REG - Arrow Exploration - Q1 2024 Interim Results
30/05/2024 07:00
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RNS Number : 3486Q Arrow Exploration Corp. 30 May 2024
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JURISDICTION.
ARROW ANNOUNCES Q1 2024 INTERIM RESULTS
CALGARY, May 30, 2024 - Arrow Exploration Corp. (AIM: AXL; TSXV: AXL) ("Arrow"
or the "Company"), the high-growth operator with a portfolio of assets across
key Colombian hydrocarbon basins, announces the filing of its Interim
Condensed (unaudited) Consolidated Financial Statements and Management's
Discussion and Analysis ("MD&A") for the three months ended March 31, 2024
which are available on SEDAR (www.sedar.com (http://www.sedar.com) ) and will
also be available shortly on Arrow's website at www.arrowexploration.ca
(http://www.arrowexploration.ca) .
Q1 2024 Highlights:
· Recorded $14.4 million of total oil and natural gas revenue, net of
royalties, more than double compared to the same period in 2023 (Q1 2023: $6.9
million).
· Net income of $3.2 million (Q1 2023: $3.0 million).
· Adjusted EBITDA((1)) of $10 million more than double compared to 2023
(Q1 2023: $4.4 million).
· Average corporate production up 139% to 2,730 boe/d (Q1 2023: 1,144
boe/d).
· Realized corporate oil operating netbacks((1)) of $56.27/bbl.
· Cash position of $11.6 million at the end of Q1 2024.
· Generated operating cashflows of $8.6 million (Q1 2023: $2.4
million).
· Successfully drilled four development Carrizales Norte (CN) wells,
resulting in additional production and reserves additions.
((1))Non-IFRS measures - see "Non-IFRS Measures" section
Post Period End Highlights:
· Drilled two additional CN development wells.
· Spud the first CN Horizontal well ("CNB HZ-1") from the Carrizales
Norte B ("CNB") pad. The Company expects to be able to provide an update on
the production figures for CNB HZ-1 in the coming weeks. Subject to
successful completion, CNB HZ-1, in conjunction with the other three planned
CNB HZ wells, are expected to result in a positive increase in Arrow's
production rates.
Outlook:
· Continued monitoring of the drilling of the horizontal wells at
Carrizales Norte B pad.
· Completing stimulation efforts at the Oso Pardo-3 and 4 wells in the
Middle Magdalena Basin.
· Continuing with the balance of the 2024 capital program, the majority
of which will be focused on the Carrizales Norte field 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:
"In Q1 2024, Arrow experienced its strongest quarter to date for production
and EBITDA. The Q1 2024 wells drilled, at the Carrizales Norte discovery,
explored the extent of the C7 and Ubaque reservoir and gathered further data
for the horizontal drilling program. Horizontal wells have been determined
as the best way to develop the Ubaque reservoir and are expected to thrust
Arrow to the next level for production and stability. The water disposal
plan has also made great strides forward with the first disposal well at RCE
being brough on production and the CN-4 well's conversion currently waiting on
regulatory approval. Management remains confident in the Arrow team to
execute on the planned exploitation campaign pursuing our opportunity rich
portfolio and getting shareholder value to the next level."
