TIDMAXL
RNS Number : 9777U
Arrow Exploration Corp.
29 November 2023
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.
ARROW ANNOUNCES Q3 2023 INTERIM RESULTS
CALGARY, Nov 29, 2023 - 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,
announces the filing of its Interim Condensed (unaudited)
Consolidated Financial Statements and Management's Discussion and
Analysis ("MD&A") for the three and nine months ended September
30, 2023 which are available on SEDAR ( www.sedar.com ) and will
also be available shortly on Arrow's website at
www.arrowexploration.ca .
Q3 2023 Highlights:
-- Recorded $13.9 million of total oil and natural gas revenue,
net of royalties, almost double compared to the same period in 2022
(Q3 2022: $7.6 million).
-- Net income of $7.1 million and adjusted EBITDA (1) of $9.8
million, more than double compared to 2022 (Q3 2022: $2 million and
$4.6 million, respectively).
-- Average corporate production up 68% to 2,518 boe/d (Q3 2022: 1,503 boe/d).
-- Realized corporate oil operating netbacks (1) of $52.67/bbl.
Q3 operating costs were slightly higher than Q2 due to higher
start-up costs at the Carrizales Norte discovery.
-- Cash position of $12.8 million at the end of Q3 2023.
-- Generated positive operating cashflows of $6.5 million (Q3 2022: $5.2 million).
-- Successfully drilled the Carrizales Norte-2 (CN-2) and
Carrizales Norte-3 (CN-3) wells at the Tapir block, resulting in
additional production and reserves additions.
-- Significant increase in reserves from the Carrizales Norte
discovery (CN), adding more than 3.92 MMbbls of 2P reserves.
(1) Non-IFRS measures - see "Non-IFRS Measures" section
Post Period End Highlights:
-- The Rio Cravo Este-6 well (RCE-6) has been drilled and is
currently producing from the Carbonera C7 formation.
-- The Oso Pardo-3 well (OP-3) has been drilled and is currently undergoing production testing.
-- RCE-7 has reached target depth and is currently being tested.
Once on production, the drilling rig will move to RCE-8 which is
expected to be on production before year end.
-- Oso Pardo-4 (OP-4) has been spud and is currently drilling.
It is expected to reach target depth this week.
-- In October and November 2023, the Company issued 40,338,307
common shares related to the exercise of warrants, raising cash
proceeds of $4.5 million. At November 1, the Company held $18.5
million cash as a result of the warrant exercise and operating cash
flow. The Company has no further warrants outstanding.
-- The Supreme Court of Colombia ruled that royalties are tax
deductible. Courts are considering other possible changes to tax
regulations which could have positive outcomes for the oil and gas
industry.
Outlook:
-- Arrow anticipates drilling two additional wells at Rio Cravo Este (RCE) by year-end.
-- Arrow plans to drill another development well on the Oso
Pardo Block in the Middle Magdalena Basin.
-- The preliminary development plan at CN consists of 21 wells,
the majority focusing on the Ubaque formation, to fully exploit the
thick reservoir. The reservoir pay zone is consistently thick (100
feet) across the fault bounded structure. C7 and Gacheta targeted
wells will also be part of the overall development plan at CN.
-- In 2024 the Company plans to have a $40 million capital
program including 15 wells. The majority of drilling will be
focused on the Carrizales Norte discovery and will include three
horizontal wells. Low risk step-out and exploration wells are also
planned at the Mateguafa Attic and Baquiano prospects. The 2024
capital program will be self-funded by a combination of cash flow
from operations and cash reserves.
Marshall Abbott, CEO of Arrow Exploration Corp., commented:
"Arrow continues to grow, recording its strongest quarter to
date. The 2023 drilling program, including the CN discovery, added
significant production and reserves to the Company and established
a new core area. Additional low risk prospects have been identified
using our recently acquired 3D seismic data. The Company plans to
increase operational tempo in aggressively developing the
Carrizale, Ubaque and C7 discoveries while simultaneously drilling
low risk exploration wells along proven fault fairways. The Board
remains confident in the Arrow team to execute on an aggressive
exploitation campaign pursuing our opportunity rich portfolio and
getting shareholder value to the next level."
FINANCIAL AND OPERATING HIGHLIGHTS
Three months Nine months Three months
ended September ended September ended September
(in United States dollars, except 30, 2023 30, 2023 30, 2022
as otherwise noted)
--------------------------------------- ----------------- ----------------- -----------------
Total natural gas and crude oil
revenues, net of royalties 13,990,353 31,263,494 7,614,336
Funds flow from operations (1) 8,690,907 16,209,551 4,606,124
Funds flow from operations (1)
per share -
Basic($) 0.04 0.07 0.02
Diluted ($) 0.03 0.05 0.00
Net income 7,153,120 9,385,440 2,041,955
Net income per share -
Basic ($) 0.03 0.04 0.01
Diluted ($) 0.02 0.03 0.01
Adjusted EBITDA (1) 9,826,997 20,024,747 4,664,345
Weighted average shares outstanding
-
Basic 237,919,872 230,537,774 215,967,143
Diluted 295,875,232 295,092,336 288,235,624
Common shares end of period 245,526,041 245,526,041 215,967,143
Capital expenditures 5,471,561 16,613,512 4,836,860
Cash and cash equivalents 12,891,190 12,891,190 11,376,702
Current Assets 18,652,504 18,652,504 16,870,695
Current liabilities 13,321,524 13,321,524 9,478,383
Adjusted working capital(1) 10,822,475 10,822,475 7,392,312
Long-term portion of restricted
cash(2) 637,793 637,793 598,192
Total assets 62,755,250 62,755,250 46,979,258
Operating
--------------------------------------- ----------------- ----------------- -----------------
Natural gas and crude oil production,
before royalties
Natural gas (Mcf/d) 2,012 2,261 1,917
Natural gas liquids (bbl/d) 4 4 4
Crude oil (bbl/d) 2,178 1,730 1,179
Total (boe/d) 2,518 2,110 1,503
Operating netbacks ($/boe) (1)
Natural gas ($/Mcf) $0.18 ($0.11) $0.88
Crude oil ($/bbl) $60.62 $57.64 $73.69
Total ($/boe) $52.67 $47.15 $56.75
(1) Non-IFRS measures - see "Non-IFRS Measures" section
(2) Long term restricted cash not included in working
capital
Discussion of Operating Results
The Company increased its production from new wells at CN which
allowed the Company to continue to improve its operating results
and EBITDA. There has been a decrease in the Company's natural gas
production in Canada due to natural declines.
Average Production by Property
Average Production Boe/d Q3 Q2 2023 Q1 2023 Q4 2022 Q3 2022 Q2 2022
2023
--------------------------- ------- -------- -------- -------- -------- --------
Oso Pardo 93 130 138 115 104 112
Ombu (Capella) - - 80 238 215 97
Rio Cravo Este (Tapir) 1,443 1,592 1,004 832 860 366
Carrizales Norte (Tapir) 642 57 - - - -
Total Colombia 2,178 1,779 1,222 1,185 1,179 575
Fir, Alberta 81 77 74 79 82 86
Pepper, Alberta 259 313 340 472 242 319
--------------------------- ------- -------- -------- -------- -------- --------
TOTAL (Boe/d) 2,518 2,169 1,635 1,736 1,503 980
--------------------------- ------- -------- -------- -------- -------- --------
For the three months ended September 30, 2023, the Company's
average production was 2,518 boe/d, which consisted of crude oil
production in Colombia of 2,178 bbl/d, natural gas production of
2,012 Mcf/d and minor amounts of natural gas liquids from the
Company's Canadian properties. The Company's Q3 2023 total
production was 68% higher than its total production for the same
period in 2022.
