Company Announcements

Third Horizontal Well Results and Q2 2024 Results

Source: RNS
RNS Number : 1343C
Arrow Exploration Corp.
29 August 2024
 

NOT FOR RELEASE, DISTRIBUTION, PUBLICATION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION.

Logo Description automatically generated

ARROW ANNOUNCES THIRD UBAQUE HORIZONTAL WELL RESULTS AND Q2 2024 INTERIM RESULTS

CNB HZ-4 on production

 

CALGARY, August 29, 2024 - Arrow Exploration Corp. (AIM: AXL; TSXV: AXL) ("Arrow" or the "Company"), the high-growth operator with a portfolio of assets across key Colombian hydrocarbon basins, is pleased to provide an update on operational activity and announces the filing of its Interim Condensed (unaudited) Consolidated Financial Statements and Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2024 which are available on SEDAR (www.sedar.com) and will also  be available shortly on Arrow's website at www.arrowexploration.ca.

 

CNB HZ-4

The third horizontal well on the Carrizales Norte "B" pad (CNB HZ-4) is now on production and exceeding expectations. The well has a current flow rate exceeding 2,500 BOPD gross (1,250 BOPD net to Arrow) and production is continuing to increase.  Currently the well has  an 8% water cut while still recovering load fluid.  Management's expectations are that the CNB HZ-4 well will reach IP production rates similar to the Company's first two horizontal wells. Please note initial production flows are not necessarily indicative of long-term performance or ultimate recovery and a stabilized production rate will be determined in the first few weeks of operations, in keeping with conservative reservoir management. Further updates will be provided in due course.

 

CNB HZ-4 was spud on July 28, 2024, and reached a target depth of 8,452 feet (true vertical depth) on August 12, 2024.  The well was drilled to a total measured depth of 13,335 feet with a horizontal section of approximately 3,940 feet. CNB HZ-4 came on production on August 26, 2024, with the use of an electric submersible pump (ESP) and, based on initial results, has displayed comparable reservoir characteristics as CNB HZ-1.  

 

CNB HZ-3

The CNB HZ-3 is continuing to perform above expectations and is being restricted to a current flow rate of 1,920 BOPD gross (960 BOPD net) with approximately 31% water cut. CNB HZ-3 average production for the first 30 days of production (IP30) was 2,212 BOPD gross (1,106 BOPD net).  The well is being restricted to optimize reservoir performance and ultimate recovery.   

 

CNB HZ-1

The CNB HZ-1 is continuing to perform above expectations and is being restricted to a current flow rate of 2,090 BOPD gross (1,045 BOPD net) with approximately 41% water cut. CNB HZ-1 average production for the first 60 days of production (IP60) was 2,375 BOPD gross (1,188 BOPD net). 

 

Drilling Technology

Drilling metrics continue to improve in the horizontal program regarding both time and cost.  The improvements reflect the learnings taken from CNB HZ-1 and CNB HZ-3 as the operations team continues to focus on improving capital and operating costs and creating further shareholder value. 

 

The CNB HZ-4 is the first Arrow well to use Autonomous Inflow Control Devices (AICDs) which are designed to limit the water cut in horizontal wells.   The results of CNB HZ-4 will be closely monitored to determine if these technologies or others will enhance production and ultimate recovery in the Ubaque reservoir.

 

Upcoming Drilling

The rig has been moved to the fifth cellar on the Carrizales Norte B Pad where the Company spud the fourth horizontal well (CNB HZ-5) on August 22.   Thereafter, the Company expects to drill two more horizontal wells on the B pad, followed by the Chorreron-1 (formerly known as Baquiano-1) exploration well, which is on trend with the Carrizales Norte field.

 

Corporate Update

Current net corporate production is approximately 5,000 BOE/D, inclusive of CNB HZ-1, CNB-3 and CNB HZ-4.

 

Arrow's cash position was approximately $12 million on August 1, 2024.  Arrow has maintained a healthy balance sheet with no debt. 

 

Q2 2024 Highlights:

·    Successfully drilled three development Carrizales Norte (CN) wells, including the first horizontal well.

·    Recorded $15.1 million of total oil and natural gas revenue, net of royalties, representing a 47% increase when compared to the same period in 2023 (Q2 2023: $10.3 million).

·    Net income of $1.2 million (Q2 2023: loss of $0.8 million).

·    Adjusted EBITDA(1) of $8.9 million, a 53% increase when compared to 2023 (Q2 2023: $5.8 million).

·    Average corporate production of 2,546 boe/d (Q2 2023: 2,169 boe/d).

·    Realized corporate oil operating netbacks(1) of $51.21/bbl. 

·    Cash position of $10.8 million at the end of Q2 2024.

·    Generated H1 2024 operating cashflows of $15.7 million (H1 2023: $7.4 million).

·    Recognized an impairment in its Canadian oil & gas properties for $1.5 million due to low natural gas prices.

(1)Non-IFRS measures - see "Non-IFRS Measures" section within the MD&A

 

Post Period End Highlights:

·    Drilled three additional CN wells, including two horizontal wells and one disposal well.

·    Spud the CNB HZ-5 from the CNB pad.  The Company expects to be able to provide an update on the production figures for CNB HZ-5 in the coming weeks.

 

Outlook:

·    Continuing with the balanced delivery of the 2024 capital program, the majority of which will be focused on the Carrizales Norte field and will include additional horizontal wells. 

·    Low risk exploration well planned at the Chorreron prospect. 

·    The remaining 2024 capital program will be self-funded by a combination of cash flow from operations and cash reserves.

 

Marshall Abbott, CEO of Arrow Exploration Corp., commented:

"The horizontal well program at the CNB pad continues to exceed expectations, and the Company now plans to drill two additional horizontal wells before moving to the Chorreron prospect (formerly named Baquiano).  This will result in a total of six horizontal wells at Carrizales Norte in 2024 with additional horizontal wells being planned for 2025.  The Arrow team continues to reduce the time and costs needed to drill horizontal and vertical wells, using internally generated development drilling and completion strategies."

 

"Arrow experienced material growth in production, revenue and earnings in Q2 2024 compared to Q2 2023.  This growth was achieved while preparing for the highly successful horizontal well program at Carrizales Norte.  This included the Q1 and Q2 Carrizales Norte vertical well program to delineate the Ubaque reservoir, as well as preparing pads, roads, oil transportation and water disposal infrastructure." 

 

"Arrow's focus for the remainder of 2024 will be the completion of the six well horizontal well program at Carrizales Norte as well as a low-risk exploration well at the Chorreron prospect. A second rig is being evaluated to begin development drilling at the RCE field towards the end of 2024." 

 

"In 2025, Arrow plans another aggressive capital program focused on production growth and exploration.  Arrow plans to drill low risk exploration wells at Mateguafa Oeste, Capullo, and Mateguafa Attic. The Company is also targeting further horizontal Ubaque and vertical C7 development drilling at Carrizales Norte, and Chorreron, if successful, and the drilling of development vertical wells at Rio Cravo Este in 2025."

 

"This enhanced capital program underlies the prolific setting of the Tapir Block in the Llanos Basin in Colombia. The block displays significant hydrocarbon density in multiple oil-bearing zones down to 10,000 feet total depth."

FINANCIAL AND OPERATING HIGHLIGHTS

 

 

(in United States dollars, except as otherwise noted)

Three months ended June 30, 2024

Six months

ended June 30, 2024

Three months ended June 30, 2023

Total natural gas and crude oil revenues, net of royalties

             15,146,366

             29,551,287

10,280,280

Funds flow from operations (1)

               6,655,696

             13,866,379

3,278,041

Funds flow from operations (1) per share -

 

 


    Basic($)

                        0.02

                        0.05

0.01

    Diluted ($)

                        0.02

                        0.05

0.01

Net income (loss)

               1,247,825

               4,424,551

 (757,416)

Net income (loss) per share -

 

 


   Basic ($)

                        0.00

                        0.02

 (0.00)

   Diluted ($)

                        0.00

                        0.02

 (0.00)

Adjusted EBITDA (1)

               8,884,099

             18,905,240

5,839,960

Weighted average shares outstanding -

 

 


   Basic ($)

285,864,348

285,864,348

230,808,547

   Diluted ($)

292,536,147

292,867,527

295,446,047

Common shares end of period

285,864,348

285,864,348

234,274,893

Capital expenditures

8,965,408

             15,246,736

6,870,258

Cash and cash equivalents

             10,826,380

             10,826,380

10,801,494

Current Assets

             19,975,633

             19,975,633

15,159,322

Current liabilities

             13,318,516

             13,318,516

17,522,710

Adjusted working capital(1)

               6,657,117

               6,657,117

6,341,935

Long-term portion of restricted cash(2)

174,190

174,190

703,683

Total assets

67,864,633

67,864,633

56,305,530

Operating




Natural gas and crude oil production, before royalties




Natural gas (Mcf/d)

926

1,343

2,318

Natural gas liquids (bbl/d)

4

4

3

Crude oil (bbl/d)

2,387

2,409

1,779

Total (boe/d)

2,546

2,638

2,169

 

 

 


Operating netbacks ($/boe) (1)

 

 


Natural gas ($/Mcf)

($1.25)

($0.52)

($0.05)

Crude oil ($/bbl)

$54.54

$55.38

$53.64

Total ($/boe)

$51.21

$50.66

$44.21

 (1)Non-IFRS measures - see "Non-IFRS Measures" section within the MD&A

(2)Long term restricted cash not included in working capital

Discussion of Operating Results

The Company continued increasing its production from new wells at CN which allowed the Company to continue to improve its operating results and EBITDA.  There has been a decrease in the Company's natural gas production in Canada due to shut in of wells and natural declines.

 

Average Production by Property

Average Production Boe/d

Q2 2024

Q1 2024

Q4 2023

Q3 2023

Q2 2023

Q1 2023

Oso Pardo

113

166

80

93

130

138

Ombu (Capella)

-

-

-

-

-

80

Rio Cravo Este (Tapir)

1,283

1,644

1,326

1,443

1,592

1,004

Carrizales Norte (Tapir)

991

622

621

642

57

-

Total Colombia

2,387

2,432

2,027

2,178

1,779

1,222

Fir, Alberta

77

78

80

81

77

74

Pepper, Alberta

82

220

228

259

313

340

TOTAL (Boe/d)

2,546

2,730

2,335

2,518

2,169

1,635

 

The Company's average production for the three months ended June 30, 2024 was 2,546 boe/d, which consisted of crude oil production in Colombia of 2,387 bbl/d, natural gas production of 926 Mcf/d, and minor amounts of natural gas liquids from the Company's Canadian properties. The Company's Q2 2024 production, which only included a few weeks' production from the first horizontal well at Carrizales Norte,  was 7% lower than its Q1 2024 production and 17% higher when compared to Q2 2023.