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended March 31, 2024 Three months ended March 31, 2023
(in United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 14,404,921 6,992,860
Funds flow from operations ((1)) 7,210,683 4,240,603
Funds flow from operations ((1)) per share -
Basic($) 0.03 0.02
Diluted ($) 0.02 0.01
Net income 3,176,727 2,989,735
Net income per share -
Basic ($) 0.01 0.01
Diluted ($) 0.01 0.01
Adjusted EBITDA ((1)) 10,021,140 4,271,726
Weighted average shares outstanding -
Basic ($) 285,864,348 222,717,847
Diluted ($) 292,791,385 288,639,348
Common shares end of period 285,864,348 228,979,841
Capital expenditures 6,281,328 4,271,693
Cash and cash equivalents 11,606,343 12,354,424
Current Assets 20,779,081 15,849,150
Current liabilities 11,258,252 13,315,499
Adjusted working capital ((1)) 9,520,829 9,325,680
Long-term portion of restricted cash ((2)) 237,814 831,048
Total assets 64,579,940 53,719,944
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 1,760 4,221
Natural gas liquids (bbl/d) 4 6
Crude oil (bbl/d) 2,432 434
Total (boe/d) 2,730 1,144
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($0.14) $0.73
Crude oil ($/bbl) $56.27 $48.94
Total ($/boe) $50.10 $20.16
((1))Non-IFRS measures - see "Non-IFRS Measures" section within this MD&A
((2))Long term restricted cash not included in working capital
Discussion of Operating Results
The Company increased its production from new wells at CN which allowed the
Company to continue to improve its operating results and EBITDA. There has
been a decrease in the Company's natural gas production in Canada due to
natural declines.
Average Production by Property
Average Production Boe/d Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022
Oso Pardo 166 80 93 130 138 115
Ombu (Capella) - - - - 80 238
Rio Cravo Este (Tapir) 1,644 1,326 1,443 1,592 1,004 832
Carrizales Norte (Tapir) 622 621 642 57 - -
Total Colombia 2,432 2,027 2,178 1,779 1,222 1,185
Fir, Alberta 78 80 81 77 74 79
Pepper, Alberta 220 228 259 313 340 472
TOTAL (Boe/d) 2,730 2,335 2,518 2,169 1,635 1,736
For the three months ended March 31, 2024, the Company's average production
was 2,730 boe/d, which consisted of crude oil production in Colombia of 2,432
bbl/d, natural gas production of 1,760 Mcf/d and minor amounts of natural gas
liquids from the Company's Canadian properties. The Company's Q1 2024 total
production was 138% higher than its total production for the same period in
2023.
Discussion of Financial Results
During Q1 2024 the Company continued to realize good oil prices, offset by
lower gas prices, as summarized below:
Three months ended March 31
2024 2023 Change
Benchmark Prices
AECO ($/Mcf) $2.55 $3.28 (22%)
Brent ($/bbl) $84.67 $79.21 7%
West Texas Intermediate ($/bbl) $76.95 $76.10 1%
Realized Prices
Natural gas, net of transportation ($/Mcf) $1.87 $2.11 (11%)
Natural gas liquids ($/bbl) $66.20 $66.13 0%
Crude oil, net of transportation ($/bbl) $73.31 $73.31 0%
Corporate average, net of transport ($/boe) $66.58 $57.23 16%
( (1)Non-IFRS measure)
Operating Netbacks
The Company also continued to realize strong oil operating netbacks, as
summarized below:
Three months ended
March 31
2024 2023
Natural Gas ($/Mcf)
Revenue, net of transportation expense $1.87 $2.11
Royalties ($0.10) (0.19)
Operating expenses ($1.91) (2.34)
Natural gas operating netback((1)) ($0.14) ($0.42)
Crude oil ($/bbl)
Revenue, net of transportation expense $73.31 $73.31
Royalties ($9.00) (9.11)
Operating expenses ($8.04) (5.88)
Crude oil operating netback((1)) $56.27 $58.31
Corporate ($/boe)
Revenue, net of transportation expense $66.58 $57.23
Royalties ($8.08) (6.98)
Operating expenses ($8.40) (8.03)
Corporate operating netback((1)) $50.10 $42.21
( (1))Non-IFRS measure
The operating netbacks of the Company remained strong in Q1 2024 due to
several factors, principally the increase in production from its Colombian
assets and increased crude oil prices. In Cananda, decreases in natural gas
prices were offset by reduced operating expenses for natural gas.
During the first three months of 2024, the Company incurred $6.3 million of
capital expenditures, primarily in connection with the drilling of four CN
wells and civil works completed in the Baquiano pad in the Tapir block to get
it ready for drilling. This accelerated tempo is expected to continue during
the remainder of 2024, funded by cash on hand and cashflow.