Discussion of Financial Results
During Q3 2023 the Company continued to realize good oil prices,
offset by lower gas prices, as summarized below:
Three months ended
September 30
-------------------------------------
2023 2022 Change
------------------------------------- ------- ------- --------
Benchmark Prices
AECO (C$/Mcf) $2.64 $3.83 (31%)
Brent ($/bbl) $92.59 $97.81 (5%)
West Texas Intermediate ($/bbl) $77.35 $91.65 (16%)
------------------------------------- ------- ------- --------
Realized Prices
------------------------------------- ------- ------- --------
Natural gas, net of transportation
($/Mcf) $1.95 $3.16 (38%)
Natural gas liquids ($/bbl) $67.10 $82.69 (19%)
Crude oil, net of transportation
($/bbl) $77.63 $90.90 (15%)
------------------------------------- ------- ------- --------
Corporate average, net of transport
($/boe)(1) $68.80 $73.02 (6%)
------------------------------------- ------- ------- --------
(1)Non-IFRS measure
Operating Netbacks
The Company also continued to realize strong oil operating
netbacks, as summarized below:
Three months ended Nine months ended
September 30 September 30
2023 2022 2023 2022
---------------------------------- --------- ---------- --------- ---------
Natural Gas ($/Mcf)
Revenue, net of transportation
expense $1.95 $3.16 $2.01 $4.05
Royalties ($0.05) ($0.35) ($0.02) ($0.64)
Operating expenses ($1.72) ($1.93) ($2.10) ($2.24)
---------------------------------- --------- ---------- --------- ---------
Natural Gas operating netback(1) $0.18 $0.88 ($0.11) $1.18
---------------------------------- --------- ---------- --------- ---------
Crude oil ($/bbl)
Revenue, net of transportation
expense $77.63 $90.90 $73.16 $91.00
Royalties ($9.45) ($10.97) ($9.02) ($10.61)
Operating expenses ($7.56) ($6.24) ($6.50) ($10.09)
---------------------------------- --------- ---------- --------- ---------
Crude Oil operating netback(1) $60.62 $73.69 $57.64 $70.30
---------------------------------- --------- ---------- --------- ---------
Corporate ($/boe)
Revenue, net of transportation
expense $68.80 $73.02 $62.14 $61.75
Royalties ($8.21) (8.72) ($7.40) ($7.59)
Operating expenses ($7.92) (7.55) ($7.59) ($11.50)
---------------------------------- --------- ---------- --------- ---------
Corporate Operating netback
(1) $52.67 $56.75 $47.15 $42.66
---------------------------------- --------- ---------- --------- ---------
(1) Non-IFRS measure
The operating netbacks of the Company remained healthy during
2023 due to several factors, principally the increase in production
from its Colombian assets, even factoring in decreased crude oil
prices. This was offset by decreases in natural gas prices and
operating expenses for natural gas.
During the first nine months of 2023, the Company incurred in
$16 million of capital expenditures, primarily in connection with
the drilling of the three RCE and CN wells, civil works completed
in Rio Cravo and shooting 125 km(2) of 3D seismic in the Tapir
block to highlight existing leads and prospects for drilling. This
acceleration in operational tempo is expected to continue during
the remainder of 2023 and into 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
Brookline Public Relations, Inc.
Shauna MacDonald +1 403 538 5645
Canaccord Genuity (Nominated Advisor
and Joint Broker)
Henry Fitzgerald-O'Connor
James Asensio
Gordon Hamilton +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
Kirsty Duff
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. By way of a
private commercial contract with the recognized interest holder
before Ecopetrol S.A., Arrow is entitled to receive 50% of the
production from the Tapir block. The formal assignment to the
Company is subject to Ecopetrol's consent. 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 COVID-19, 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.
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 NINE MONTHSED SEPTEMBER 30, 2023 AND 2022
IN UNITED STATES DOLLARS
(UNAUDITED)
Notice of No Auditor Review of the Interim Condensed
Consolidated Financial Statements
as at and for the three and nine months ended September 30,
2023
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 Condensed Consolidated Statements of Financial
Position
In United States Dollars
(Unaudited)
As at Notes September December 31,
30, 2023 2022
ASSETS
Current assets
Cash $ 12,891,190 $ 13,060,968
Restricted cash and deposits 3 218,178 210,654
Trade and other receivables 4 2,797,577 2,568,290
Taxes receivable 5 1,735,143 801,177
Deposits and prepaid expenses 124,899 157,459
Inventory 885,517 705,677
--------------------------------------- -------------- --- ---------------------- ----------------------
18,652,504 17,504,225
--------------------------------------- -------------- --- ---------------------- ----------------------
Non-current assets
Deferred income taxes 1,933,639 872,286
Restricted cash and deposits 3 637,793 608,127
Exploration and evaluation 6 3,182,010 -
Property and equipment 7 38,349,304 34,205,610
--------------------------------------- -------------- --- ---------------------- ----------------------
Total Assets $ 62,755,250 $ 53,190,248
--------------------------------------- -------------- --- ---------------------- ----------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Accounts payable and accrued
liabilities $ 6,549,995 $ 5,850,823
Lease obligation 9 103,718 41,434
Promissory note 8 - 1,899,294
Derivative liability 11 5,491,495 9,540,423
Income taxes 1,176,316 1,488,916
--------------------------------------- -------------- --- ---------------------- ----------------------
13,321,524 18,820,890
--------------------------------------- -------------- --- ---------------------- ----------------------
Non-current liabilities
Lease obligations 9 219,611 22,317
Other liabilities 588,393 80,484
Deferred income taxes 2,198,419 5,066,684
Decommissioning liability 10 3,759,347 3,303,301
Total liabilities 20,087,294 27,293,676
--------------------------------------- -------------- --- ---------------------- ----------------------
Shareholders' equity
Share capital 12 64,833,800 57,810,735
Contributed surplus 2,010,851 1,570,491
Deficit (23,453,842) (32,839,282)
Accumulated other comprehensive
loss (722,853) (645,372)
--------------------------------------- -------------- --- ---------------------- ----------------------
Total shareholders' equity 42,667,956 25,896,572
--------------------------------------- -------------- --- ---------------------- ----------------------
Total liabilities and shareholders'
equity $ 62,755,250 $ 53,190,248
--------------------------------------- -------------- --- ---------------------- ----------------------
Commitments and contingencies (Note 13)
The accompanying notes are an integral part of these interim
condensed 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 (Loss)
In United States Dollars
(Unaudited)
For the three months For the nine months
ended ended
September 30 September 30
Notes 2023 2022 2023 2022
------------------------------ ------ -------------- -------------- -------------- ----------------
Revenue
Oil and natural gas $ 15,884,660 $ 8,647,846 $ 35,487,485 $ 18,290,284
Royalties (1,894,307) (1,033,510) (4,223,991) (2,248,382)
13,990,353 7,614,336 31,263,494 16,041,902
-------------- -------------- -------------- ----------------
Expenses
Operating 1,829,833 894,160 4,338,913 3,407,076
Administrative 1,924,089 2,322,291 6,790,964 4,880,605
Environmental 356,857 - 356,857 -
Share based payments 12 149,102 110,876 440,360 214,712
Financing costs:
Accretion 10 34,343 54,272 95,638 144,247
Interest 9,461 123,394 131,697 367,913
Other 89,281 41,075 238,135 285,104
Derivative loss (gain) 11 (1,191,385) (543,659) (109,613) 4,968,934
Foreign exchange gain (28,003) (234,068) (109,959) (229,526)
Depletion and depreciation 3,972,850 1,809,340 10,067,403 3,649,932
Other expense (income) (99,595) (32,393) (318,203) (52,595)
Transaction costs 180,175 - 180,175 -
-------------- -------------- -------------- ----------------
7,227,008 4,545,288 22,102,367 17,636,402
-------------- -------------- -------------- ----------------
Income (loss) before
taxes 6,763,345 3,069,048 9,161,127 (1,594,500)
Income taxes (recovery)
Current 1,317,437 1,027,093 3,705,305 1,027,093
Deferred (1,707,212) - (3,929,618) -
-------------- -------------- -------------- ----------------
(389,775) 1,027,093 (224,313) 1,027,093
Net income (loss)
for the period 7,153,120 2,041,955 9,385,440 (2,621,593)
Other comprehensive
income (loss)
Foreign exchange 34,103 173,067 (77,481) 253,645
-------------- -------------- -------------- ----------------
Net income (loss)
and comprehensive income
(loss) for the period $ 7,187,223 $ 2,215,022 $ 9,307,959 $ (2,367,948)
Net income (loss)
per share
- basic $ 0.03 $ 0.01 $ 0.04 $ (0.01)
* diluted $ 0.02 $ 0.01 $ 0.03 $ (0.01)
Weighted average shares
outstanding
- basic 237,919,872 215,967,143 230,537,774 214,687,656
* diluted 295,875,232 288,235,624 295,092,336 276,272,070
The accompanying notes are an integral part of these interim
condensed consolidated financial statements.
