribution to production by 1-2 months. Our ReNAV is unchanged at ~£0.30 per share (@US$65/bbl for Brent). This would increase to £0.42 per share at US$80/bbl for Brent. At US$80/bbl Brent price, YE22 net cash would represent over 30% of the current share price. Arrow continues to hope to secure an expansion of the Oso Pardo licence area to cover the entire newly mapped reservoir area in 2022. This would give access to 14 mmbbl of very low risk resources that could deliver 4 mbbl/d WI production plateau and unlock ~£0.60/sh of value.