For further Information, contact:
Arrow Exploration
Marshall Abbott, CEO +1 403 651 5995
Joe McFarlane, CFO +1 403 818 1033
Canaccord Genuity (Nominated Advisor and Joint Broker)
Henry Fitzgerald-O'Connor +44 (0)20 7523 8000
James Asensio
George Grainger
Auctus Advisors (Joint Broker)
Jonathan Wright +44 (0)7711 627449
Rupert Holdsworth Hunt
Camarco (Financial PR)
Andrew Turner +44 (0)20 3781 8331
Rebecca Waterworth
About Arrow Exploration Corp.
Arrow Exploration Corp. (operating in Colombia via a branch of its 100% owned
subsidiary Carrao Energy S.A.) is a publicly traded company with a portfolio
of premier Colombian oil assets that are underexploited, under-explored and
offer high potential growth. The Company's business plan is to expand oil
production from some of Colombia's most active basins, including the Llanos,
Middle Magdalena Valley (MMV) and Putumayo Basin. The asset base is
predominantly operated with high working interests, and the Brent-linked light
oil pricing exposure combines with low royalties to yield attractive potential
operating margins. Arrow's 50% interest in the Tapir Block is contingent on
the assignment by Ecopetrol SA of such interest to Arrow. Arrow's seasoned
team is led by a hands-on executive team supported by an experienced board.
Arrow is listed on the AIM market of the London Stock Exchange and on TSX
Venture Exchange under the symbol "AXL".
Forward-looking Statements
This news release contains certain statements or disclosures relating to Arrow
that are based on the expectations of its management as well as assumptions
made by and information currently available to Arrow which may constitute
forward-looking statements or information ("forward-looking statements") under
applicable securities laws. All such statements and disclosures, other than
those of historical fact, which address activities, events, outcomes, results
or developments that Arrow anticipates or expects may, could or will occur in
the future (in whole or in part) should be considered forward-looking
statements. In some cases, forward-looking statements can be identified by the
use of the words "continue", "expect", "opportunity", "plan", "potential" and
"will" and similar expressions. The forward-looking statements contained in
this news release reflect several material factors and expectations and
assumptions of Arrow, including without limitation, Arrow's evaluation of the
impacts of 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 MONTHS ended MARCH 31, 2024 AND 2023
IN UNITED STATES DOLLARS
(UNAUDITED)
Notice of No Auditor Review of the Interim Condensed Consolidated Financial
Statements
as at and for the three months ended March 31, 2024
Under National Instrument 51-102, Part 4, subsection 4.3 (3)(a), if an auditor
has not performed a review of the interim condensed consolidated financial
statements, they must be accompanied by a notice indicating that an auditor
has not reviewed the financial statements.
The accompanying unaudited interim condensed consolidated financial statements
of the Company have been prepared by and are the responsibility of the
Company's management.
The Company's independent auditor has not performed a review of these
financial statements in accordance with standards established by the Chartered
Professional Accountants of Canada for a review of interim financial
statements by an entity's auditor.
Arrow Exploration Corp.