Arrow Exploration Corp.
Interim Condensed Statements of Changes in Shareholders'
Equity
In United States Dollars
(Unaudited)
Accumulated
Contributed other
Share Surplus comprehensive Deficit Total
Capital loss Equity
---------------------- --- ----------- -------------- ---------------- ------------- -----------
Balance January
1, 2023 $ 57,810,735 $ 1,570,491 $ (645,372) $ (32,839,282) $ 25,896,572
Issuances of common
shares, net 7,023,065 - - - 7,023,065
Net income for
the period - - - 9,385,440 9,385,440
Othe comprehensive
loss for the period - - (77,481) - (77,481)
Share-based compensation - 440,360 - - 440,360
Balance September
30, 2023 $ 64,833,800 $ 2,010,851 $ (722,853) $ (23,453,842) $ 42,667,956
Accumulated
Contributed other
Share Surplus comprehensive Deficit Total
Capital loss Equity
--------------------- --- ----------- -------------- ---------------- ------------- ------------
Balance January
1, 2022 $ 56,698,237 $ 1,249,418 $ (803,736) $ (33,185,806) $ 23,958,113
Subscription of
common shares,
net 603,147 - - - 603,147
Options settled
in cash - (6,621) - - (6,621)
Net loss for the
period - - - (2,621,593) (2,621,593)
Other comprehensive
income for the
period - - 253,645 - 253,645
Share based payments - 214,712 - - 214,712
Balance September
30, 2022 $ 57,301,384 $ 1,457,509 $ (550,091) $ (35,807,399) $ 22,401,403
The accompanying notes are an integral part of these interim
condensed consolidated financial statements.
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Cash Flows
In United States Dollars
(Unaudited)
For nine months ended September 30, 2023 2022
----------------------------------------------------------- ------------- --------------
Cash flows provided by operating activities
Net income (loss) $ 9,385,440 $ (2,621,593)
Items not involving cash:
Share based payment 440,360 214,712
Deferred income tax (3,929,618) -
Depletion and depreciation 10,067,403 3,649,932
Interest on leases 12,237 7,932
Interest on promissory note, net of forgiveness 119,460 359,981
Accretion 95,638 144,247
Foreign exchange gain (224,264) (133,342)
(Gain) loss on derivative liability (109,613) 4,968,934
Environmental provision 356,857 -
Gain in long-term debt forgiveness - (7,798)
Changes in non--cash working capital balances:
Restricted cash (37,190) 134,360
Trade and other receivables (229,288) (3,448,281)
Taxes receivable (933,966) (361,267)
Deposits and prepaid expenses 32,561 160,428
Inventory (179,840) (458,575)
Accounts payable and accrued liabilities (654,363) 1,465,021
Income tax payable (312,600) 1,027,093
Settlement of decommissioning obligations (4,349) (77,180)
Cash provided by operating activities 13,894,865 5,024,604
------------- --------------
Cash flows used in investing activities
Additions to exploration and evaluation assets (3,182,010) -
Additions to property and equipment (13,431,502) (5,562,525)
Changes in non-cash working capital 1,538,033 691,963
------------- --------------
Cash flows used in investing activities (15,075,479) (4,870,562)
------------- --------------
Cash flows provided by financing activities
Common shares issued 3,025,568 280,072
Payment of promissory note, principal and interests (2,018,577) (23,394)
Lease payments (54,813) (29,774)
Cash flows provided by financing activities 952,178 226,904
Effect of changes in the exchange rate on cash 58,658 117,248
(Decrease) increase in cash (169,778) 498,194
Cash, beginning of period 13,060,968 10,878,508
------------- --------------
Cash, end of period 12,891,190 11,376,702
============= ==============
Supplemental information
Interest paid $ 415,026 $ -
Taxes paid $ 1,119,208 $ -
The accompanying notes are an integral part of these interim
condensed 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 November 27, 2023. 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, 2022.
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, 2022, except
for the adoption of new accounting standards effective January 1,
2023. 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
financial statements for the year ended December 31, 2022.
Adoption of New Accounting Standards
The Company adopted amendments published by IASB to IAS 8
Changes in Estimates vs Changes in Accounting Policies and to IAS 1
Presentation of Financial Statements and IFRS Practice Statement 2
Making Materiality Judgements. These amendments were adopted by the
Company from January 1, 2023 but they did not have a material
impact on the Consolidated Financial Statements.
3. Restricted Cash and deposits
September December
30 , 31, 2022
2023
-------------------------------- ---------- ----------------- -------- ----------------
Colombia (i) $ 255,986 $ 248,462
Canada (ii) 599,985 570,319
Sub-total 855,971 818,781
Long-term portion (637,793) (608,127)
Current portion of restricted
cash and deposits $ 218,178 $ 210,654
================= ================
(i) Balance comprised of deposits held as collateral to
guarantee abandonment expenditures in the Tapir and Santa Isabel
blocks.
(ii) Pursuant to Alberta government regulations, the Company was
required to keep a $325,399 (CAD $439,966; 2022: $424,398) deposit
for the Company's liability rating management ("LMR"), which is
held by a bank with interest paid to the Company. The remaining
$337,818 pertain to commercial deposits with customers, lease and
other deposits held in Canada.
4. Trade and other receivables
September December
30, 31, 2022
2023
--------------------------------- ---------- ----------------- -------- ----------------
Trade receivables, net of
advances $ 2,402,045 $ 847,432
Other accounts receivable 395,532 1,720,858
$ 2,797,577 $ 2,568,290
================= ================
As at December 31, 2022, other accounts receivable included a
$1,070,825 receivable from a partner in the Tapir block and
corresponds to reimbursable capital expenditures incurred on the
Tapir block, which have been subsequently recovered.
5. Taxes receivable
September December
30, 31, 2022
2023
------------------------------------- ---------- ----------------- -------- ----------------
Value-added tax (VAT) credits 175,217 $ -
recoverable $
Income tax withholdings and
advances, net 1,559,926 801,177
$ 1,735,143 $ 801,177
================= ================
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
September December
30, 31, 2022
2023
----------------------------- ---------------------------------------- ------------------
Balance, beginning of the
period $ - $ 6,964,506
Additions, net 3,182,010 -
Reclassification to Property
and Equipment - (6,964,506)
Balance, end of the period 3,182,010 $ -
$
================== ==================
During 2023, the Company incurred in exploration and evaluation
assets related to the acquisition and interpretation of 135 square
kilometers of 3D seismic data in the Tapir block to confirm or
identify leads to additional prospective areas within such
block.
