Auctus Advisors Note - published today:
ARROW EXPLORATION CORP (AIM: AXL)
Reserves additions. Flow rate at Carrizales Noroeste likely to add further reserves
€¢ YE23 2P reserves were estimated at 11.8 mmboe, including 0.7 mmboe for Canada and 4.6 mmboe non-core, leaving 6.5 mmboe for the company€™s core Colombian assets.
This compares with 2.1 mmbbl at YE23 plus 3.9 mmbbl for Carrizales Norte reported in September for a total of 6 mmbbl. Adding back 0.6 mmbbl (net) produced at Tapir in 2023 suggests that Arrow has added 1.1 mmbbl at its core Colombian assets since the latest reserve reports (September 2023 for Carrizales Norte and YE23 for the other assets).
€¢ The CN-5 exploration well that had encountered 45 feet of Ubaque pay with 25% porosity and 5 Darcy permeability at the Carrizales Noroeste prospect has now been put in production at a rate of 175 bbl/d (net) with 8% water cut.
Production is being restricted at the lowest ESP setting of 30Hz to evaluate the water cut and will be gradually increased. The flow rate is important as it confirms the producibility of this area of the field estimated to hold 3.35 mmbbl resources net to Arrow and could allow Arrow to book additional reserves.
€¢ The CN-6 development well in the C7 formation has been put on stream at an oil rate of 110 bbl/d net to Arrow (33 deg API) with 71% water cut.
€¢ The CN-7 well has encountered pay zones in the Carbonara C7, Gacheta and Ubaque, and should be on production in the next few weeks.
€¢ The first horizonal well at Carrizales Norte continues to be expected to be drilled in April. This is a very important well.
€¢ The impact on our valuation of the additional reserves is offset by assumptions of lower production and we re-iterate our target price of £0.60/sh.
Cash and production Arrow holds US$12 mm in cash (US$13 mm as at 15 February).
Total production is currently 2.9 mboe/d (3.2 mboe/d previously) as Arrow has experienced some minor disruptions caused by drilling operations and water disposal requirements.
Arrow is expecting regulatory approval to turn RCE-1 and CN-1 into water disposal wells to increase the water disposal capacity and increase production.
Valuation and cashflow We have reduced our production forecast for 1Q24 from 3.2 mboe/d to 2.9 mmboe/d. We have also factored additional downtime for future periods.
We now forecast ~4.3 mboe/d in 2024 and 5.5 mboe/d in 2025.
Booking 3.35 mmbbl net reserves at Carrizales Noroeste could add a further £0.08/sh, while success at Mateguafa Attic (3Q24) and Baquiano (April) is worth a total of £0.18 per share. Assuming US$85/bbl for Brent until YE25, we forecast that the company will hold >US$55 mm at YE25