Interim Consolidated Statements of Financial Position
In United States Dollars
(Unaudited)
As at Notes March 31, 2024 December 31, 2023
ASSETS
Current assets
Cash $ 11,606,342 $ 12,135,376
Restricted cash and deposits 3 273,274 611,753
Trade and other receivables 4 3,237,382 3,536,936
Taxes receivable 5 4,819,478 4,655,399
Deposits and prepaid expenses 350,365 197,402
Inventory 492,240 492,332
20,779,081 21,629,198
Non-current assets
Deferred income taxes 2,157,575 2,031,383
Restricted cash and deposits 3 237,814 243,081
Exploration and evaluation assets 6 578,082 -
Property and equipment 7 40,827,388 38,371,361
Total Assets $ 64,579,940 $ 62,275,023
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 6,698,702 $ 9,747,906
Lease obligation 8 108,583 103,674
Income taxes 4,450,967 3,108,504
11,258,252 12,960,084
Non-current liabilities
Lease obligations 8 193,136 216,919
Other liabilities 345,528 345,528
Deferred income taxes 3,855,953 3,269,894
Decommissioning liability 9 4,282,861 3,973,075
Total liabilities 19,935,730 20,765,500
Shareholders' equity
Share capital 11 73,829,795 73,829,795
Contributed surplus 2,263,223 2,161,945
Deficit (30,769,168) (33,945,895)
Accumulated other comprehensive loss (679,640) (536,322)
Total shareholders' equity 44,644,210 41,509,523
Total liabilities and shareholders' equity $ 64,579,940 $ 62,275,023
Commitments and contingencies (Note 12)
The accompanying notes are an integral part of these interim consolidated
financial statements.
On behalf of the Board:
signed "Gage Jull"
Director
signed "Ian Langley" Director
Gage
Jull
Ian Langley
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Operations and Comprehensive
Income
In United States Dollars
(Unaudited)
For the three months ended March 31, Notes 2024 2023
Revenue
Oil and natural gas 14 $ 16,393,642 $ 7,964,857
Royalties 14 (1,988,721) (971,997)
Total oil and natural gas revenue, net of royalties 14,404,921 6,992,860
Expenses
Operating 2,069,011 1,117,590
Administrative 2,681,922 1,619,470
Share-based compensation expense 11 101,278 132,240
Financing costs:
Accretion 9 37,376 29,156
Interest 8 9,769 60,887
Other 199,065 45,682
Foreign exchange (gain) loss (288,739) (40,816)
Depletion and depreciation 7 3,531,772 2,454,364
Gain on derivative liability 10 - (1,354,275)
Other expenses (income) (78,412) (61,173)
Total expenses, net 8,263,042 4,003,125
Income before income tax 6,141,879 2,989,735
Income tax expense
Current 14 2,505,285 -
Deferred 14 459,867 -
2,965,152 -
Net income 3,176,727 2,989,735
Other comprehensive income (loss)
Foreign exchange (143,318) (18,420)
Total other comprehensive income (loss) (143,318) (18,420)
Total comprehensive income $ 3,033,409 $ 2,971,315
Net income per share:
Basic $ 0.01 $ 0.01
Diluted $ 0.01 $ 0.01
Weighted average shares outstanding
Basic 285,864,348 222,717,847
Diluted 292,791,385 288,639,348
The accompanying notes are an integral part of these consolidated financial
statements.
Arrow Exploration Corp.
Interim Condensed Statements of Changes in Shareholders' Equity
In United States Dollars
(Unaudited)
Accumulated other comprehensive loss
Contributed Surplus
Share Capital Deficit Total Equity
Balance January 1, 2024 $ 73,829,795 $ 2,161,945 $ (536,322) $ (33,945,895) $ 41,509,523
Net income for the period - - - 3,176,727 3,176,7`27
Other comprehensive income - - (143,318) - (143,318)
Total comprehensive income - - (143,318) 3,176,727 3,033,409
Share-based compensation - 101,278 - - 101,278
Balance March 31, 2024 $ 73,829,795 $ 2,263,223 $ (679,640) $ (30,769,168) $ 44,644,210
Accumulated other comprehensive loss
Contributed Surplus
Share Capital Deficit Total Equity
Balance January 1, 2023 $ 57,810,735 $ 1,570,491 $ (645,372) $ (32,839,282) $ 25,896,572
Net income for the period - - - 2,989,735 2,989,735
Other comprehensive loss - - (18,420) - (18,420)
Total comprehensive income - - (18,420) 2,989,735 2,971,315
Issuances of common shares, net 2,635,484 - - - 2,635,484
Share-based compensation - 132,240 - - 132,240
Balance March 31, 2023 $ 60,446,219 $ 1,702,731 $ (663,792) $ (29,849,547) $ 31,635,611
The accompanying notes are an integral part of these consolidated financial
statements.