7. Property and Equipment
Oil and Right of
Cost Gas Properties Use and Total
Other Assets
----------------------------- --------------------- ------------------- ------------------
Balance, December 31, 2021 $ 32,160,917 $ 183,485 $ 32,344,402
Additions 7,663,062 50,671 7,713,733
Transfers from exploration
and evaluation assets 6,964,506 - 6,964,506
Decommissioning adjustment 756,541 - 756,541
Balance, December 31, 2022 $ 47,545,026 $ 234,156 $ 47,779,182
----------------------------- --------------------- ------------------- ------------------
Additions 13,446,292 310,061 13,756,353
Decommissioning adjustment 442,757 - 442,757
----------------------------- --------------------- ------------------- ------------------
Balance, September 30, 2023 $ 61,434,075 $ 544,217 $ 61,978,292
----------------------------- --------------------- ------------------- ------------------
Accumulated depletion and
depreciation and impairment
-------------------------------- ------------------ ------------------------- ----------------
Balance, December 31, 2021 $ 16,692,145 $ 114,965 $ 16,807,110
Depletion and depreciation 5,482,218 46,271 5,528,489
Reversals net of impairment
loss (9,020,654) - (9,020,654)
-------------------------------- ------------------ --------------------- --------------------
Balance, December 31, 2022 $ 13,153,709 $ 161,236 $ 13,314,945
-------------------------------- ------------------ --------------------- --------------------
Depletion and depreciation 10,017,547 49,856 10,067,403
Balance, September 30, 2023 $ 23,171,256 $ 211,092 $ 23,382,348
-------------------------------- ------------------ --------------------- --------------------
Foreign exchange
-------------------------- ------------------------ ----------------- ------------------------
Balance December 31,
2021 $ 318,617 $ (3,457) $ 315,160
Effects of movements
in foreign
exchange rates (568,525) (5,262) (573,787)
-------------------------- ------------------------ --------------------- -----------------------
Balance December 31,
2022 $ (249,908) $ (8,719) $ (258,627)
-------------------------- ------------------------ --------------------- -----------------------
Effects of movements
in foreign
exchange rates 12,771 (784) 11,987
Balance, September 30,
2023 $ (237,137) $ (9,503) $ (246,640)
-------------------------- ------------------------ --------------------- -----------------------
Net Book Value
Balance December 31, 2022 $ 34,141,409 $ 64,201 $ 34,205,610
Balance, September 30, 2023 $ 38,025,682 $ 323,622 $ 38,349,304
Effective February 9, 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, but it has been extended for nine additional months. The
Company, together with its partner and the ANH, is monitoring this
suspension to define next steps.
During 2023, the Company entered in a new office and vehicles
leases for its corporate offices for $302,930 and has been
recognized as a right-of-use assets (see note 9).
8. Promissory Note
The promissory note was issued to Canacol Energy Ltd.
("Canacol"), a related party to the Company, as partial
consideration in the acquisition of Carrao Energy S.A. from
Canacol. The promissory note bore interest at 15% per annum, and,
on October 18, 2021, Arrow and Canacol entered into a Seventh
Amended and Restated Promissory Note agreement. On June 30, 2023,
the Company paid the remaining balance of $2,018,577, including
interest, and no other obligation is pending with Canacol under the
Promissory Note.
9. Lease Obligations
A reconciliation of the discounted lease obligation is set forth
below:
September December
30, 31, 2022
2023
----------------- ----------------
Obligation, beginning of the period $ 63,751 $ 54,692
Additions 302,930 -
Changes in existing lease - 44,701
Lease payments (54,813) (39,697)
Interest 12,237 9,696
Effects of movements in foreign
exchange rates (776) (5,641)
----------------- ----------------
Obligation, end of the period $ 323,329 $ 63,751
Current portion (103,718) (41,434)
----------------- ----------------
Long-term portion $ 219,611 $ 22,317
================= ================
As at September 30, 2023, the Company has the following future
lease obligations:
Less than one year $ 105,113
2 - 5 years 336,198
---------
Total lease payments 441,311
Amounts representing interest over
the term (117,982)
---------
Present value of the net obligation $ 323,329
=========
10. 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.
September December
30, 31, 2022
2023
----------------- -------- ----------------
Obligation, beginning of the period $ 3,303,301 $ 2,470,239
Change in estimated cash flows 554,238 756,541
Payments or settlements (4,349) (76,131)
Accretion expense 95,638 199,521
Disposals (191,648) -
Effects of movements in foreign
exchange rates 2,167 (46,869)
----------------- -------- ----------------
Obligation, end of the period $ 3,759,347 $ 3,303,301
================= ======== ================
T he obligation was calculated using a risk-free discount rate
range of 2.50% to 3.75% in Canada (2022: 2.50% to 3.75%) and
between 3.55% and 4.13% in Colombia (2022: 3.55% and 4.13%) with an
inflation rate of 3.0% and 3.5%, respectively (2022: 3.0% and
3.5%). The majority of costs are expected to occur between 2023 and
2033. 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 $4,943,923
(2022: $4,480,074) .
11. Derivative liability
Derivative liability includes warrants issued and outstanding as
follows:
September 30, December 31,
2023 2022
Warrants Number Amounts Number Amounts
Balance beginning
of the period 67,837,418 $ 9,540,423 72,474,706 $ 4,692,303
Exercised (27,124,110) (3,997,497) (4,637,288) (598,509)
Fair value adjustment - (109,613) - 5,974,674
Foreign exchange - 58,182 - (528,045)
------------ ----------- ----------- -----------
Balance end of the
period 40,713,308 $ 5,491,495 67,837,418 $ 9,540,423
============ =========== =========== ===========
Each warrant is exercisable at GBP0.09 per new common share for
24 months from the issuance date and are measured at fair value
quarterly using the Black-Scholes options pricing model. The fair
value of warrants at September 30, 2023 and December 31, 2022 was
estimated using the following assumptions:
September
30,
December
2023 31, 2022
------------------------------ ----------------- -----------------
Number outstanding
re-valued warrants 40,713,308 67,837,418
Fair value of warrants
outstanding GBP 0.1104 GBP0.1157
Risk free interest
rate 4.82% 3.41%
Expected life 0.07 years 0.82 years
Expected volatility 133% 147%
------------------------------ ----------------- -----------------
The following table summarizes the warrants outstanding and
exercisable at September 30, 2023:
Number
of Exercise Expiry date
warrants price
----------- ----------- --------------
GBP 0.09 October 24,
40,219,260 2023
GBP 0.09 November 22,
494,048 2023
-----------
40,713,308
===========
12. Share Capital
(a) Authorized: Unlimited number of common shares without par value
(b) Issued:
September 30, 2023 December 31, 2022
----------------------- -----------------------
Common shares Shares Amounts Shares Amounts
----------- ---------- ----------- ----------
Balance beginning of
the year 218,401,931 57,810,735 213,389,643 56,698,237
Issued from warrants
exercised 27,124,110 7,023,065 4,637,288 1,094,574
Issued from options
exercised - - 375,000 17,924
----------- ---------- ----------- ----------
Balance at end of the
period 245,526,041 64,833,800 218,401,931 57,810,735
=========== ========== =========== ==========
(c) 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 status and changes of the Company stock option plan is
presented below:
September 30,
2023 December 31, 2022
------------------------------------ ------------------------------------
Weighted Weighted
average average
exercise exercise
Number Price Number price
Stock Options of options (CAD $) of options (CAD $)
--------------------------- ------------------ ---------------- ------------------ ----------------
Beginning of period 20,590,000 $0.24 17,114,000 $0.18
Granted 1,650,000 $0.33 10,028,332 $0.27
Expired/Forfeited (1,375,000) $0.46 (2,794,000) $0.12
Exercised - - (3,758,332) $0.11
------------------ ---------------- ------------------ ----------------
End of period 20,865,000 $0.24 20,590,000 $0.24
================== ================ ================== ================
Exercisable, end
of period 5,403,331 $0.26 3,395,000 $0.42
================== ================ ================== ================
Weighted
Exercise Average Number
Price Remaining Exercisable
Date of Number (CAD Contractual Date of September
Grant Outstanding $) Life Expiry 30, 2023
-------------- ------------- --------- ------------- --------------- -------------
October 22,
2018 750,000 $1.15 Oct. 22, 2028 750,000
May 3, 2019 270,000 $0.31 May 3, 2029 270,000
March 20,
2020 1,200,000 $0.05 Mar. 20, 2030 1,200,000
April 13,
2020 2,000,000 $0.05 April 13, 2030 2,000,000
December June 13, 2024
13, 2021 5,966,668 $0.13 and 2025 -
Dec. 9, 2023,
June 9, 2022 2,300,000 $0.28 2024 and 2025 766,665
September Mar. 7, 2024,
7, 2022 1,250,000 $0.26 2025 and 2026 416,666
December June 21, 2024,
21, 2022 5,478,332 $0.28 2025 and 2026 -
January 23, July 23, 2024,
2023 650,000 $0.32 2025 and 2026 -
September Mar. 21, 2025,
21, 2023 1,000,000 $0.33 2026 and 2027 -
Total 20,865,000 $0.23 2.44 years 5,403,331
============== ============= ========= ============= =============== =============
The Company recognized $149,102 and $440,360 as share-based
compensation expense for the three and nine months ended September
30, 2023 (2022: $110,876 and $214,712), with a corresponding effect
in the contributed surplus account.