 

Discussion of Financial Results

During Q2 2024 the Company continued to realize good oil prices, offset by lower gas prices, as summarized below:


Three months ended June 30

2024

2023

Change

Benchmark Prices

 



AECO (C$/Mcf)

$1.20

$2.46

(51%)

Brent ($/bbl)

$83.00

$74.98

11%

West Texas Intermediate ($/bbl)

$80.55

$73.75

9%

Realized Prices

 



Natural gas, net of transportation ($/Mcf)

$0.94

$1.96

(52%)

Natural gas liquids ($/bbl)

$69.96

$55.33

26%

Crude oil, net of transportation ($/bbl)

$72.99

$67.69

8%

Corporate average, net of transport ($/boe)(1)

$69.39

$57.89

20%

   (1)Non-IFRS measure

 

Operating Netbacks

The Company also continued to realize strong oil operating netbacks, as summarized below:

 

Three months ended June 30

 

2024

2023

Natural Gas ($/Mcf)

 


Revenue, net of transportation expense

$0.94

$1.96

Royalties

$0.23

$0.20

Operating expenses

($2.42)

($2.21)

Natural Gas operating netback(1)

($1.25)

($0.05)

Crude oil ($/bbl)

 


Revenue, net of transportation expense

$72.99

$67.69

Royalties

($8.73)

($8.46)

Operating expenses

($9.72)

($5.59)

Crude Oil operating netback(1)

$54.54

$53.64

Corporate ($/boe)

 


Revenue, net of transportation expense

$69.39

$57.89

Royalties

($8.17)

($6.76)

Operating expenses

($10.01)

($6.92)

Corporate Operating netback(1)

$51.21

$44.21

 (1)Non-IFRS measure

The operating netbacks of the Company continued within healthy levels during 2024 due increasing production from its Colombian assets and improved crude oil prices, which were offset by decreases in natural gas prices.

During Q2 2024, the Company incurred $8.9 million of capital expenditures, primarily in connection with the drilling of three additional CN wells in the Tapir block. This accelerated tempo is expected to continue during the remainder of 2024, funded by cash on hand and cashflow.

 

For further Information, contact:

Arrow Exploration


Marshall Abbott, CEO

+1 403 651 5995

Joe McFarlane, CFO

+1 403 818 1033



Canaccord Genuity (Nominated Advisor and Joint Broker)


Henry Fitzgerald-O'Connor

James Asensio

George Grainger                         

+44 (0)20 7523 8000

 

Auctus Advisors (Joint Broker)

 

Jonathan Wright

+44 (0)7711 627449

Rupert Holdsworth Hunt


 

Camarco (Financial PR)


Andrew Turner

+44 (0)20 3781 8331

Rebecca Waterworth


 

 

About Arrow Exploration Corp.

Arrow Exploration Corp. (operating in Colombia via a branch of its 100% owned subsidiary Carrao Energy S.A.) is a publicly traded company with a portfolio of premier Colombian oil assets that are underexploited, under-explored and offer high potential growth. The Company's business plan is to expand oil production from some of Colombia's most active basins, including the Llanos, Middle Magdalena Valley (MMV) and Putumayo Basin. The asset base is predominantly operated with high working interests, and the Brent-linked light oil pricing exposure combines with low royalties to yield attractive potential operating margins. Arrow's 50% interest in the Tapir Block is contingent on the assignment by Ecopetrol SA of such interest to Arrow. Arrow's seasoned team is led by a hands-on executive team supported by an experienced board. Arrow is listed on the AIM market of the London Stock Exchange and on TSX Venture Exchange under the symbol "AXL".

Forward-looking Statements

This news release contains certain statements or disclosures relating to Arrow that are based on the expectations of its management as well as assumptions made by and information currently available to Arrow which may constitute forward-looking statements or information ("forward-looking statements") under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that Arrow anticipates or expects may, could or will occur in the future (in whole or in part) should be considered forward-looking statements. In some cases, forward-looking statements can be identified by the use of the words "continue", "expect", "opportunity", "plan", "potential" and "will" and similar expressions. The forward-looking statements contained in this news release reflect several material factors and expectations and assumptions of Arrow, including without limitation, Arrow's evaluation of the impacts of global pandemics, the potential of Arrow's Colombian and/or Canadian assets (or any of them individually), the prices of oil and/or natural gas, and Arrow's business plan to expand oil and gas production and achieve attractive potential operating margins. Arrow believes the expectations and assumptions reflected in the forward-looking statements are reasonable at this time, but no assurance can be given that these factors, expectations, and assumptions will prove to be correct.

The forward-looking statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The forward-looking statements contained in this news release are made as of the date hereof and the Company undertakes no obligations to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Glossary

Bbl/d or bop/d: Barrels per day

$/Bbl: Dollars per barrel

Mcf/d: Thousand cubic feet of gas per day

Mmcf/d: Million cubic feet of gas per day

$/Mcf: Dollars per thousand cubic feet of gas

Mboe: Thousands of barrels of oil equivalent

Boe/d: Barrels of oil equivalent per day

$/Boe: Dollars per barrel of oil equivalent

MMbbls: Million of barrels

 

BOE's may be misleading particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bblis based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

 

This Announcement contains inside information for the purposes of the UK version of the market abuse regulation (EU No. 596/2014) as it forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018 ("UK MAR").

 

Non‐IFRS Measures

The Company uses non-IFRS measures to evaluate its performance which are measures not defined in IFRS. Working capital, funds flow from operations, realized prices, operating netback, adjusted EBITDA, and net debt as presented do not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. The Company considers these measures as key measures to demonstrate its ability to generate the cash flow necessary to fund future growth through capital investment, and to repay its debt, as the case may be. These measures should not be considered as an alternative to, or more meaningful than net income (loss) or cash provided by operating activities or net loss and comprehensive loss as determined in accordance with IFRS as an indicator of the Company's performance. The Company's determination of these measures may not be comparable to that reported by other companies.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arrow Exploration Corp.

 

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and six months ended June 30, 2024 AND 2023

IN UNITED STATES DOLLARS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

                                               

 



 

Notice of No Auditor Review of the Interim Condensed Consolidated Financial Statements

as at and for the three and six months ended June 30, 2024

 

 

Under National Instrument 51-102, Part 4, subsection 4.3 (3)(a), if an auditor has not performed a review of the interim condensed consolidated financial statements, they must be accompanied by a notice indicating that an auditor has not reviewed the financial statements.

 

The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared by and are the responsibility of the Company's management.

 

The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity's auditor.


Arrow Exploration Corp.

Interim Consolidated Statements of Financial Position

In United States Dollars

(Unaudited)

 

As at

Notes

 

June 30, 2024


December 31, 2023

ASSETS

 

 

 

 


Current assets

 

 

 

 


Cash


$

10,826,380

$

12,135,376

Restricted cash and deposits

3

 

253,132


611,753

Trade and other receivables

4

 

3,948,253


3,536,936

Taxes receivable

5

 

4,588,947


4,655,399

Deposits and prepaid expenses

 

 

312,374


197,402

Inventory

 

 

46,547


492,332


 

 

19,975,633


21,629,198

Non-current assets

 

 

 



Deferred income taxes

 

 

1,832,995


2,031,383

Restricted cash and deposits

3

 

174,190


243,081

Exploration and evaluation assets

6

 

1,059,825


-

Property and equipment

7

 

44,821,990


38,371,361

Total Assets


$

67,864,633

$

62,275,023

 

 

 

 



LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 



Current Liabilities

 

 

 



Accounts payable and accrued liabilities


$

8,418,067

$

9,747,906

Lease obligation

8

 

49,313


103,674

Income taxes

 

 

4,851,136


3,108,504

 

 

 

13,318,516


12,960,084

Non-current liabilities

 

 

 



Lease obligations

8

 

184,072


216,919

Other liabilities

 

 

375,448


345,528

Deferred income taxes

 

 

3,182,607


3,269,894

Decommissioning liability

9

 

4,684,718


3,973,075

Total liabilities

 

 

21,745,361


20,765,500

 

 

 

 



Shareholders' equity

 

 

 



Share capital

10

 

73,829,795

 

73,829,795

Contributed surplus

 

 

2,573,068


2,161,945

Deficit

 

 

(29,521,344)


(33,945,895)

Accumulated other comprehensive loss

 

 

(762,247)


(536,322)

Total shareholders' equity

 

 

46,119,272

 

41,509,523

Total liabilities and shareholders' equity


$

67,864,633

$

62,275,023

 

Commitments and contingencies (Note 11)

 

The accompanying notes are an integral part of these interim consolidated financial statements.

 

On behalf of the Board:

                                                               

 signed "Gage Jull"        Director                                                              signed "Ian Langley"     Director

Gage Jull                                                                                                 Ian Langley

 

 

 

 

 

 

 

Arrow Exploration Corp.

Interim Condensed Consolidated Statements of Operations and Comprehensive Income

In United States Dollars

(Unaudited)

 

 

 

For the three months ended June 30

 

For the six months ended June 30

 

Notes

2024


2023

 

2024


2023


 

 

 


 

 



Revenue

 

 

 


 

 



Oil and natural gas

 

$        17,167,143

 

$   11,637,968

 

$      33,560,785


$   19,602,826

Royalties

 

(2,020,777)

 

(1,357,688)

 

(4,009,498)


(2,329,686)


 

15,146,366

 

10,280,280

 

29,551,287


17,273,140


 

 

 


 

 



Expenses

 

 

 


 

 



Operating

 

2,475,582

 

1,391,490

 

4,544,593


2,509,080

Administrative

 

3,713,577

 

3,247,405

 

6,395,499


4,866,875

Share based payments

10

309,845

 

159,018

 

411,123


291,259

Financing costs:

 

 

 


 

 



Accretion

9

41,363

 

32,139

 

78,739


61,295

Interest

 

7,501

 

61,349

 

17,271


122,237

Other

 

108,773

 

103,172

 

307,837


148,854

Derivative loss

 

-

 

2,436,047

 

-


1,081,772

Foreign exchange (gain) loss

 

161,351

 

(41,141)

 

(127,387)


(81,956)

Depletion and depreciation

7

3,261,894

 

3,640,189

 

6,793,668


6,094,553

Impairment loss

7

1,542,000

 

-

 

1,542,000


-

    Other income

 

(88,243)

 

(157,434)

 

(166,658)


(218,610)


 

11,533,643

 

10,872,234

 