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Cash Flows
In United States Dollars
(Unaudited)
For the three months ended March 31, 2024 2023
Cash flows provided by operating activities:
Net income $ 3,176,727 $ 2,989,735
Items not involving cash:
Deferred taxes 459,867 -
Share-based compensation 11 101,278 132,240
Depletion and depreciation 7 3,531,772 2,454,364
Interest on leases 8 9,769 1,596
Interest on promissory note - 60,887
Accretion 9 37,376 29,156
Unrealized foreign exchange loss (35,877) (73,101)
Gain on derivative liability 10 - (1,354,275)
Payment of asset decommissioning obligations 9 (70,229) -
Changes in non‑cash working capital balances:
Restricted cash and deposits 343,746 (12,266)
Trade and other receivables 299,554 1,704,944
Taxes receivable (164,078) (602,369)
Deposits and prepaid expenses (152,963) (113,612)
Inventory 92 (117,798)
Income tax payable 1,342,465 (2,482,665)
Accounts payable and accrued liabilities (297,211) (236,642)
Cash provided by operating activities 8,582,288 2,380,195
Cash flows used in investing activities:
Additions to exploration and evaluation assets 6 (578,082) (972,692)
Additions to property and equipment 7 (5,703,246) (3,299,001)
Changes in non-cash working capital (2,751,994) (11,916)
Cash flows used in investing activities (9,033,322) (4,283,609)
Cash flows provided by (used in) financing activities:
Issuances of common shares 11 - 1,147,827
Lease payments 8 (20,486) (11,586)
Cash flows provided by (used in) financing activities (20,486) 1,136,241
Effect of changes in the exchange rate on cash (57,514) 60,628
(Decrease) increase in cash (529,034) (706,545)
Cash, beginning of period 12,135,377 13,060,969
Cash, end of period 11,606,342 12,354,424
Supplemental information
Interest paid $ - $ -
Taxes paid $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
Arrow Exploration Corp.
Notes to the Interim Condensed Consolidated Financial Statements
In United States Dollars
(Unaudited)
March 31, 2024
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 May 29,
2024. They do not contain all disclosures required by International Financial
Reporting Standards ("IFRS") for annual financial statements and, accordingly,
should be read in conjunction with the audited consolidated financial
statements as at December 31, 2023.
These Financial Statements have been prepared on the historical cost basis,
except for financial assets and liabilities recorded in accordance with IFRS
9. The Financial Statements have been prepared using the same accounting
policies and methods as the consolidated financial statements for the year
ended December 31, 2023, except for the adoption of new accounting standards
effective January 1, 2024. In preparing these condensed consolidated financial
statements, the significant judgements made by management in applying the
group's accounting policies and the key sources of estimation uncertainty were
the same as those that applied to the consolidated financial statements for
the year ended December 31, 2023.
Adoption of New Accounting Standards
The Company adopted amendments to IAS 1 Presentation of Financial Statements,
issued by the IASB, related to the presentation of liabilities as current or
non-current and classification and disclosure of liabilities with covenants.
These amendments were adopted by the Company from January 1, 2024 but they did
not have a material impact on the interim consolidated financial statements.
3. Restricted Cash and deposits
March 31, December 31, 2023
2024
Colombia (i) $ 311,082 $ 312,530
Canada (ii) 200,006 542,304
Sub-total 511,088 854,834
Long-term portion (237,814) (243,081)
Current portion of restricted cash and deposits $ 273,274 $ 611,753
(i) This balance is comprised of a deposit held as
collateral to guarantee abandonment expenditures related to the Tapir and
Santa Isabel blocks.