13. 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 of
$17.8 million as at September 30, 2023. T he Company have made
applications to cancel its commitments on the COR-39, Macaya and
Los Picachos blocks.
Less
than
Block 1 year 1-3 years Thereafter Total
--------------------- ------------------ ------------------------ ---------------------- ----------------------
COR-39 - 12,000,000 - 12,000,000
Los
Picachos - 1,970,000 - 1,970,000
Macaya - 3,830,000 - 3,830,000
----------------- ------------------------ ---------------------- ----------------------
Total - 17,800,000 - 17,800,000
================= ======================== ====================== ======================
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 the individuals as a
result of their service.
Letters of Credit
At September 30, 2023, 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 April 14,
ANH Carrao Energy Abandonment $563,894 2024
Financial December
ANH Carrao Energy Capacity $1,672,162 31, 2023
CORE - December
39 ANH Carrao Energy Compliance $100,000 31, 2023
Financial April 14,
OMBU ANH Carrao Energy Capacity $436,300 2024
-------------- ------------- --------------- ------------- ----------- ----------
Total $2,772,356
===========
14. 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. From time to time the Company may attempt to
mitigate commodity price risk through the use of financial
derivatives. There were no derivative contracts during 2023 and
2022.
(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 and balances receivables with partners in areas
operated by the Company. 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 under an existing sale/offtake agreement 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 advance (in Colombia) of 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 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 as it
borrows funds at a fixed coupon rate of 15% on the promissory
notes.
(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 less than market value; 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. 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. The Company monitors leverage
and 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. In order to facilitate the management
of its net debt, the Company prepares annual budgets, which are
updated as necessary depending on varying factors 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
and updates are prepared and reviewed as required. The Company's
capital includes the following:
September December 31,
30,
2023 2022
------------------- -------------------
Working capital (deficit) $ 5,330,980 $ (1,316,665)
Derivative liability 5,491,495 9,540,423
$ 10,822,475 $ 8,223,758
=================== ===================
15. 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 nine
months ended and as at September 30:
Three months ended Colombia Canada Total
September
30, 2023
------------------------- --- -------------------------- --------------------------- ---------------------
Revenue:
Oil Sales $ 15,496,501 $ - $ 15,496,501
Natural gas and liquid
sales - 388,159 388,159
Royalties (1,885,968) (8,339) (1,894,307)
Expenses (6,339,173) (887,835) (7,227,008)
Income tax recovery 389,775 - 389,775
-------------------------- --------------------------- ---------------------
Net income (loss) $ 7,661,135 $ (508,015) $ 7,153,120
--- -------------------------- --------------------------- ---------------------
Nine months ended Colombia Canada Total
September
30, 2023
------------------------- --- -------------------------- --------------------------- ---------------------
Revenue:
Oil Sales $ 34,177,223 $ - $ 34,177,223
Natural gas and liquid
sales - 1,310,262 1,310,262
Royalties (4,214,621) (9,370) (4,223,991)
Expenses (14,799,562) (7,302,805) (22,102,367)
Income tax recovery 224,313 - 224,313
Net income (loss) $ 15,387,353 $ (6,001,913) $ 9,385,440
--- -------------------------- --------------------------- ---------------------
As at September 30, Colombia Canada Total
2023
------------------------------- ---- ----------- --------------------------- --- ------------
Current assets $ 17,392,681 $ 1,259,823 $ 18,652,504
Non-current:
Deferred income taxes 1,933,639 - 1,933,639
Restricted cash 37,808 599,985 637,793
Exploration and evaluation 3,182,010 - 3,182,010
Property, plant and equipment 34,003,518 4,345,786 38,349,304
------------------------------------- ----------- --------------------------- --- ------------
Total Assets $ 56,549,656 $ 6,205,594 $ 62,755,250
------------------------------- ---- ----------- --------------------------- --- ------------
Current liabilities $ 7,137,935 $ 6,183,589 $ 13,321,524
Non-current liabilities:
Deferred income taxes 2,198,419 - 2,198,419
Other liabilities 588,393 - 588,393
Lease obligation - 219,611 219,611
Decommissioning liability 3,202,198 557,149 3,759,347
Total liabilities $ 13,126,945 $ 6,960,349 $ 20,087,294
------------------------------- ---- ----------- --------------------------- --- ------------
Three months ended September Colombia Canada Total
30, 2022
------------------------------ --- ------------ ------------- -------------
Revenue:
Oil Sales $ 8,056,780 $ - $ 8,056,780
Natural gas and liquid
sales - 591,066 591,066
Royalties (972,243) (61,267) (1,033,510)
Expenses (2,435,749) (2,109,539) (4,545,288)
Income tax (1,027,093) - (1,027,093)
------------ ------------- -------------
Net income (loss) $ 3,621,695 $ (1,579,740) $ (2,041,955)
--- ------------ ------------- -------------
Nine months ended September Colombia Canada Total
30, 2022
------------------------------ --- ------------ ------------- -------------
Revenue:
Oil Sales $ 15,013,222 $ - $ 15,013,222
Natural gas and liquid
sales - 3,277,062 3,277,062
Royalties (1,750,960) (497,422) (2,248,382)
Expenses (5,593,170) (12,043,232) (17,636,402)
Income tax (1,027,093) - (1,027,093)
Net income (loss) $ 6,641,999 $ (9,263,592) $ (2,621,593)
--- ------------ ------------- -------------
As at September 30, 2022 Colombia Canada Total
---------------------------- --- ----------- ----------- -----------
Current assets $ 12,900,256 $ 3,970,439 $ 16,870,695
Non-current:
Deferred income taxes 4,839,785 - 4,839,785
Restricted cash 37,808 560,384 598,192
Exploration and evaluation 6,964,506 - 6,964,506
Property and equipment 12,378,156 5,327,924 17,706,080
Total Assets $ 37,120,511 $ 9,858,747 $ 46,979,258
--- ----------- ----------- -----------
Current liabilities $ 4,622,600 $ 4,855,783 $ 9,478,383
Non-current liabilities:
Other liabilities 177,500 - 177,500
Deferred income taxes 3,371,935 - 3,371,935
Lease obligation - 32,676 32,676
Decommissioning liability 2,296,091 535,310 2,831,401
Derivative liability - 8,685,960 8,685,960
Total liabilities $ 10,468,126 $ 14,109,729 $ 24,577,855
--- ----------- ----------- -----------
16. Subsequent events
On November 17, 2023, the ANH confirmed the termination by
mutual agreement of the Macaya block exploration and production
contract. This contract included minimum work commitments for
$3,830,000 for the Company, which have been waived by the ANH
according to the terms of termination.
Arrow Exploration Corp.
MANAGEMENT's DISCUSSION AND ANALYSIS
THREE AND NINE MONTHSED SEPTEMBER 30, 2023
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 November 27, 2023 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 nine months ended September 30, 2023 and 2022.