19,796,685


14,875,359

 

 

 

 


 

 



Income (loss) before taxes

 

3,612,723

 

(591,954)

 

9,754,602


2,397,781

 

 

 

 


 

 



Income taxes

 

 

 


 

 



Current

 

2,713,664

 

2,387,868

 

5,218,949


2,387,868

Deferred

 

(348,766)

 

(2,222,406)

 

111,102


(2,222,406)

 

 

2,364,898

 

165,462

 

5,330,051


165,462

 

 

 

 


 

 



Net income (loss) for the period

 

1,247,825

 

(757,416)

 

4,424,551


2,232,319


 

 

 


 

 



Other comprehensive loss

 

 

 


 

 



Foreign exchange

 

(82,608)

 

(93,164)

 

(225,925)


(111,584)

Total other comprehensive loss

 

(82,608)

 

(93,164)

 

(225,925)


(111,584)


 

 

 


 

 



Total comprehensive income (loss) for the period

 

 

$      1,165,217

 

 

$    (850,580)

 

 

$      4,198,626


 

$  2,120,735


 

 

 


 

 



Net income (loss) per share

 

 

 


 

 



- basic

 

$          0.00

 

$         (0.00)

 

$          0.02


$          0.01

- Diluted

 

$          0.00

 

$         (0.00)

 

$          0.02


$          0.01


 

 

 


 

 




 

 

 


 

 



Weighted average shares outstanding

 

 

 


 

 



- basic

 

285,864,348

 

230,808,547

 

285,864,348


226,785,547

- Diluted

 

292,536,147

 

295,446,047

 

292,867,527


294,694,399


 

 

 


 

 




 

 

 


 

 


 


 

 

 


 

 


 

The accompanying notes are an integral part of these interim consolidated financial statements.



 

Arrow Exploration Corp.

Interim Condensed Statements of Changes in Shareholders' Equity

In United States Dollars

(Unaudited)

 

 

 

 

 

 

 

 

Share Capital

 

 

 

 

 

Contributed Surplus

 

 

 

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 Deficit

 

 

 

 

 

 

Total Equity

 












Balance January 1, 2024

$

73,829,795

$

2,161,945

$

(536,322)

$

(33,945,895)

$

41,509,523












Net income for the period


-


-


-


4,424,551


4,424,551












Other comprehensive loss


-


-


(225,925)


-


(225,925)

    Total comprehensive income


-


-


(225,925)


4,424,551


4,198,626












Share-based compensation


-


411,123


-


-


411,123












Balance June 30, 2024

$

73,829,795

$

2,573,068

$

(762,247)

$

(29,521,344)

$

46,119,272












 

 

 

 

 

 

 

 

 

Share Capital

 

 

 

 

 

Contributed Surplus

 

 

 

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 Deficit

 

 

 

 

 

 

Total Equity

 












Balance January 1, 2023

$

57,810,735

$

1,570,491

$

(645,372)

$

(32,839,282)

$

25,896,572












Net income for the period


-


-


-


2,232,319


2,232,319












Othe comprehensive loss


-


-


(111,584)


-


(111,584)

    Total comprehensive income


-


-


(111,584)


2,232,319


2,120,735












Issuances of common shares, net


3,887,661


-


-


-


3,887,661












Share-based compensation


-


291,259


-


-


291,259












Balance June 30, 2023

$

61,698,396

$

1,861,750

$

(756,956)

$

(30,606,963)

$

32,196,227












 

The accompanying notes are an integral part of these interim consolidated financial statements.

 

 

 



Arrow Exploration Corp.

Interim Condensed Consolidated Statements of Cash Flows

In United States Dollars

(Unaudited)

 



For six months ended June 30

Notes

2024

2023

 

Cash flows provided by operating activities

 

 

 

 

Net income

 

$   4,424,551

$   2,232,319

 

Items not involving cash:

 

 


 

 Share based payment

10

411,123

291,259

 

 Deferred income tax

 

111,102

(2,222,406)

 

 Depletion and depreciation

7

6,793,668

6,094,553

 

 Interest on leases

 

17,271

2,954

 

 Interest on promissory note, net of forgiveness

 

-

119,283

 

 Accretion

9

78,739

61,295

 

 Foreign exchange loss (gain)

 

593,659

(138,235)

 

 Loss on derivative liability

 

-

1,081,772

 

 Impairment loss

7

1,542,000

-

 

Changes in non‑cash working capital balances:

 

 


 

Restricted cash

 

427,512

(103,080)

 

Trade and other receivables

 

(411,317)

468,003

 

Taxes receivable

 

66,453

(168,689)

 

Deposits and prepaid expenses

 

(114,972)

(35,548)

 

Inventory

 

445,785

(170,814)

 

Accounts payable and accrued liabilities

 

(305,814)

537,898

 

Income tax payable

 

1,742,632

(675,281)

 

 Settlement of decommissioning obligations

9

(105,734)

(4,150)

 

Cash provided by operating activities

 

15,716,658

7,371,133

 


 

 


 

Cash flows used in investing activities

 

 


 

Additions to exploration and evaluation assets

6

(1,059,825)

(2,849,427)

 

Additions to property and equipment

10

(14,186,910)

(8,292,524)

 

Changes in non-cash working capital

 

(1,024,027)

1,740,101

 

Cash flows used in investing activities

 

(16,270,762)

(9,401,850)

 


 

 


 

Cash flows used in financing activities

 

 


 

Common shares issued

 

-

1,775,003

 

Payment of promissory note

 

-

(2,018,577)

 

Lease payments

8

(55,266)

(23,259)

 

Cash flows used in financing activities

 

(55,266)

(266,833)

 


 

 


 

Effect of changes in the exchange rate on cash

 

(699,627)

38,075

 

 

 

 


 

Decrease in cash

 

(1,308,997)

(2,259,475)

 


 

 


 

Cash, beginning of period

 

12,135,377

13,060,969

 


 

 


 

Cash, end of period

 

10,826,380

10,801,494

 

 

 

 


 

 

 

 


 

Supplemental information

 

 


 

Interest paid

 

 $                     -

 $        415,026

 

Taxes paid

 

 $     1,430,337

 $     1,119,208

 

 

 

 

 

 

The accompanying notes are an integral part of these interim consolidated financial statements.


1.    Corporate Information

 

 

Arrow Exploration Corp. ("Arrow" or "the Company") is a public junior oil and gas company engaged in the acquisition, exploration and development of oil and gas properties in Colombia and in Western Canada. The Company's shares trade on the TSX Venture Exchange and the AIM Market of the London Stock Exchange plc under the symbol AXL. The head office of Arrow is located at 203, 2303 - 4th Street SW, Calgary, Alberta, Canada, T2S 2S7 and the registered office is located at 600, 815 8th Avenue SW, Calgary, Alberta, Canada, T2P 3P2.

 

 

 

2.    Basis of Presentation

 

 

Statement of compliance

These interim condensed consolidated financial statements (the "Financial Statements") have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting. These Financial Statements were authorized for issue by the board of directors of the Company on August 28, 2024. They do not contain all disclosures required by International Financial Reporting Standards ("IFRS") for annual financial statements and, accordingly, should be read in conjunction with the audited consolidated financial statements as at December 31, 2023.

 

These Financial Statements have been prepared on the historical cost basis, except for financial assets and liabilities recorded in accordance with IFRS 9. The Financial Statements have been prepared using the same accounting policies and methods as the consolidated financial statements for the year ended December 31, 2023, except for the adoption of new accounting standards effective January 1, 2024. In preparing these condensed consolidated financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended December 31, 2023.

 

Adoption of New Accounting Standards

The Company adopted amendments to IAS 1 Presentation of Financial Statements, issued by the IASB, related to the presentation of liabilities as current or non-current and classification and disclosure of liabilities with covenants. These amendments were adopted by the Company from January 1, 2024 but they did not have a material impact on the interim consolidated financial statements.

 

 

3.    Restricted Cash and deposits

 

 


 

June 30,

2024


December 31, 2023


 

 



Colombia (i)

$

290,940

$

312,530

Canada (ii)

 

136,382


542,304

Sub-total

 

427,322


854,834

  Long-term portion

 

(174,190)


(243,081)

  Current portion of restricted cash and deposits

$

253,132

$

611,753

 

(i)            This balance is comprised of a deposit held as collateral to guarantee abandonment expenditures related to the Tapir and Santa Isabel blocks.

(ii)            During 2024, the Company was able to recover its $337,031 (CAD $445,749) deposit related to the Company's liability rating management ("LMR"). The remaining $136,382 (2023: $205,273) pertain to other deposits held in Canada.

4.    Trade and other receivables

 

 


 

June 30,

2024


December 31, 2023


 

 



Trade receivables, net of advances

$

2,840,134

$

2,238,918

Other accounts receivable

 

1,108,119


1,298,018


$

3,948,253

$

3,536,936

 

As at June 30, 2024, other accounts receivable include $699,835 (December 31, 2023 - $682,197) receivable from on demand loans with executives and directors.

 

 

5.    Taxes receivable

 

 


 

June 30,

2024


December 31, 2023


 

 



Value-added tax (VAT) credits recoverable

$

1,914,220

$

1,703,260

Income tax withholdings and advances, net

 

2,674,727


2,952,139


$

4,588,947

$

4,655,399

 

The VAT recoverable balance pertains to non-compensated value-added tax credits originated in Colombia as operational and capital expenditures are incurred. The Company is entitled to compensate or claim for the reimbursement of these VAT credits.

 

 

6.    Exploration and Evaluation

 

 


 

June 30,

2024


December 31,

2023


 

 



Balance, beginning of the period

$

-

$

-

Additions, net

 

1,059,825


3,212,808

Reclassification to Property and Equipment (Note 7)

 

-


(3,212,808)

Balance, end of the period

$

1,059,825

$

-

 

During 2024, the Company incurred in exploration and development costs associated to its Baquiano prospect in the Tapir block. During 2023, the Company incurred in geological and geophysical costs in its Carrizales Norte prospect located in its Tapir block, and determined the technical feasibility and commercial viability of these assets, transferring $3,212,808 to its property and equipment.  An impairment test on these assets was prepared and no losses were identified as a result of such tests. 