(ii) During Q1 2024, the Company was able to recover its
$337,031 (CAD $445,749) deposit related to the Company's liability rating
management ("LMR"). This deposit was held by a Canadian chartered bank with
interest paid to the Company on a monthly basis based on the bank's deposit
rate. The remaining $200,006 (2023: $205,273) pertain to commercial deposits
with customers, lease and other deposits held in Canada.
4. Trade and other receivables
March 31, December 31, 2023
2024
Trade receivables, net of advances $ 2,394,419 $ 2,238,918
Other accounts receivable 842,963 1,298,018
$ 3,237,382 $ 3,536,936
As at March 31, 2024, other accounts receivable include $680,976 (December 31,
2023 - $682,197) receivable from on demand loans with executives and
directors.
5. Taxes receivable
March 31, December 31, 2023
2024
Value-added tax (VAT) credits recoverable $ 2,087,691 $ 1,703,260
Income tax withholdings and advances, net 2,731,787 2,952,139
$ 4,819,478 $ 4,655,399
The VAT recoverable balance pertains to non-compensated value-added tax
credits originated in Colombia as operational and capital expenditures are
incurred. The Company is entitled to compensate or claim for the reimbursement
of these VAT credits.
6. Exploration and Evaluation
March 31, December 31,
2024 2023
Balance, beginning of the period $ - $ -
Additions, net 578,082 3,212,808
Reclassification to Property and Equipment (Note 8) - (3,212,808)
Balance, end of the period $ 578,082 $ -
During 2023, the Company incurred in geological and geophysical costs in its
Carrizales Norte prospect located in its Tapir block, and determined the
technical feasibility and commercial viability of these assets, transferring
$3,212,808 to its property and equipment. An impairment test on these assets
was prepared and no losses were identified as a result of such tests.
7. Property and Equipment
Oil and Gas Properties Right of Use and Other Assets
Cost Total
Balance, December 31, 2022 $ 47,545,026 $ 234,156 $ 47,779,182
Additions 23,907,357 310,061 24,217,418
Dispositions (111,151) - (111,151)
Transfers from exploration and evaluation assets 3,212,808 - 3,212,808
Decommissioning adjustment 738,825 - 738,825
Balance, December 31, 2023 $ 75,292,865 $ 544,217 $ 75,837,082
Additions 5,703,481 - 5,703,481
Decommissioning adjustment 368,679 - 368,679
Balance, March 31, 2024 $ 81,365,025 $ 544,217 $ 81,909,242
Accumulated depletion and depreciation and impairment
Balance, December 31, 2022 $ 13,153,709 $ 161,236 $ 13,314,945
Depletion and depreciation 12,120,871 65,906 12,186,777
Impairment loss of oil and gas properties 11,799,740 - 11,799,740
Balance, December 31, 2023 $ 37,074,320 $ 227,142 $ 37,301,462
Depletion and depreciation 3,503,305 28,267 3,531,772
Balance, March 31, 2024 $ 40,577,825 $ 255,409 $ 40,833,234
Foreign exchange
Balance December 31, 2022 $ (249,908) $ (8,719) $ (258,627)
Effects of movements in foreign
exchange rates 88,671 5,697 94,368
Balance December 31, 2023 $ (161,237) $ (3,022) $ (164,259)
Effects of movements in foreign
exchange rates (76,781) (7,580) (84,361)
Balance March 31, 2024 $ (238,018) $ (10,602) $ (248,620)
Net Book Value
Balance December 31, 2023 $ 38,057,308 $ 314,053 $ 37,371,361
Balance March 31, 2024 $ 40,459,183 $ 278,206 $ 40,827,388
Canada
As at December 31, 2023, the Company determined there were indicators of
impairment in its Canada CGU, mainly due to decreases in forward gas prices
and revision of reserves, and prepared estimates of its fair value less costs
of disposal of its Canada CGU. It was determined that carrying value of its
Canada CGU exceeded its recoverable amount and, therefore, an impairment loss
of $1,248,400 was included in the consolidated statements of operations and
comprehensive (loss) income for the three months and year ended December 31,
2023.