Additional information relating to Arrow, including its annual
consolidated financial statements and related notes for the years
ended December 31, 2022 and 2021 (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: the COVID-19 pandemic and its 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 COVID-19
pandemic; 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 the COVID-19 pandemic; 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 from (used in) 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:
Three months Nine months Three months
ended September ended September ended September
(in United States dollars) 30, 2023 30, 2023 30, 2022
----------------------------------------------- --------------------------- ----------------- -----------------
Net income (loss) 7,153,120 9,385,440 2,041,955
Add/(subtract):
Share based payments 149,102 440,360 110,876
Financing costs:
Accretion on decommissioning obligations 34,343 95,638 54,272
Interest 9,461 131,697 123,394
Other 89,281 238,135 41,075
Depreciation and depletion 3,972,850 10,067,403 1,809,340
Derivative gain (1,191,385) (109,613) (543,659)
Income tax (recovery) expense, current
and deferred (389,775) (224,313) 1,027,093
Adjusted EBITDA (1) 9,826,997 20,024,747 4,664,345
Cash flows provided by operating activities 6,523,732 13,894,865 5,221,497
Minus - Changes in non--cash working
capital balances:
Trade and other receivables 697,291 229,288 1,097,426
Restricted cash (65,890) 37,190 (291,841)
Taxes receivable 765,277 933,966 58,264
Deposits and prepaid expenses (68,109) (32,561) (171,610)
Inventory 9,026 179,840 229,799
Accounts payable and accrued liabilities 1,192,261 654,363 (1,537,411)
Income tax payable (362,681) 312,600 -
Funds flow from operations (1) 8,690,907 16,209,551 4,606,124
(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
Three months Nine months Three months
ended September ended September ended September
(in United States dollars, 30, 2023 30, 2023 30, 2022
except
as otherwise noted)
---------------------------- ---------------------------- ---------------------------- ----------------------------
Total natural gas and crude
oil
revenues, net of royalties 13,990,353 31,263,494 7,614,336
Funds flow from operations
(1) 8,690,907 16,209,551 4,606,124
Funds flow from operations
(1)
per share -
Basic($) 0.04 0.07 0.02
Diluted ($) 0.03 0.05 0.00
Net income 7,153,120 9,385,440 2,041,955
Net income per share -
Basic ($) 0.03 0.04 0.01
Diluted ($) 0.02 0.03 0.01
Adjusted EBITDA (1) 9,826,997 20,024,747 4,664,345
Weighted average shares
outstanding
-
Basic 237,919,872 230,537,774 215,967,143
Diluted 295,875,232 295,092,336 288,235,624
Common shares end of period 245,526,041 245,526,041 215,967,143
Capital expenditures 5,471,561 16,613,512 4,836,860
Cash and cash equivalents 12,891,190 12,891,190 11,376,702
Current Assets 18,652,504 18,652,504 16,870,695
Current liabilities 13,321,524 13,321,524 9,478,383
Adjusted working capital(1) 10,822,475 10,822,475 7,392,312
Long-term portion of
restricted
cash(2) 637,793 637,793 598,192
Total assets 62,755,250 62,755,250 46,979,258
Operating
---------------------------- ---------------------------- ---------------------------- ----------------------------
Natural gas and crude oil
production,
before royalties
Natural gas (Mcf/d) 2,012 2,261 1,917
Natural gas liquids (bbl/d) 4 4 4
Crude oil (bbl/d) 2,178 1,730 1,179
Total (boe/d) 2,518 2,110 1,503
Operating netbacks ($/boe)
(1)
Natural gas ($/Mcf) $0.18 ($0.11) $0.88
Crude oil ($/bbl) $60.62 $57.64 $73.69
Total ($/boe) $52.67 $47.15 $56.75
(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, 2023 the Company held an interest in six oil blocks
in Colombia and oil and natural gas leases in seven areas in Canada
as follows:
Gross Acres Working Interest Net Acres
COLOMBIA
Tapir Operated (1) 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
Los Picachos Non-operated 52,772 37.5% 19,790
Macaya Non-operated 195,255 37.5% 73,221
Total Colombia 465,417 227,005
CANADA
Ansell Operated 640 100% 640
Fir Non operated 7,680 32% 2,457
Penhold Non-operated 480 13% 61
Pepper Operated 23,680 100% 23,680
Wapiti Non-operated 1,280 13% 160
Total Canada 33,760 26,998
------------------------------------------ ----------------- ---------------------- ---------------
TOTAL 499,177 254,003
------------------------------------------ ----------------- ---------------------- ---------------
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.
(1) The 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 km(2)
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.
Three Months Ended September 30, 2023 Financial and Operational
Highlights
-- Arrow recorded $13,990,353 in revenues, net of royalties, on
crude oil sales of 199,617 bbls, 399 bbls of natural gas liquids
("NGL's") and 185,128 Mcf of natural gas sales;
-- Funds flow from operations of $8,690,907;
-- Net income of $7,153,120 and adjusted EBITDA was $9,826,997;
-- Completed drilling of the Carrizales Norte-2 (CN-2) and Carrizales Norte-3 (CN-3) wells
Results of Operations
The Company increased its production from new wells at Rio Cravo
Este (RCE-3, RCE-4 and RCE-5) and CN-1. 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 natural declines.
Average Production by Property
Average Production Boe/d Q3 2023 Q2 2023 Q1 2023 Q4 2022 Q3 2022 Q2 2022
-------------------------- -------- -------- -------- -------- -------- --------
Oso Pardo 93 130 138 115 104 112
Ombu (Capella) - - 80 238 215 97
Rio Cravo Este (Tapir) 1,443 1,592 1,004 832 860 366
Carrizales Norte (Tapir) 642 57 - - - -
Total Colombia 2,178 1,779 1,222 1,185 1,179 575
Fir, Alberta 81 77 74 79 82 86
Pepper, Alberta 259 313 340 472 242 319
-------------------------- -------- -------- -------- -------- -------- --------
TOTAL (Boe/d) 2,518 2,169 1,635 1,736 1,503 980
-------------------------- -------- -------- -------- -------- -------- --------
For the three months ended September 30, 2023, the Company's
average production was 2,518 boe/d, which consisted of crude oil
production in Colombia at 2,178 bbl/d, natural gas production of
2,012 Mcf/d and minor amounts of natural gas liquids from the
Company's Canadian properties. The Company's Q3 2023 total
production was 68% higher than its total production for the same
period in 2022.
Average Daily Natural Gas and Oil Production and Sales
Volumes
Three months ended Nine months ended
September 30 September 30
--------------------------------
2023 2022 2023 2022
-------------------------------- --------- ---------- --------- ---------
Natural Gas (Mcf/d)
Natural gas production 2,012 1,917 2,261 2,853
-------------------------------- ---------- ---------
Natural gas sales 2,012 1,917 2,261 2,853
-------------------------------- ---------- ---------
Realized Contractual Natural
Gas Sales 2,012 1,917 2,261 2,853
-------------------------------- --------- ---------- --------- ---------
Crude Oil (bbl/d)
Crude oil production 2,178 1,179 1,730 730
Inventory movements and other (8) (216) (19) (264)
-------------------------------- --------- ---------- --------- ---------
Crude Oil Sales 2,170 963 1,711 466
-------------------------------- --------- ---------- --------- ---------
Corporate
Natural gas production (boe/d) 336 319 376 475
Natural gas liquids(bbl/d) 4 4 4 5
Crude oil production (bbl/d) 2,178 1,179 1,730 730
-------------------------------- --------- ---------- --------- ---------
Total production (boe/d) 2,518 1,503 2,110 1,211
Inventory movements and other
(boe/d) (8) (216) (19) (264)
-------------------------------- --------- ---------- --------- ---------
Total Corporate Sales (boe/d) 2,510 1,287 2,091 946
-------------------------------- --------- ---------- --------- ---------
During the three and nine months ended September 30, 2023 the
majority of production was attributed to Colombia, where most of
Company's blocks were producing. In Canada, the Company has two
operated and two non-operated properties located in the province of
Alberta at Fir, Pepper, Harley and Wapiti.