 

 

 

 

 

 

 

7.    Property and Equipment

 

 

 

Cost

Oil and Gas Properties

Right of Use and Other Assets

 

Total

Balance, December 31, 2022

$ 47,545,026

$     234,156

$     47,779,182

Additions

23,907,357

310,061

24,217,418

Dispositions

(111,151)

-

(111,151)

Transfers from exploration and evaluation assets

3,212,808

-

3,212,808

Decommissioning adjustment

738,825

-

738,825

Balance, December 31, 2023

$ 75,292,865

$     544,217

$     75,837,082

Additions

14,179,895

6,917

14,186,812

Adjustment to ROU assets

-

(53,543)

(53,543)

Decommissioning additions

760,060

-

760,060

Balance, June 30, 2024

$ 90,232,820

$     497,591

$     90,730,411

 

Accumulated depletion and depreciation and impairment

 

 

 

 

Balance, December 31, 2022

$ 13,153,709

$   161,236  

$     13,314,945

 

Depletion and depreciation

12,120,871

65,906

12,186,777

 

Impairment loss of oil and gas properties

11,799,740

-

11,799,740

 

Balance, December 31, 2023

$ 37,074,320

$   227,142

$     37,301,462

 

Depletion and depreciation

6,739,870

53,798

6,793,668

 

Impairment loss

1,542,000

-

1,542,000

 

Balance, June 30, 2024

$ 45,356,190

$   280,940

$     45,637,130

 

 

Foreign exchange




 

Balance December 31, 2022

$      (249,908)     

     $   (8,719)     

$      (258,627)

Effects of movements in foreign

       exchange rates

 

88,671

 

5,697

 

94,368

Balance December 31, 2023

$      (161,237)     

     $   (3,022)     

$      (164,259)

Effects of movements in foreign

       exchange rates

 

(97,584)

 

(9,448)

 

(107,032)

Balance June 30, 2024

$      (258,821)

$ (12,470)

$      (271,088)

 

Net Book Value




Balance December 31, 2023

$     38,057,308

$     314,053

$    37,371,361

Balance June 30, 2024

$     44,617,809

$     204,181

$    45,821,990

 

Canada

As at June 30, 2024, the Company determined there were indicators of impairment in its Canada CGU, mainly due to decreases in current and forward gas prices, and prepared estimates of its fair value less costs of disposal of its Canada CGU. It was determined that carrying value of its Canada CGU exceeded its recoverable amount and, therefore, an impairment loss of $1,542,000 was included in the interim consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2024. The following table outlines forecast benchmark prices and exchange rates used in the Company's impairment test as at June 30, 2024:

 

 

 

 

          

Exchange rate

AECO Spot Gas

Year

$US / $Cdn

C$/MMBtu

2024

0.75

2.24

2025

0.75

2.90

2026

0.75

4.33

2027

0.75

4.34

2028

Thereafter (inflation %)

0.75

4.30

2.0%/yr

 

The recoverable amount was estimated at their fair value less costs of disposal, based on the net present value of the future cash flows from oil and gas reserves as estimated by the Company's independent reserve evaluator at December 31, 2023, updated to reflect changes in prices forecast, and an internal valuation of undeveloped land. The fair value less costs of disposal used to determine the recoverable amounts are classified as Level 3 fair value measurements as certain key assumptions are not based on observable market data but rather, the Company's best estimate. The Company used a 18.3% (2023: 18.3%) pre-tax discount rate, which took into account risks specific to the Canada CGU. The key assumptions in the internal valuation of undeveloped land were the determination of the transactions considered precedent, the discount applied to the Company's lands and the probability of obtaining extensions on related lands. The Company utilized an average value per acre of $89.63 in the impairment test as at June 30, 2024.

 

As at December 31, 2023, the Company determined there were indicators of impairment in its Canada CGU, mainly due to decreases in forward gas prices and revision of reserves, and prepared estimates of its fair value less costs of disposal of its Canada CGU. It was determined that carrying value of its Canada CGU exceeded its recoverable amount and, therefore, an impairment loss of $1,248,400 was included in the consolidated statements of operations and comprehensive income for the year ended December 31, 2023.

 

Colombia

During 2023, the Agencia Nacional de Hidrocarburos ("ANH") approved the suspension of the obligations and operations of the OMBU contract due to force majeure circumstances generated by the blockades and social unrest around the Capella field. The suspension was for an initial term of three months and has been extended until August 2024. The Company determined there were indicators of impairment in the Capella CGU and recorded an impairment loss of $10,551,340 corresponding to the full carrying value of the Capella CGU as at December 31, 2023.

 

 

 

 

8.      Lease Obligations

 

 

A reconciliation of the discounted lease obligation is set forth below:

 

 

 


2024

2023

Obligation, beginning of the period

 


320,593

$         63,751

Additions

 


-

302,930

Changes to leases

 


(53,543)

-

Lease payments

 


(40,461)

(74,211)

Interest

 


17,254

22,011

Effects of movements in foreign exchange rates

 


(10,458)

6,112

Obligation, end of the period

 


233,385

320,593

Current portion

 


(49,313)

(103,674)

Long-term portion

 


184,072

216,919

 

During 2024, the Company recognized the impact of a change in payment terms of its office lease and recognized a decrease in lease liabilities and ROU assets for $ 53,543. As at June 30, 2024, the Company has the following future lease obligations:

 

Less than one year

 


49,313

2 - 5 years

 


269,676

Total lease payments

 


318,989

Amounts representing interest over the term

 


(85,604)

Present value of the net obligation

 


233,385

 

 

9.      Decommissioning Liability

 

 

The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the decommissioning of oil and gas properties:

 

 

June 30,

2024


December 31,

2023

Obligation, beginning of the period

3,973,075


$      3,303,301

Additions

760,060


1,000,889

Change in estimated cash flows

-


(262,066)

Payments or settlements

(105,734)


(19,545)

Dispositions

-


(191,081)

Accretion expense

78,739


127,478

Effects of movements in foreign exchange rates

(21,422)


14,099

 

Obligation, end of the period

4,684,718


3,973,075

 

 

The obligation was calculated using a risk-free discount rate range of 1.25% to 4.50% in Canada (2023: 1.25% to 4.50%) and between 4.00% and 4.29% in Colombia (2022: 4.00% and 4.29%) with an inflation rate of 2.5% and 2.6%, respectively (2023: 2.5% and 2.6%). The majority of costs are expected to occur between 2024 and 2038. The undiscounted amount of cash flows, required over the estimated reserve life of the underlying assets, to settle the obligation, adjusted for inflation, is estimated at $6,396,370 (2023: $5,686,938).

 

 

10.  Share Capital

 

 

(a)   Authorized: Unlimited number of common shares without par value

 

(b)   Issued:

 

June 30, 2024

December 31, 2023

Common shares

Shares

Amounts

Shares

Amounts

Balance beginning of the period

285,864,348

73,829,795

218,401,931

57,810,735

   Issued from warrants exercised

-

-

67,462,417

16,019,060

Balance at end of the period

285,864,348

73,829,795

285,864,348

73,829,795

 

(b)   Stock options:

The Company has a stock option plan that provides for the issuance to its directors, officers, employees and consultants options to purchase a number of non-transferable common shares not exceeding 10% of the common shares that are outstanding.

The exercise price is based on the closing price of the Company's common shares on the day prior to the day of the grant. A summary of the Company stock option plan as at June 30, 2024 and December 31, 2023 and changes during the periods ended on those dates is presented below:

 

 

June 30, 2024

December 31, 2023

Stock Options

Number of options

Weighted average

exercise price

(CAD $)

Number of options

Weighted average

exercise price

(CAD $)

Beginning of period

20,531,668

$0.24

20,590,000

$0.18

Granted

9,843,887

$0.38

$0.27

Expired/Forfeited

-

-

$0.12

Exercised

(3,545,555)

$0.19

(333,332)

$0.11

End of period

26,830,000

$0.29

20,531,668

$0.24

Exercisable, end of period

7,317,220

$0.25

9,879,441

$0.42

 

Date of Grant

Number Outstanding

Exercise Price

(CAD $)

Weighted

Average Remaining Contractual Life

Date of

Expiry

Number

Exercisable

June 30, 2024

October 22, 2018

750,000

$1.15


Oct. 22, 2028

750,000

May 3, 2019

235,000

$0.31


May 3, 2029

235,000

March 20, 2020

1,200,000

$0.05


Mar. 20, 2030

1,200,000

April 13, 2020

1,200,000

$0.05


April 13, 2030

1,200,000

December 13, 2021

5,150,002

$0.13


June 13, 2024 and 2025

2,166,666

June 9, 2022

1,200,001

$0.28


Dec. 9, 2023, 2024 and 2025

433,333

September 7, 2022

833,334

$0.26


Mar. 7, 2024, 2025 and 2026

-

December 21, 2022

4,951,110

$0.28


June 21, 2024, 2025 and 2026

1,298,888

January 23, 2023

466,666

$0.32


July 23, 2024, 2025 and 2026

33,333

September 21, 2023

1,000,000

$0.33


Mar. 21, 2025, 2026 and 2027

-

April 29, 2024

9,843,887

$0.38


Oct.29 2025, 2026 and 2027

-

Total

26,830,000

$0.23

2.38 years

 

7,317,220

 

During the three and six months ended June 30, 2024, the Company recognized $309,845 and $411,123, respectively (2023: $159,018 and $291,259)  as share-based compensation expense, with a corresponding effect in the contributed surplus account.

 

 

11.    Commitments and Contingencies

 

 

Exploration and Production Contracts

The Company has entered into a number of exploration contracts in Colombia which require the Company to fulfill work program commitments and issue financial guarantees related thereto. In aggregate, the Company has outstanding exploration commitments at June 30, 2024 of $12 million. The Company has made an application to the ANH to mutually cancel its COR-39 contract. Presented below are the Company's exploration and production contractual commitments at June 30, 2024:

 

Block

 

Less than 1 year

1-3 years

Thereafter

Total

COR-39


-

12,000,000

-

12,000,000

Total

 

-

 

 

12,000,000

-

12,000,000

Contingencies

From time to time, the Company may be involved in litigation or has claims sought against it in the normal course of business operations.  Management of the Company is not currently aware of any claims or actions that would materially affect the Company's reported financial position or results from operations. Under the terms of certain agreements and the Company's by-laws the Company indemnifies individuals who have acted at the Company's request to be a director and/or officer of the Company, to the extent permitted by law, against any and all damages, liabilities, costs, charges or expenses suffered by or incurred by those individuals.

Letters of Credit

At June 30, 2024, the Company had obligations under Letters of Credit ("LC's") outstanding totaling $2.8 million to guarantee work commitments on exploration blocks and other contractual commitments. In the event the Company fails to secure the renewal of the letters of credit underlying the ANH guarantees, or any of them, the ANH could decide to cancel the underlying exploration and production contract for a particular block, as applicable.