Colombia
During 2023, the Agencia Nacional de Hidrocarburos ("ANH") approved the
suspension of the obligations and operations of the OMBU contract due to force
majeure circumstances generated by the blockades and social unrest around the
Capella field. The suspension was for an initial term of three months and has
been extended until August 2024. At December 31, 2023, the Company determined
there were indicators of impairment in the Capella CGU based on updates from
the operator once access to the field was restored in late 2023 causing
uncertainty in timing and resources required to resume operations, as well as
the extent of which operations may be able to be resumed. The Company has
recorded an impairment loss of $10,551,340 corresponding to the full carrying
value of the Capella CGU as at December 31, 2023.
8. Lease Obligations
A reconciliation of the discounted lease obligation is set forth below:
2024 2023
Obligation, beginning of the year 320,593 $ 63,751
Additions - 302,930
Lease payments (20,486) (74,211)
Interest 9,769 22,011
Effects of movements in foreign exchange rates (8,157) 6,112
Obligation, end of the year 301,719 320,593
Current portion (108,583) (103,674)
Long-term portion 193,316 216,919
As at March 31, 2024, the Company has the following future lease obligations:
Less than one year 108,771
2 - 5 years 291,186
Total lease payments 399,957
Amounts representing interest over the term (98,238)
Present value of the net obligation 301,719
9. Decommissioning Liability
The following table presents the reconciliation of the beginning and ending
aggregate carrying amount of the obligation associated with the
decommissioning of oil and gas properties:
December 31, December 31,
2023 2023
Obligation, beginning of the year 3,973,075 $ 3,303,301
Additions 368,679 1,000,889
Change in estimated cash flows - (262,066)
Payments or settlements (70,229) (19,545)
Dispositions - (191,081)
Accretion expense 37,376 127,478
Effects of movements in foreign exchange rates (26,040) 14,099
4,282,861 3,973,075
Obligation, end of the year
The obligation was calculated using a risk-free discount rate range of 1.25%
to 4.50% in Canada (2023: 1.25% to 4.50%) and between 4.00% and 4.29% in
Colombia (2022: 4.00% and 4.29%) with an inflation rate of 2.5% and 2.6%,
respectively (2023: 2.5% and 2.6%). The majority of costs are expected to
occur between 2024 and 2038.
The undiscounted amount of cash flows, required over the estimated reserve
life of the underlying assets, to settle the obligation, adjusted for
inflation, is estimated at $6,092,913 (2023: $5,686,938).
10. Derivative liability
Derivative liability includes warrants issued and outstanding as follows:
March 31, December 31,
2024 2023
Warrants Number Amounts Number Amounts
Balance beginning of the period - $ - 67,837,418 $ 9,540,423
Exercised - - (67,462,418) (8,539,257)
Expired - - (375,000) (50,589)
Fair value adjustment - - - (1,041,992)
Foreign exchange - - - 91,415
Balance end of the period - $ - - $ -
There are no warrants outstanding nor exercisable at March 31, 2024 or
December 31, 203.
