Updated Auctus Advisors' reportAXL is currently trading at 19.8 pences. Auctus' guys have the reputation of being very conservative.
Positive drilling results at RCS-1 could add further reserves
• The RCS-1 well (the second well drilled by Arrow in Colombia this year) has encountered >55 feet of total net pay across six separate oil-bearing reservoirs in the C7, the Gacheta and the Ubaque, between 7,077 feet and 8,105 feet.
• No reserves were allocated to the Ubaque, C7 and one of the Gacheta sands. These sands represent ~50% of the total reservoir thickness at this location. • This is the first location on the Tapir block the Ubaque has been found. It flows 24 API oil on the adjacent block at the Carrizales field. • With a positive flow test, the RCS-1 well should add reserves.
• The company also anticipates an upgrade in reserves classification at all the other sands. • Pending the result of the well test, we re-iterate our target price of £0.45 per share. We anticipate 800 bbl/d IP (400 bbl/d net) rate from the RC-1 well.
RCE-2 well
The RCE-2 continues to produce at a stabilized rate of 1,000 bbl/d (500 bbl/d net) from 2 separate reservoir units in the Lower Miocene Carbonera Formation.
Valuation and cashflow
We continue forecast Arrow will generate ~US$45 mm free cash flow by YE23 and >US$70 mm by YE24. Our YE23 net cash estimate continues to be 50% above the current market cap. Our Core NAV based on the company’s reserves (3P for RCE and 2P for the rest) is £0.18 per share with a ReNAV of £0.45 per share. £0.45 per share would imply EV/DACF multiples of 3.7x for 2023.