Current Outstanding Letters of Credit







Contract

Beneficiary

Issuer

Type

Amount

(US $)

Renewal Date

SANTA ISABEL

ANH

Carrao Energy

Abandonment

$563,894

April 14, 2025

ANH

Carrao Energy

Financial Capacity

$1,672,162

December 30, 2024

CORE - 39

ANH

Carrao Energy

Compliance

$100,000

December 30, 2024

OMBU

ANH

Carrao Energy

Financial Capacity

$436,300

October 14, 2024

Total

 



$2,772,356

 

 

 

12.    Risk Management

 

 

The Company holds various forms of financial instruments. The nature of these instruments and the Company's operations expose the Company to commodity price, credit and foreign exchange risks. The Company manages its exposure to these risks by operating in a manner that minimizes its exposure to the extent practical.

 

(a)    Commodity price risk

Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in commodity prices.  Lower commodity prices can also impact the Company's ability to raise capital.  Commodity prices for crude oil are impacted by world economic events that dictate the levels of supply and demand.  There were no derivative contracts during 2024.

 

(b)    Credit Risk

Credit risk reflects the risk of loss if counterparties do not fulfill their contractual obligations. The majority of the Company's account receivable balances relate to petroleum and natural gas sales.  The Company's policy is to enter into agreements with customers that are well established and well financed entities in the oil and gas industry such that the level of risk is mitigated. In Colombia, a significant portion of the sales is with a producing company and a commodities trader under existing sale/offtake agreements with prepayment provisions and priced using the Brent benchmark. The Company's trade account receivables primarily relate to sales of crude oil and natural gas, which are normally collected within 25 days (in Canada) and up to 15 days (in Colombia) after the month of production.  Other accounts receivable mainly relate to balances owed by the Company's partner in one of its blocks, and are mainly recoverable through join billings. The Company has historically not experienced any collection issues with its customers and partners.

(c)    Market Risk

Market risk is comprised of two components: foreign currency exchange risk and interest rate risk.

 

i)      Foreign Currency Exchange Risk

The Company operates on an international basis and therefore foreign exchange risk exposures arise from transactions denominated in currencies other than the United States dollar. The Company is exposed to foreign currency fluctuations as it holds cash and incurs expenditures in exploration and evaluation and administrative costs in foreign currencies. The Company incurs expenditures in Canadian dollars, United States dollars, British Pounds and the Colombian peso and is exposed to fluctuations in exchange rates in these currencies. There are no exchange rate contracts in place.

 

ii)       Interest Rate Risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is not currently exposed to interest rate risk.

 

(d)    Liquidity Risk

Liquidity risk includes the risk that, as a result of the Company's operational liquidity requirements:

·      The Company will not have sufficient funds to settle a transaction on the due date;

·      The Company will be forced to sell financial assets at a value which is less than what they are worth; or

·      The Company may be unable to settle or recover a financial asset.

 

The Company's approach to managing its liquidity risk is to ensure, within reasonable means, sufficient liquidity to meet its liabilities when due, under both normal and unusual conditions, without incurring unacceptable losses or jeopardizing the Company's business objectives. The Company prepares annual capital expenditure budgets which are monitored regularly and updated as considered necessary.  Petroleum and natural gas production is monitored daily to provide current cash flow estimates and the Company utilizes authorizations for expenditures on projects to manage capital expenditures. Any funding shortfall may be met in a number of ways, including, but not limited to, the issuance of new debt or equity instruments, further expenditure reductions and/or the introduction of joint venture partners.

 

(e)     Capital Management

The Company's objective is to maintain a capital base sufficient to provide flexibility in the future development of the business and maintain investor, creditor and market confidence.  The Company manages its capital structure and makes adjustments in response to changes in economic conditions and the risk characteristics of the underlying assets. The Company considers its capital structure to include share capital, bank debt (when available), promissory notes and working capital, defined as current assets less current liabilities.  From time to time the Company may issue common shares or other securities, sell assets or adjust its capital spending to manage current and projected debt levels. The Company adjusts its capital structure based on its net debt level.  Net debt is defined as the principal amount of its outstanding debt, less working capital items.  The Company prepares annual budgets, which are updated as necessary including current and forecast crude oil prices, changes in capital structure, execution of the Company's business plan and general industry conditions.  The annual budget is approved by the Board of Directors. The Company's capital includes the following:

 


June 30, 2024

December 31, 2023

Working capital

$        6,657,117       

 $        8,669,114       

 

 

 

 

 

13.    Segmented Information

 

 

The Company has two reportable operating segments: Colombia and Canada. The Company, through its operating segments, is engaged primarily in oil exploration, development and production, and the acquisition of oil and gas properties. The Canada segment is also considered the corporate segment. The following tables show information regarding the Company's segments for the three and six months ended and as at June 30:

 

Three months ended June 30, 2024


Colombia

 

Canada

 

Total

 

Revenue:







 

Oil Sales

$

17,062,022

$

                          -  

$

        17,062,022

Natural gas and liquid sales


-  


105,121


              105,121

Royalties


(2,040,580)


              19,803


 (2,020,777)

Expenses


(6,258,927)


(3,732,716)


 (9,991,643)

Impairment loss


-  


 (1,542,000)


 (1,542,000)

Income taxes


(2,364,898)


                          -  


 (2,364,898)

Net income (loss)

$

6,397,617

$

        (5,149,792)

$

           1,247,825

 


 

 

 

 

 

 

Six months ended June 30, 2024


Colombia

 

Canada

 

Total

 

Revenue:







 

Oil Sales

$

33,129,313

$

                          -  

$

        33,129,313

Natural gas and liquid sales


-  


              431,472


              431,472

Royalties


(4,012,959)


 3,461


 (4,009,498)

Expenses


(11,845,635)


 (6,409,050)


        (18,254,685)

Impairment loss


-  


 (1,542,000)


 (1,542,000)

Income taxes


(5,330,051)


-


(5,330,051)

Net income (loss)

$

11,940,668

$

(7,516,117)                            

$

           4,424,551

 

As at June 30, 2024

 

Colombia

 

Canada

 

Total

Current assets

$

17,499,989

$

2,475,644

$

19,975,633

Non-current:

 

 

 

 

 

 

Deferred income taxes


1,832,995


                          -  


1,832,995

Restricted cash


37,808


136,382


174,190

Exploration and evaluation


1,059,825


                          -  


1,059,825

Property, plant and equipment


43,859,733


962,257


44,821,990

Total Assets

$

64,290,350

$

3,574,283

  $

67,864,633

 

 


 


 


Current liabilities

$

11,487,165

$

1,831,351

$

13,318,516

Non-current liabilities:







Deferred income taxes


3,182,607


                          -  


3,182,607

Other liabilities


375,448


                          -  


375,448

Lease obligation


                         -  


184,072


184,072

Decommissioning liability


4,147,564


537,154


4,684,718

Total liabilities

$

19,192,784

$

2,552,577

$

21,745,361

 

 

Three months ended June 30, 2023


Colombia


Canada


Total








Revenue:







Oil Sales

$

11,206,886

$

-

$

11,206,886

Natural gas and liquid sales


-


431,082


431,082

Royalties


(1,399,621)


41,933


(1,357,688)

Expenses


(5,270,072)


(5,502,162)


(10,872,234)

Income taxes


(165,462)


-


(165,462)

Net income (loss)

$

4,371,731

$

(5,129,147)

$

(757,416)















Six months ended June 30, 2023


Colombia


Canada


Total








Revenue:







Oil Sales

$

18,680,723

$

-

$

18,680,723

Natural gas and liquid sales


-


922,103


922,103

Royalties


(2,328,654)


(1,032)


(2,329,686)

Expenses


(8,460,388)


(6,414,971)


(14,875,359)

Income taxes


(165,462)


-


(165,462)

Net income (loss)

$

7,726,219

$

(5,493,900)

$

2,232,319

As at June 30, 2023


Colombia


Canada


Total








Current assets

$

13,847,131

$

1,312,191

$

15,159,322

Non-current:







Deferred income taxes


533,558


                          -  


533,558

Restricted cash


37,808


665,875


703,683

Exploration and evaluation


2,849,427


                          -  


2,849,427

Property, plant and equipment


32,495,634


4,563,906


37,059,540

Total Assets

$

49,763,558

$

6,541,972

$

56,305,530








Current liabilities

$

8,150,721

$

9,371,989

$

17,522,710

Non-current liabilities:







Deferred income taxes


2,505,549


                          -  


2,505,549

Other liabilities


264,881


                          -  


264,881

Lease obligation


-  


171,517


171,517

Decommissioning liability


3,080,832


563,814


3,644,646

Total liabilities

$

14,001,983

$

10,107,320

$

24,109,303

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arrow Exploration Corp.

 

MANAGEMENT's DISCUSSION AND ANALYSIS

THREE AND SIX MONTHS ENDED JUNE 30, 2024

 

 

 

 

 

 

 


MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") as provided by the management of Arrow Exploration Corp. ("Arrow" or the "Company"), is dated as of August 28, 2024 and should be read in conjunction with Arrow's interim condensed (unaudited) consolidated financial statements and related notes as at and for the three and six months ended June 30, 2024 and 2023. Additional information relating to Arrow, including its annual consolidated financial statements and related notes for the year ended December 31, 2023 and 2022 (the "Annual Financial Statements"), is available under Arrow's profile on www.sedar.com.

Advisories

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), and all amounts herein are expressed in United States dollars, unless otherwise noted, and all tabular amounts are expressed in United States dollars, unless otherwise noted.  Additional information for the Company may be found on SEDAR at www.sedar.com

Advisory Regarding Forward‐Looking Statements

This MD&A contains certain statements or disclosures relating to Arrow that are based on the expectations of its management as well as assumptions made by and information currently available to Arrow which may constitute forward-looking statements or information ("forward-looking statements") under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that Arrow anticipates or expects may, could or will occur in the future (in whole or in part) should be considered forward-looking statements. In some cases, forward-looking statements can be identified by the use of the words "believe", "continue", "could", "expect", "likely", "may", "outlook", "plan", "potential", "will", "would" and similar expressions. In particular, but without limiting the foregoing, this MD&A contains forward-looking statements pertaining to the following: global pandemics and their impact; tax liability; capital management strategy; capital structure; credit facilities and other debt; performance by Canacol (as defined herein) and the Company in connection with the Note (as defined herein) and letters of credit; Arrow's costless collar structure; cost reduction initiatives; potential drilling on the Tapir block; capital requirements; expenditures associated with asset retirement obligations; future drilling activity and the development of the Rio Cravo Este structure on the Tapir Block. Statements relating to "reserves" and "resources" are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future.