Natural Gas and Oil Revenues
Three months ended Nine months ended
September 30 September 30
-------------------------------------
2023 2022 2023 2022
------------------------------------- ------------- ------------- ------------- -------------
Natural Gas
Natural gas revenues 361,381 557,445 1,242,889 3,157,295
NGL revenues 26,778 33,621 67,373 119,766
Royalties (8,339) (61,267) (9,370) (497,422)
------------------------------------- ------------- ------------- ------------- -------------
Revenues, net of royalties 379,820 529,799 1,300,892 2,779,640
------------------------------------- ------------- ------------- ------------- -------------
Oil
Oil revenues 15,496,501 8,056,780 34,177,223 15,013,222
Royalties (1,885,968) (972,243) (4,214,621) (1,750,960)
------------------------------------- ------------- ------------- ------------- -------------
Revenues, net of royalties 13,610,533 7,084,537 29,962,602 13,262,262
------------------------------------- ------------- ------------- ------------- -------------
Corporate
Natural gas revenues 361,381 557,445 1,242,889 3,157,295
NGL revenues 26,778 33,621 67,373 119,766
Oil revenues 15,496,501 8,056,780 34,177,223 15,013,222
------------------------------------- ------------- ------------- ------------- -------------
Total revenues 15,884,660 8,647,846 35,487,485 18,290,284
Royalties (1,894,307) (1,033,510) (4,223,991) (2,248,382)
------------------------------------- ------------- ------------- ------------- -------------
Natural gas and crude oil revenues,
net of royalties 13,990,353 7,614,336 31,263,494 16,041,902
------------------------------------- ------------- ------------- ------------- -------------
Natural gas and crude oil revenues, net of royalties, for the
three and nine months ended September 30, 2023 was $13,990,353
(2022: $7,614,336) and $31,263,494 (2022: $16,041,902),
respectively, which represents an increase of 95%. This significant
increase is mainly due to increased oil production in Colombia,
offset by decrease in oil prices and revenue in Canada.
Average Benchmark and Realized Prices
Three months ended Nine months ended
September 30 September 30
------------------------------------
2023 2022 Change 2023 2022 Change
------------------------------------ ------- ------- ------- ------- -------- -------
Benchmark Prices
AECO (C$/Mcf) $2.64 $3.83 (31%) $2.77 $4.31 (36%)
Brent ($/bbl) $92.59 $97.81 (5%) $82.26 $102.33 (20%)
West Texas Intermediate ($/bbl) $77.35 $91.65 (16%) $82.20 $98.15 (16%)
------------------------------------ ------- ------- ------- ------- -------- -------
Realized Prices
------------------------------------ ------- ------- ------- ------- -------- -------
Natural gas, net of transportation
($/Mcf) $1.95 $3.16 (38%) $2.01 $4.05 (50%)
Natural gas liquids ($/bbl) $67.10 $82.69 (19%) $63.30 $83.54 (24%)
Crude oil, net of transportation
($/bbl) $77.63 $90.90 (15%) $73.16 $91.00 (20%)
------------------------------------ ------- ------- ------- ------- -------- -------
Corporate average, net of
transport ($/boe)(1) $68.80 $73.02 (6%) $62.14 $61.75 1%
------------------------------------ ------- ------- ------- ------- -------- -------
(1)Non-IFRS measure
The Company realized prices of $68.80 and $62.14 per boe during
the three and nine months ended September 30, 2023 (2022: $73.02
and $61.75), respectively, as commodity prices decreased in 2023
compared with 2022 .
Operating Expenses
Three months ended Nine months ended
September 30 September 30
---------------------------
2023 2022 2023 2022
--------------------------- ------------- --------- ---------- ----------
Natural gas & NGL's 319,439 341,156 1,302,246 1,742,933
Crude oil 1,510,394 553,004 3,036,667 1,664,143
--------------------------- ------------- --------- ---------- ----------
Total operating expenses 1,829,833 894,160 4,338,913 3,407,076
--------------------------- ------------- --------- ---------- ----------
Natural gas ($/Mcf) $1.72 $1.93 $2.10 $2.24
Crude oil ($/bbl) $7.56 $6.24 $6.50 $10.09
Corporate ($/boe)(1) $7.92 $7.55 $7.59 $11.50
--------------------------- ------------- --------- ---------- ----------
(1)Non-IFRS measure
During the three and nine months ended September 30, 2023, Arrow
incurred operating expenses of $1,829,833 and $4,338,913 (2022:
$894,160 and $3,407,076), respectively. This increase is mainly due
to operating expenses incurred in the Company's new Carrizales
Norte field in the Tapir block.
Operating Netbacks
Three months ended Nine months ended
September 30 September 30
2023 2022 2023 2022
---------------------------------- --------- ---------- --------- ---------
Natural Gas ($/Mcf)
Revenue, net of transportation
expense $1.95 $3.16 $2.01 $4.05
Royalties ($0.05) ($0.35) ($0.02) ($0.64)
Operating expenses ($1.72) ($1.93) ($2.10) ($2.24)
---------------------------------- --------- ---------- --------- ---------
Natural Gas operating netback(1) $0.18 $0.88 ($0.11) $1.18
---------------------------------- --------- ---------- --------- ---------
Crude oil ($/bbl)
Revenue, net of transportation
expense $77.63 $90.90 $73.16 $91.00
Royalties ($9.45) ($10.97) ($9.02) ($10.61)
Operating expenses ($7.56) ($6.24) ($6.50) ($10.09)
---------------------------------- --------- ---------- --------- ---------
Crude Oil operating netback(1) $60.62 $73.69 $57.64 $70.30
---------------------------------- --------- ---------- --------- ---------
Corporate ($/boe)
Revenue, net of transportation
expense $68.80 $73.02 $62.14 $61.75
Royalties ($8.21) (8.72) ($7.40) ($7.59)
Operating expenses ($7.92) (7.55) ($7.59) ($11.50)
---------------------------------- --------- ---------- --------- ---------
Corporate Operating netback
(1) $52.67 $56.75 $47.15 $42.66
---------------------------------- --------- ---------- --------- ---------
(1) Non-IFRS measure
The operating netbacks of the Company continued within healthy
levels during 2023 due to several factors, mostly increasing
production from its Colombian assets, even factoring in decreased
crude oil prices, which were offset by decreases in natural gas
prices and operating expenses for natural gas.
General and Administrative Expenses (G&A)
Three months ended Nine months ended
September 30 September 30
2023 2022 2023 2022
----------------------------------- ----------- ----------- ----------- -----------
General & administrative expenses 2,069,314 2,490,114 7,259,939 5,139,135
G&A recovered from 3(rd) parties (145,225) (222,735) (468,975) (389,765)
----------------------------------- ----------- ----------- ----------- -----------
Total G&A 1,924,089 2,267,379 6,790,964 4,749,370
----------------------------------- ----------- ----------- ----------- -----------
Cost per boe $8.33 $30.74 $11.89 $16.03
For the three and nine months ended September 30, 2023, G&A
expenses before recoveries totaled $2,069,314 and $7,259,939 (2022:
$2,490,114 and $5,139,135), respectively, which represent a
decrease and an increase, respectively, when compared to the same
periods in 2022. These variances are mainly due to additional
personnel and legal services during 2023, payment of performance
bonuses to management and employees, as well as increase in
marketing expenses. Despite these increased expenses, and due to
the Company's increased production, G&A expenses remain
consistent, on a per barrel basis, to $11.89/boe when compared to
$16.03/boe for the nine months ended September 30, 2022.
Share-based Compensation
Three months ended Nine months ended
September 30 September 30
2023 2022 2023 2022
---------------------- ---------- --------- --------- ---------
Share-based Payments 149,102 110,876 440,360 214,712
---------------------- ---------- --------- --------- ---------
Share-based compensation expense for the three and nine months
ended September 30, 2023 totaled $149,102 and $440,360 (2022:
$110,876 and $214,712), respectively. During 2023, the Company has
granted 1,650,000 options to its personnel, which was offset by
reversal of expenses from cancelled options due to resignations of
option holders. The share-based compensation expense is the result
of the progressive vesting of the options granted to the Company's
employees, plus the effect of cashless exercising, and net of
cancellations and forfeitures, according to the company's
stock-based compensation plan.
Financing Costs
Three months ended Nine months ended
September 30 September 30
2023 2022 2023 2022
----------------------------------- ---------- --------- --------- ---------
Financing expense paid or payable 98,742 164,469 369,833 653,017
Non-cash financing costs 34,343 54,272 95,638 144,247
----------------------------------- ---------- --------- --------- ---------
Net financing costs 133,085 218,740 465,471 797,264
----------------------------------- ---------- --------- --------- ---------
The finance expense paid or payable represents mostly interest
on the promissory note due to Canacol, as partial payment for the
acquisition of Carrao Energy SA, and have decreased due to
repayment of the outstanding balance . 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 Nine months ended
September 30 September 30
2023 2022 2023 2022
---------------------------- ---------- ---------- ----------- ----------
Depletion and depreciation 3,972,850 1,809,340 10,067,403 3,649,932
---------------------------- ---------- ---------- ----------- ----------
Depletion and depreciation expense for the three and nine months
ended September 30, 2023 totaled $3,972,850 and $10,067,403 (2022:
$1,809,340 and $3,649,932), respectively. The increase is due to
higher carrying value of depletable property, plant 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.