The forward-looking statements contained in this MD&A reflect several material factors and expectations and assumptions of Arrow including, without limitation: current and anticipated commodity prices and royalty regimes; the impact of the global pandemics; the financial impact of Arrow's costless collar structure; availability of skilled labour; timing and amount of capital expenditures; future exchange rates; commodity prices; the impact of increasing competition; general economic conditions; availability of drilling and related equipment; receipt of partner, regulatory and community approvals; royalty rates; changes in income tax laws or changes in tax laws and incentive programs; future operating costs; effects of regulation by governmental agencies; uninterrupted access to areas of Arrow's operations and infrastructure; recoverability of reserves; future production rates; timing of drilling and completion of wells; pipeline capacity; that Arrow will have sufficient cash flow, debt or equity sources or other financial resources required to fund its capital and operating expenditures and requirements as needed; that Arrow's conduct and results of operations will be consistent with its expectations; that Arrow will have the ability to develop its oil and gas properties in the manner currently contemplated; current or, where applicable, proposed industry conditions, laws and regulations will continue in effect or as anticipated; that the estimates of Arrow's reserves and production volumes and the assumptions related thereto (including commodity prices and development costs) are accurate in all material respects; that Arrow will be able to obtain contract extensions or fulfil the contractual obligations required to retain its rights to explore, develop and exploit any of its undeveloped properties; and other matters.

Arrow believes the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct. The forward-looking statements included in this MD&A are not guarantees of future performance and should not be unduly relied upon.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements including, without limitation: the impact of general economic conditions; volatility in commodity prices; industry conditions including changes in laws and regulations including adoption of new environmental laws and regulations, and changes in how they are interpreted and enforced; competition; lack of availability of qualified personnel; the results of exploration and development drilling and related activities; obtaining required approvals of regulatory authorities; counterparty risk; risks associated with negotiating with foreign governments as well as country risk associated with conducting international activities; commodity price volatility; fluctuations in foreign exchange or interest rates; environmental risks; changes in income tax laws or changes in tax laws and incentive programs; changes to pipeline capacity; ability to secure a credit facility; ability to access sufficient capital from internal and external sources; risk that Arrow's evaluation of its existing portfolio of development and exploration opportunities is not consistent with future results; that production may not necessarily be indicative of long term performance or of ultimate recovery; and certain other risks detailed from time to time in Arrow's public disclosure documents including, without limitation, those risks identified in Arrow's 2018 AIF, a copy of which is available on Arrow's SEDAR profile at www.sedar.com. Readers are cautioned that the foregoing list of factors is not exhaustive and are cautioned not to place undue reliance on these forward-looking statements. 

Non‐IFRS Measures

The Company uses non-IFRS measures to evaluate its performance which are measures not defined in IFRS. Working capital, funds flow from operations, realized prices, operating netback, adjusted EBITDA, and net debt as presented do not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. The Company considers these measures as key measures to demonstrate its ability to generate the cash flow necessary to fund future growth through capital investment, and to repay its debt, as the case may be. These measures should not be considered as an alternative to, or more meaningful than net income or cash provided by (used in) operating activities or net income and comprehensive income as determined in accordance with IFRS as an indicator of the Company's performance. The Company's determination of these measures may not be comparable to that reported by other companies.

Adjusted working capital is calculated as current assets minus current liabilities, excluding non-cash liabilities; funds from operations is calculated as cash flows provided by operating activities adjusted to exclude changes in non-cash working capital balances; realized price is calculated by dividing gross revenue by gross production, by product, in the applicable period; operating netback is calculated as total natural gas and crude revenues minus royalties, transportation costs and operating expenditures; adjusted EBITDA is calculated as net income adjusted for interest, income taxes, depreciation, depletion, amortization and other similar non-recurring or non-cash charges; and net debt (net cash) is defined as the principal amount of its outstanding debt, less working capital items excluding non-cash liabilities. 

The Company also presents funds from operations per share, whereby per share amounts are calculated using weighted- average shares outstanding consistent with the calculation of net income per share.

A reconciliation of the non-IFRS measures is included as follows:

 

 

(in United States dollars)

Three months ended June 30, 2024

Six months ended June 30, 2024

Three months ended June 30, 2023

Six months ended June 30, 2023

Net income (loss)

1,770,825

4,947,551

 (757,416)

2,232,319

Add/(subtract):

 

 



   Share based payments

309,845

411,123

159,018

291,258

   Financing costs:

 

 



      Accretion on decommissioning obligations

41,363

78,739

32,139

61,295

      Interest

                      7,501

17,271

61,349

122,237

      Other

108,773

307,837

103,172

148,854

   Depreciation and depletion

2,738,894

6,270,668

3,640,189

6,094,553

   Derivative loss

                            -  

-  

2,436,047

1,081,772

   Impairment loss

1,542,000

1,542,000

-

-  

   Income taxes, current and deferred

2,364,898

5,330,051

165,462

165,462

Adjusted EBITDA (1)

8,884,099

18,905,240

5,839,960

10,197,750


 




Cash flows provided by operating activities

7,134,370

15,716,658

4,990,938

7,371,133

Minus - Changes in non‑cash working capital balances:

 

 



Trade and other receivables

710,871

411,317

1,236,941

 (468,003)

Restricted cash

 (83,766)

 (427,512)

90,814

103,080

Taxes receivable

 (230,531)

 (66,453)

 (433,680)

168,689

Deposits and prepaid expenses

 (37,991)

114,972

 (78,064)

35,548

Inventory

 (445,693)

 (445,785)

53,016

170,814

Accounts payable and accrued liabilities

                      8,603

305,814

 (3,020,563)

 (537,898)

Income taxes

 (400,167)

 (1,742,632)

438,639

675,281

Funds flow from operations (1)

6,655,696

13,866,379

3,278,041

7,518,644

 

(1)Non-IFRS measures

 

The term barrel of oil equivalent ("boe") is used in this MD&A.  Boe may be misleading, particularly if used in isolation.  A boe conversion ratio of 6 thousand cubic feet ("Mcf") of natural gas to one barrel of oil ("bbl") is used in the MD&A. This conversion ratio of 6:1 is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

FINANCIAL AND OPERATING HIGHLIGHTS

 

 

(in United States dollars, except as otherwise noted)

Three months ended June 30, 2024

Six months

ended June 30, 2024

Three months ended June 30, 2023

Total natural gas and crude oil revenues, net of royalties

             15,146,366

             29,551,287

10,280,280


 

 


Funds flow from operations (1)

               6,655,696

             13,866,379

3,278,041

Funds flow from operations (1) per share -

 

 


    Basic($)

                        0.02

                        0.05

0.01

    Diluted ($)

                        0.02

                        0.05

0.01

Net income (loss)

               1,247,825

               4,424,551

 (757,416)

Net income (loss) per share -

 

 


   Basic ($)

                        0.00

                        0.02

 (0.00)

   Diluted ($)

                        0.00

                        0.02

 (0.00)

Adjusted EBITDA (1)

               8,884,099

             18,905,240

5,839,960

Weighted average shares outstanding -

 

 


   Basic ($)

285,864,348

285,864,348

230,808,547

   Diluted ($)

292,536,147

292,867,527

295,446,047

Common shares end of period

285,864,348

285,864,348

234,274,893

Capital expenditures

8,965,408

             15,246,736

6,870,258

Cash and cash equivalents

             10,826,380

             10,826,380

10,801,494

Current Assets

             19,975,633

             19,975,633

15,159,322

Current liabilities

             13,318,516

             13,318,516

17,522,710

Adjusted working capital(1)

               6,657,117

               6,657,117

6,341,935

Long-term portion of restricted cash(2)

174,190

174,190

703,683

Total assets

67,864,633

67,864,633

56,305,530





Operating








Natural gas and crude oil production, before royalties




Natural gas (Mcf/d)

926

1,343

2,318

Natural gas liquids (bbl/d)

4

4

3

Crude oil (bbl/d)

2,387

2,409

1,779

Total (boe/d)

2,546

2,638

2,169

 

 

 


Operating netbacks ($/boe) (1)

 

 


Natural gas ($/Mcf)

($1.25)

($0.52)

($0.05)

Crude oil ($/bbl)

$54.54

$55.38

$53.64

Total ($/boe)

$51.21

$50.66

$44.21

 

(1)Non-IFRS measures - see "Non-IFRS Measures" section within this MD&A

(2)Long term restricted cash not included in working capital

 

The Company

Arrow is a junior oil and gas company engaged in the acquisition, exploration and development of oil and gas properties in Colombia and Western Canada. The Company's shares trade on the TSX Venture Exchange and the London AIM exchange under the symbol AXL.

The Company and Arrow Exploration Ltd. entered into an arrangement agreement dated June 1, 2018, as amended, whereby the parties completed a business combination pursuant to a plan of arrangement under the Business Corporations Act (Alberta) ("ABCA") on September 28, 2018. Arrow Exploration Ltd. and Front Range's then wholly-owned subsidiary, 2118295 Alberta Ltd., were amalgamated to form Arrow Holdings Ltd., a wholly-owned subsidiary of the Company (the "Arrangement"). On May 31, 2018, Arrow Exploration Ltd. entered in a share purchase agreement, as amended, with Canacol Energy Ltd. ("Canacol"), to acquire Canacol's Colombian oil properties held by its wholly-owned subsidiary Carrao Energy S.A. ("Carrao"). On September 27, 2018, Arrow Exploration Ltd. closed the agreement with Canacol.

On May 31, 2018, Arrow Exploration Ltd., entered into a purchase and sale agreement to acquire a 50% beneficial interest in a contract entered into with Ecopetrol S.A. pertaining to the exploration and production of hydrocarbons in the Tapir block from Samaria Exploration & Production S.A. ("Samaria"). On September 27, 2018, Arrow Exploration Ltd. closed the agreement with Samaria. As at June 30, 2024 the Company held an interest in four oil blocks in Colombia and oil and natural gas leases in five areas in Canada as follows:

 

 

 

Gross Acres

Working Interest

Net Acres

COLOMBIA





Tapir

Operated1

65,125

50%

32,563

Oso Pardo

Operated

672

100%

672

Ombu

Non-operated

56,482

10%

5,648

COR-39

Operated

95,111

100%

95,111

Total Colombia

 

217,390

 

133,994

CANADA





Ansell

Operated

640

100%

640

Fir

Non operated

7,680

32%

2,458

Penhold

Non-operated

480

13%

61

Pepper

Operated

19,200

100%

19,200

Wapiti

Non-operated

1,280

13%

160

Total Canada

 

29,280

 

22,519

TOTAL

 

246,670

 

156,513

The Company's primary producing assets are located in Colombia in the Tapir, Oso Pardo and Ombu blocks, with natural gas production in Canada at Fir and Pepper, Alberta.

 

Llanos Basin

Within the Llanos Basin, the Company is engaged in the exploration, development and production of oil within the Tapir block. In the Llanos Basin most oil accumulations are associated with three-way dip closure against NNE-SSW trending normal faults and can have pay within multiple reservoirs. The Tapir block contain large areas not yet covered by 3D seismic, and in Management's opinion offer substantial exploration upside. 

1The Company's interest in the Tapir block is held through a private contract with Petrolco, who holds a 50% participating interest in, and is the named operator of, the Tapir contract with Ecopetrol. The formal assignment to the Company is subject to Ecopetrol's consent. The Company is the de facto operator pursuant to certain agreements with Petrolco (details of which are set out in Paragraph 16.13 of the Company's AIM Admission Document dated October 20, 2021).

Middle Magdalena Valley ("MMV") Basin

Oso Pardo Field

The Oso Pardo Field is located in the Santa Isabel Block in the MMV Basin.  It is a 100% owned property operated by the Company.  The Oso Pardo field is located within a Production Licence covering 672 acres. Three wells have been drilled to date within the licensed area.

Ombu E&P Contract - Capella Conventional Heavy Oil Discovery

The Caguan Basin covers an area of approximately 60,000 km2 and lies between the Putumayo and Llanos Basins. The primary reservoir target is the Upper Eocene aged Mirador formation. The Capella structure is a large, elongated northeast-southwest fault-related anticline, with approximately 17,500 acres in closure at the Mirador level. The field is located approximately 250 km away from the nearest offloading station at Neiva, where production from Capella is trucked.

The Capella No. 1 discovery well was drilled in July 2008 and was followed by a series of development wells. The Company earned a 10% working interest in the Ombu E&P Contract by paying 100% of all activities associated with the drilling, completion, and testing of the Capella No. 1 well. The Capella field is currently suspended and temporarily shut in.

Fir, Alberta

The Company has an average non-operated 32% WI in 12 gross (3.84 net) sections of oil and natural gas rights and 17 gross (4.5 net) producing natural gas wells at Fir. The wells produce raw natural gas into the Cecilia natural gas plant where it is processed.

Pepper, Alberta

The Company holds a 100% operated WI in 37 sections of Montney P&NG rights on its Pepper asset in West Central Alberta. The 6-26-53-23W5M Montney gas well (West Pepper) is tied into the Galloway gas plant for processing. The 3-21-52-22W5M Montney gas well (East Pepper) is currently tied into the Sundance gas plant for processing. The majority of lands have tenure extending into 2025. Both West Pepper and East Pepper wells are currently shut in due to current low natural gas prices in Canada.

Three months ended June 30, 2024 Financial and Operational Highlights

·      Arrow recorded $15,146,366 in revenues, net of royalties, on crude oil sales of 233,757 bbls, 370 bbls of natural gas liquids ("NGL's") and 84,269 Mcf of natural gas sales;

·      Funds flow from operations of $6,655,696;

·      Net income of $1,247,825 and adjusted EBITDA was $8,884,099;

·      Drilled three wells (two development and one water injector) at its Carrizales Norte field

 

Results of Operations

The Company increased its production from its new wells at its Carrizales Norte field in the Tapir block. These have allowed the Company to continue to improve its operating results and EBITDA.  There has also been a decrease in the Company's natural gas production in Canada due to shut ins in some wells and natural declines.

 

Average Production by Property

Average Production Boe/d

Q2 2024

Q1 2024

Q4 2023

Q3 2023

Q2 2023

Q1 2023

Oso Pardo

113

166

80

93

130

138

Ombu (Capella)

-

-

-

-

-

80

Rio Cravo Este (Tapir)

1,283

1,644

1,326

1,443

1,592

1,004

Carrizales Norte (Tapir)

991

622

621

642

57

-

Total Colombia

2,387

2,432

2,027

2,178

1,779

1,222

Fir, Alberta

77

78

80

81

77

74

Pepper, Alberta

82

220

228

259

313

340

TOTAL (Boe/d)

2,546

2,730

2,335

2,518

2,169

1,635

The Company's average production for the three months ended June 30, 2024 was 2,546 boe/d, which consisted of crude oil production in Colombia of 2,387 bbl/d, natural gas production of 926 Mcf/d, and minor amounts of natural gas liquids from the Company's Canadian properties. The Company's Q2 2024 production was 7% lower than its Q1 2024 production and 17% higher when compared to Q2 2023.

Average Daily Natural Gas and Oil Production and Sales Volumes

 

 

Three months ended

June 30

Six months ended

June 30

2024

2023

2024

2023

 

Natural Gas (Mcf/d)

 


 


 

Natural gas production

926

2,318

1,343

2,388

 

Natural gas sales

926

2,318

1,343

2,388

 

Realized Contractual Natural Gas Sales

926

2,318

1,343

2,388

 

Crude Oil (bbl/d)





 

Crude oil production

2,387

1,779

2,409

1,502

 

Inventory movements and other

181

 40

93

 (24)

 

Crude Oil Sales

 2,569

1,819

2,502

1,478

 

Corporate





 

Natural gas production (boe/d)

155

386

224

398

 

Natural gas liquids(bbl/d)

4

4

4

4

 

Crude oil production (bbl/d)

2,387

1,779

2,409

1,502

 

Total production (boe/d)

2,546

2,169

2,638

1,904

 

Inventory movements and other (boe/d)

181

40

93

 (24)

 

Total Corporate Sales (boe/d)

 2,728

2,209

2,731

1,880

 

During the three and six months ended June 30, 2024 the majority of production was attributed to Colombia, where most of Company's blocks were producing. The volumes reported as inventory movements correspond to the sale of 18,990 barrels of oil that were stored at the non-operated Capella field in the OMBU block.

 

Natural Gas and Oil Revenues


Three months ended

June 30

Six months ended

June 30

2024

2023

2024

2023

 

Natural Gas





 

Natural gas revenues

79,226

413,632

379,450

881,508

 

NGL revenues

25,894

17,450

52,022

40,595

 

Royalties

19,803

41,933

3,461

 (1,032)

 

Revenues, net of royalties

124,924

473,015

434,933

921,071

 

Oil





 

Oil revenues

17,062,022

11,206,886

33,129,313

18,680,723

 

Royalties

 (2,040,580)

 (1,399,621)

 (4,012,959)

 (2,328,654)

 

Revenues, net of royalties

15,021,442

9,807,265

29,116,354

16,352,069

 

Corporate





 

Natural gas revenues

79,226

413,632

379,450

881,508

 

NGL revenues

25,894

17,450

52,022

40,595

 

Oil revenues

17,062,022

11,206,886

33,129,313

18,680,723

 

Total revenues

17,167,143

11,637,968

33,560,785

19,602,826

 

Royalties

 (2,020,777)

 (1,357,688)

 (4,009,498)

 (2,329,686)

 

Natural gas and crude oil revenues, net of royalties

15,146,366

10,280,280

29,551,287

17,273,140

 

Natural gas and crude oil revenues, net of royalties, for the three and six months ended June 30, 2024 were $15,145,366 and $29,551,287, respectively (2023: $10,280,280 and $17,273,140), which represents an increase of 47% and 71%, respectively, when compared to the same 2023 periods, and 5% higher than Q1 2024. These significant increases are mainly due to increased oil production in Colombia, offset by decrease in revenue in Canada.

Average Benchmark and Realized Prices 


Three months ended June 30

Six months ended June 30

2024

2023

Change

2024

2023

Change

Benchmark Prices

 



 



AECO (C$/Mcf)

$1.20

$2.46

(51%)

$1.87

$2.85

(34%)

Brent ($/bbl)

$83.00

$74.98

11%

$83.84

$77.10

9%

West Texas Intermediate ($/bbl)

$80.55

$73.75

9%

$78.75

$74.90

5%

Realized Prices

 



 



Natural gas, net of transportation ($/Mcf)

$0.94

$1.96

(52%)

$1.55

$2.04

(24%)

Natural gas liquids ($/bbl)

$69.96

$55.33

26%

$68.02

$61.01

11%

Crude oil, net of transportation ($/bbl)

$72.99

$67.69

8%

$73.15

$69.83

5%

Corporate average, net of transport ($/boe)(1)

$69.39

$57.89

20%

$67.99

$57.62

18%

(1)Non-IFRS measure

The Company realized prices of $69.39 and $67.99 per boe during the three and six months ended June 30, 2024, respectively (2023: $57.89 and $57.62), due to increased in oil prices during 2024, partially offset by natural gas prices which decreased during this period.

Operating Expenses


Three months ended June 30

Six months ended June 30

2024

2023

2024

2023

Natural gas & NGL's

 204,106

465,154

510,330

982,807

Crude oil

2,271,476

926,336

4,034,263

1,526,273

 Total operating expenses

2,475,582

1,391,490

4,544,593

2,509,080

Natural gas ($/Mcf)

$2.42

$2.21

$2.09

$2.27

Crude oil ($/bbl)

$9.72

$5.59

$8.91

$5.71

Corporate ($/boe)(1)

$10.01

$6.92

$9.21

$7.37

(1)Non-IFRS measure

During the three and six months ended June 30, 2024, Arrow incurred operating expenses of $2,475,582 and $4,544,593, respectively (2023: $1,391,490 and $2,509,080). This increase in operating costs is mainly due to increased production in the Company's Carrizales Norte field, including production of heavier oil, and $464,900 of additional operating costs corresponding to the Capella inventory volumes sold during Q2 2024.

Operating Netbacks

 

Three months ended June 30

Six months ended June 30

 

2024

2023

2024

2023

Natural Gas ($/Mcf)

 




Revenue, net of transportation expense

$0.94

$1.96

$1.55

$2.03

Royalties

$0.23

$0.20

$0.01

($0.00)

Operating expenses

($2.42)

($2.21)

($2.09)

($2.27)

Natural Gas operating netback(1)

($1.25)

($0.05)

($0.52)

($0.24)

Crude oil ($/bbl)

 




Revenue, net of transportation expense

$72.99

$67.69

$73.15

$69.83

Royalties

($8.73)

($8.46)

($8.86)

($8.70)

Operating expenses

($9.72)

($5.59)

($8.91)

($5.71)

Crude Oil operating netback(1)

$54.54

$53.64

$55.38

$55.42

Corporate ($/boe)

 




Revenue, net of transportation expense

$69.39

$57.89

$67.99

$57.62

Royalties

($8.17)

($6.76)

($8.12)

($6.85)

Operating expenses

($10.01)

($6.92)

($9.21)

($7.37)

Corporate Operating netback(1)

$51.21

$44.21

$50.66

$43.40

  (1)Non-IFRS measure

The operating netbacks of the Company continued within healthy levels during 2024 due increasing production from its Colombian assets and improved crude oil prices, which were offset by decreases in natural gas prices.