Gain (loss) on Derivative Liability
Three months ended Nine months ended
September 30 September 30
2023 2022 2023 2022
------------------------------------- ------------- ----------- ----------- ----------
Gain (loss) on Derivative Liability (1,191,385) (543,659) (109,613) 4,968,934
------------------------------------- ------------- ----------- ----------- ----------
During the three and nine months ended September 30, 2023, the
Company recorded gains in derivative liability of $1,191,385 and
$109,613 (2022: $543,659 and loss of $4,968,934), respectively,
related to the valuation of its outstanding warrants issued during
its AIM listing and private placement completed in 2021. These
warrants provide the right to holders to convert them into common
shares at a fixed price set in a currency different to the
Company's functional currency and, therefore, they are considered a
liability and measured at fair value with changes recognized in the
statements of operations and comprehensive income (loss).
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 September 30, 2023, the Company has an adjusted working
capital of $10,822,475. The Company has continued improving its
working capital, using its operational cash flows to settle its
obligations and to continue growing its operations. The overall
improvement in energy commodity prices has also positively impacted
the Company's capacity to generate sufficient financial resources
to sustain its operations and growth.
As at September 30, 2023 the Company's net debt (net cash) was
calculated as follows:
September 30,
2023
-------------------------------------------------------- ------------ -----------------------------------------
Current assets $ 18,652,504
Less:
Accounts payable and accrued liabilities 6,549,995
Income taxes 1,176,316
------------------------------------------------------------------------------------------ ---------------------
Net debt (Net cash) (1) $ (10,296,193)
---------------------------------------------------------------------- ---------------- ---------------------
(1) Non-IFRS measure
Adjusted Working Capital
As at September 30, 2023 the Company's adjusted working capital
was calculated as follows:
September 30,
2023
--------------------------------------------------------- ------------ ---------------------------------------
Current assets:
Cash and restricted cash $ 12,891,190
Restricted cash and deposits 218,178
Trade and other receivables 2,797,577
Taxes receivable 1,735,143
Other current assets 1,010,416
Less:
Accounts payable and accrued liabilities 6,549,995
Lease obligation 103,718
Promissory note -
Income tax payable 1,176,316
------------------------------------------------------------------------------------------- -------------------
Adjusted Working capital(1) $ 10,822,475
----------------------------------------------------------------------- ---------------- -------------------
(1) Non-IFRS measure
Debt Capital
During 2023, the Company has paid off its a promissory note
payable to Canacol.
Letters of Credit
As at September 30, 2023, the Company had obligations under
Letters of Credit ("LC's") outstanding totaling $2.7 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. In this instance, the Company could risk losing its
entire interest in the applicable block, including all capital
expended to date and could possibly also incur additional
abandonment and reclamation costs if applied by the ANH.
Current Outstanding Letters of Credit
Contract Beneficiary Issuer Type Amount
(US Renewal
$) Date
-------------- ------------- --------------- ------------- ----------- ----------
SANTA ISABEL April 14,
ANH Carrao Energy Abandonment $563,894 2024
Financial December
ANH Carrao Energy Capacity $1,672,162 31, 2023
CORE - December
39 ANH Carrao Energy Compliance $100,000 31, 2023
Financial April 14,
OMBU ANH Carrao Energy Capacity $436,300 2024
-------------- ------------- --------------- ------------- ----------- ----------
Total $2,772,356
===========
Share Capital
As at September 30, 2023, the Company had 245,526,041 common
shares, 40,713,308 warrants and 20,865,000 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 September 30, 2023:
Less than
1 year 1-3 years Thereafter Total
Exploration and
production
contracts - 17,800,000 - 17,800,000
------------------------------- --------------------- ---------------------- -------------------- ----------------------
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 and issue financial guarantees related thereto. In
aggregate, the Company has outstanding exploration commitments of
$17.8 million. The Company, in conjunction with its partners, have
made applications to cancel its commitments on the COR-39, Macaya
and Los Picachos blocks.
On November 17, 2023, the ANH confirmed the termination by
mutual agreement of the Macaya block exploration and production
contract. This contract included minimum work commitments for
$3,830,000 for the Company, which have been waived by the ANH
according to the terms of termination.
SUMMARY OF THREE MONTHS RESULTS
2023 2022 2021
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------
Oil and
natural
gas sales,
net
of royalties 13,990,353 11,637,968 6,992,860 8,931,562 7,614,336 5,024,604 3,911,329 3,038,832
Net income
(loss) 7,153,120 (757,416) 2,989,735 2,968,117 2,041,955 768,318 (5,431,865) 6,960,035
Income (loss)
per share -
basic 0.03 (0.00) 0.01 0.01 0.02 0.00 (0.03) 0.04
diluted 0.02 (0.00) 0.01 0.01 0.00 0.00 (0.02) 0.04
Working
capital
(deficit) 10,822,475 (2,363,388) 2,619,715 (1,316,665) 7,392,310 5,594,027 7,657,938 8,006,074
Total assets 62,755,250 56,305,530 53,719,944 53,190,248 46,979,259 42,670,153 39,914,240 41,195,798
Net capital
expenditures 5,471,561 6,870,258 4,271,693 2,106,463 4,836,860 2,777,611 725,665 1,991,163
Average daily
production
(boe/d) 2,518 2,169 1,635 1,736 1,503 980 1,144 712
------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------
The Company's oil and natural gas sales have increased 84% in
2023 when compared to Q3 2022 due to increased production in its
existing assets and healthy oil and gas prices. The Company's
production levels in Colombia continue growing. Trends in the
Company's net income are also impacted most significantly by
operating expenses, financing costs, income taxes, depletion,
depreciation and impairment of oil and gas properties, and other
income.
OUTSTANDING SHARE DATA
At November 27, 2023, the Company had the following securities
issued and outstanding:
Exercise
Number Price Expiry Date
------------------------- ------------------------- ------------------------- -------------------------------------
Common shares 285,864,348 n/a n/a
Stock options 750,000 CAD$ 1.15 October 22, 2028
Stock options 270,000 CAD$ 0.31 May 3, 2029
Stock options 1,200,000 CAD$ 0.05 March 20, 2030
Stock options 2,000,000 CAD$ 0.05 April 13, 2030
Stock options 5,966,668 GBP 0.07625 June 13, 2024 and 2025
Stock options 2,300,000 CAD$0.28 Dec. 9, 2023, 2024 and
2025
Stock options 1,250,000 CAD$0.26 Mar. 7, 2024, 2025 and
2026
Stock options 5,478,332 GBP 0.1675 June 21, 2024, 2025 and
2026
Stock options 650,000 GBP 0.1925 July 23, 2024, 2025 and
2026
Stock options 1,000,000 CAD $0.33 Mar. 21, 2024, 2025 and
2026
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 2022 and 2023, providing Arrow with the funds required to
continue with its capital program for 2023.
To date, the Company has already drilled eight wells of its 2023
budget (four at Rio Cravo, three at Carrizales Norte and one in Oso
Pardo), which have increased overall production and more wells
being drilled in Q4 2024. This confirms Arrow's commitment to
increase production and shareholder value. The Company is able to
support the remaining planned 2023 CAPEX program with current cash
on hand and cashflow from operations.
CRITICAL ACCOUNTING ESTIMATES
A summary of the Company's critical accounting estimates is
contained in Note 3 of the 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 SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is
included in 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, 2022 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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END
QRTBPBBTMTTTTBJ
(END) Dow Jones Newswires
November 29, 2023 02:00 ET (07:00 GMT)
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