 

General and Administrative Expenses (G&A)

 

Three months ended June 30

Six months ended June 30

 

2024

2023

2024

2023

General & administrative expenses

3,875,274

3,437,678

6,812,387

5,190,625

G&A recovered from 3rd parties

 (161,697)

 (189,551)

 (416,888)

 (323,750)

Total G&A

3,713,577

3,248,127

6,395,499

4,866,875

Cost per boe

$15.01

$23.34

$12.96

$14.31

For the three and six months ended June 30, 2024, G&A expenses before recoveries totaled $3,875,274 and $6,812,387, respectively (2023: $3,437,678 and $5,190,625). This increase is mainly due to additional personnel and payment of performance bonuses to employees. Despite these increased expenses, due to the Company's increased production, G&A expenses were reduced, on a per barrel basis, when compared to 2023.

Share-based Compensation

 

Three months ended June 30

Six months ended June 30

 

2024

2023

2024

2023

Share-based Payments

309,845

159,018

411,123

291,259

Share-based compensation expense for the three and six months ended June 30, 2024 totaled $309,845 and $411,123, respectively (2023: $159,018 and $291,259). During Q2 2024, the Company granted 9,843,887 new options to its personnel and Directors, which has caused an increase in the shared-based payments expenses for 2024.

Financing Costs

 

Three months ended June 30

Six months ended June 30

 

2024

2023

2024

2023

Financing expense paid or payable

116,274

164,521

325,108

271,091

Non-cash financing costs

41,363

32,139

78,739

61,295

Net financing costs

157,637

196,660

403,847

332,386

The finance expense for 2024 is mostly related to financial transactions tax paid in Colombia. Finance expense for 2023 is  mostly related to interest on the promissory note due to Canacol. The non-cash finance cost represents an increase in the present value of the decommissioning obligation for the current periods. The amount of this expense will fluctuate commensurate with the asset retirement obligation as new wells are drilled or properties are acquired or disposed.

Depletion and Depreciation

 

Three months ended

June 30

Six months ended

June 30

 

2024

2023

2024

2023

Depletion and depreciation

3,261,894

3,640,189

6,793,668

6,094,553

Depletion and depreciation expense for the three and six months ended June 30, 2024 totaled $3,261,894 and $6,793,668, respectively (2023: $3,640,189 and $6,094,553). The increase is due to higher carrying value of depletable property and equipment and increased production. The Company uses the unit of production method and proved plus probable reserves to calculate its depletion and depreciation expense.

Impairment loss

 

Three months ended June 30

Six months ended June 30

 

2024

2023

2024

2023

Impairment loss

1,542,000

-

1,542,000

-

As at June 30, 2024, the Company reviewed its cash-generating units ("CGU") for property and equipment and determined that there were indicators of impairment loss in its Canada CGU and recognized a loss of $1,542,000. This impairment loss was mainly caused by decreases in the forecast prices of natural gas.

LIQUIDITY AND CAPITAL RESOURCES

Capital Management

The Company's objective is to maintain a capital base sufficient to provide flexibility in the future development of the business and maintain investor, creditor and market confidence.  The Company manages its capital structure and makes adjustments in response to changes in economic conditions and the risk characteristics of the underlying assets. The Company considers its capital structure to include share capital, debt and adjusted working capital. In order to maintain or adjust the capital structure, from time to time the Company may issue common shares or other securities, sell assets or adjust its capital spending to manage current and projected debt levels.

As at June 30, 2024 the Company has a working capital of $6,657,117. The Company has maintained a healthy working capital, using its operational cash flows to settle its obligations and to continue growing its operations. The stability in energy commodity prices has allowed the Company's capacity to generate sufficient financial resources to sustain its operations and growth. As at June 30, 2024 the Company's net debt (net cash) was calculated as follows:

 

 

 

June 30, 2024


 

 



Current assets

 

 

$

19,975,633

Less:

 

 



Accounts payable and accrued liabilities

 

 


8,418,067

Income taxes payable

 

 


4,851,136

Net debt (Net cash) (1)

 

 

$

(6,706,430)

(1)Non-IFRS measure

Working Capital

As at June 30, 2024 the Company's adjusted working capital was calculated as follows:

 

 

June 30, 2024

Current assets:

 

 



   Cash

 

 

$

10,826,380

   Restricted cash and deposits

 

 


253,132

   Trade and other receivables

 

 


3,948,253

   Taxes receivable

 

 


4,588,947

   Other current assets

 

 


358,921


 

 



Less:

 

 



  Accounts payable and accrued liabilities

 

 


8,418,067

  Lease obligation

 

 


49,313

   Income tax payable

 

 

 

4,851,136

Working capital(1)

 

 

$

6,657,117

(1)Non-IFRS measure

Debt Capital

As at June 30, 2024 the Company does not have any outstanding debt balance.

Letters of Credit

As at June 30, 2024, the Company had obligations under Letters of Credit ("LC's") outstanding totaling $2.8 million to guarantee work commitments on exploration blocks and other contractual commitments. In the event the Company fails to secure the renewal of the letters of credit underlying the ANH guarantees, or any of them, the ANH could decide to cancel the underlying exploration and production contract for a particular block, as applicable.

Current Outstanding Letters of Credit







Contract

Beneficiary

Issuer

Type

Amount

(US $)

Renewal Date

SANTA ISABEL

ANH

Carrao Energy

Abandonment

$563,894

April 14, 2025

ANH

Carrao Energy

Financial Capacity

$1,672,162

December 30, 2024

CORE - 39

ANH

Carrao Energy

Compliance

$100,000

December 30, 2024

OMBU

ANH

Carrao Energy

Financial Capacity

$436,300

October 14, 2024

Total

 



$2,772,356

 

 

Share Capital

As at June 30, 2024, the Company had 285,864,348 common shares and 26,830,000 stock options outstanding.

CONTRACTUAL OBLIGATIONS

The following table provides a summary of the Company's cash requirements to meet its financial liabilities and contractual obligations existing at June 30, 2024:

 

Less than 1 year

1-3 years

Thereafter

Total






Exploration and production contracts

 

-

 

12,000,000

 

-

 

12,000,000

Exploration and Production Contracts

The Company has entered into a number of exploration contracts in Colombia which require the Company to fulfill work program commitments. In aggregate, the Company has outstanding commitments of $12 million. The Company have made an application to cancel its commitments on the COR-39.

SUMMARY OF THREE MONTHS RESULTS

 

 

2024

2023

2022

 

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

Oil and natural gas sales, net of royalties

 

15,146,366

 

14,404,921

 

13,406,513

 

13,990,353

 

10,280,280

 

6,992,860

 

8,931,562

 

7,614,336

Net income (loss)

1,247,825

3,176,727

(10,492,053)

7,153,120

(757,416)

2,989,735

2,968,117

2,041,955

Income (loss) per share -

   basic

   diluted

 

0.00

0.00

 

0.01

0.01

 

(0.04)

(0.04)

 

0.03

0.02

 

(0.00)

(0.00)

 

0.01

0.01

 

0.01

0.01

 

0.02

0.00

Working capital (deficit)

6,657,117

9,520,829

8,669,114

10,822,475

(2,363,388)

2,619,715

(1,316,665)

7,392,310

Total assets

67,864,633

64,579,940

62,275,023

62,755,250

56,305,530

53,719,944

53,190,248

46,979,259

Net capital expenditures

8,965,408

6,281,329

10,471,447

5,471,561

6,870,258

4,271,693

2,106,463

4,836,860

Average daily production (boe/d)

2,638

2,730

2,666

2,518

2,169

1,635

1,736

1,503

 

The Company's oil and natural gas sales have increased 47% in Q2 2024 when compared to Q2 2023 due to increased production in its existing assets and stable commodity prices.

 

The Company's production levels in Colombia continue growing. Trends in the Company's net income are also impacted most significantly by operating expenses, financing costs, income taxes, depletion, depreciation and impairment of oil and gas properties, and other income.

OUTSTANDING SHARE DATA

At August 28, 2024 the Company had the following securities issued and outstanding:

 

Number

Exercise Price

Expiry Date

Common shares


285,864,348


n/a

             

n/a

Stock options


750,000


CAD$ 1.15


October 22, 2028

Stock options


235,000


CAD$ 0.31


May 3, 2029

Stock options


1,200,000


CAD$ 0.05


March 20, 2030

Stock options


1,200,000


CAD$ 0.05


April 13, 2030

Stock options


2,983,336


GBP 0.07625


June 13, 2024 and 2025

Stock options


1,200,001


CAD$0.28


Dec. 9, 2024 and 2025

Stock options


833,334


CAD$0.26


Mar. 7, 2025 and 2026

Stock options


3,652,222


GBP 0.1675


June 21, 2024, 2025 and 2026

Stock options


433,333


GBP 0.1925


July 23, 2024, 2025 and 2026

Stock options


1,000,000


CAD $0.33


Mar. 21, 2025, 2026 and 2027

Stock options


9,843,887


CAD $0.375


Oct. 29 2025, 2026 and 2027

OUTLOOK

The Company has deployed the capital raised at the time of the Admission to AIM on a successful drilling campaigns at Rio Cravo and Carrizales Norte on the Tapir Block. These successful campaigns have translated into production growth and in positive cashflows during 2023 and 2022, providing Arrow with the funds required to continue with its capital program for 2024.

 

During 2024, the Company has drilled ten wells at Carrizales Norte, which have increased overall production, including three horizontal wells. This confirms Arrow's commitment to increase production and shareholder value. The Company is able to support its 2024 capital program with current cash on hand and cash flow from operations. 

CRITICAL ACCOUNTING ESTIMATES

A summary of the Company's critical accounting estimates is contained in Note 3 Annual Financial Statements. These accounting policies are subject to estimates and key judgements about future events, many of which are beyond Arrow's control.

 

SUMMARY OF MATERIAL ACCOUNTING POLICIES

A summary of the Company's material accounting policies is included in note 3 of the Annual Financial Statements. These accounting policies are consistent with those of the previous financial year.

 

RISKS AND UNCERTAINTIES

The Company is subject to financial, business and other risks, many of which are beyond its control and which could have a material adverse effect on the business and operations of the Company. Please refer to "Risk Factors" in the MD&A for the year ended December 31, 2023 for a description of the financial, business and other risk factors affecting the Company which are available on SEDAR at www.sedar.com

 

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