11. Share Capital
(a) Authorized: Unlimited number of common shares without par value
(b) Issued:
March 31, 2024 December 31, 2023
Common shares Shares Amounts Shares Amounts
Balance beginning of the period 285,864,348 73,829,795 218,401,931 57,810,735
Issued from warrants exercised - - 67,462,417 16,019,060
Balance at end of the period 285,864,348 73,829,795 285,864,348 73,829,795
(b) Stock options:
The Company has a stock option plan that provides for the issuance to its
directors, officers, employees and consultants options to purchase a number of
non-transferable common shares not exceeding 10% of the common shares that are
outstanding. The exercise price is based on the closing price of the Company's
common shares on the day prior to the day of the grant. A summary of the
Company stock option plan as at March 31, 2024 and December 31, 2023 and
changes during the periods ended on those dates is presented below:
March 31, 2024 December 31, 2023
Stock Options Number of options Weighted average Number of options Weighted average
exercise price exercise price
(CAD $) (CAD $)
Beginning of period 20,531,668 $0.24 20,590,000 $0.18
Granted - - 1,650,000 $0.27
Expired/Forfeited - - (1,375,000) $0.12
Exercised 3,177,221 $18.32 (333,332) $0.11
End of period 17,354,447 $0.24 20,531,668 $0.24
Exercisable, end of period 6,918,887 $0.25 9,879,441 $0.42
Date of Grant Number Outstanding Exercise Price Weighted Date of Number
(CAD $) Average Remaining Contractual Life Expiry Exercisable
March 31, 2024
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 1,200,000 $0.05 April 13, 2030 1,200,000
December 13, 2021 5,150,002 $0.13 June 13, 2024 and 2025 2,166,666
June 9, 2022 1,533,335 $0.28 Dec. 9, 2023, 2024 and 2025 -
September 7, 2022 833,334 $0.26 Mar. 7, 2024, 2025 and 2026 -
December 21, 2022 4,951,110 $0.28 June 21, 2024, 2025 and 2026 1,298,888
January 23, 2023 466,666 $0.32 July 23, 2024, 2025 and 2026 33,333
September 21, 2023 1,000,000 $0.33 Mar. 21, 2025, 2026 and 2027 -
Total 17,354,447 $0.23 2.05 years 6,918,887
During the three months ended March 31, 2024, the Company recognized $101,278
(2023: $132,240) as share-based compensation expense, with a corresponding
effect in the contributed surplus account.
12. Commitments and Contingencies
Exploration and Production Contracts
The Company has entered into a number of exploration contracts in Colombia
which require the Company to fulfill work program commitments and issue
financial guarantees related thereto. In aggregate, the Company has
outstanding exploration commitments at March 31, 2024 of $12 million. The
Company has made an application to the ANH to mutually cancel its COR-39
contract. Presented below are the Company's exploration and production
contractual commitments at December 31, 2023:
Block Less than 1 year 1-3 years Thereafter Total
COR-39 - 12,000,000 - 12,000,000
Total - - 12,000,000
12,000,000
Contingencies
From time to time, the Company may be involved in litigation or has claims
sought against it in the normal course of business operations. Management of
the Company is not currently aware of any claims or actions that would
materially affect the Company's reported financial position or results from
operations. Under the terms of certain agreements and the Company's by-laws
the Company indemnifies individuals who have acted at the Company's request to
be a director and/or officer of the Company, to the extent permitted by law,
against any and all damages, liabilities, costs, charges or expenses suffered
by or incurred by the individuals as a result of their service.
Letters of Credit
At March 31, 2024, the Company had obligations under Letters of Credit
("LC's") outstanding totaling $2.8 million to guarantee work commitments on
exploration blocks and other contractual commitments. In the event the Company
fails to secure the renewal of the letters of credit underlying the ANH
guarantees, or any of them, the ANH could decide to cancel the underlying
exploration and production contract for a particular block, as applicable.
Current Outstanding Letters of Credit
Contract Beneficiary Issuer Type Amount Renewal Date
(US $)
SANTA ISABEL ANH Carrao Energy Abandonment $563,894 April 14, 2025
ANH Carrao Energy Financial Capacity $1,672,162 June 30, 2024
CORE - 39 ANH Carrao Energy Compliance $100,000 June 30, 2024
OMBU ANH Carrao Energy Financial Capacity $436,300 October 14, 2024
Total $2,772,356
13. Risk Management
The Company holds various forms of financial instruments. The nature of these
instruments and the Company's operations expose the Company to commodity
price, credit and foreign exchange risks. The Company manages its exposure to
these risks by operating in a manner that minimizes its exposure to the extent
practical.
(a) Commodity price risk
Commodity price risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate as a result of changes in commodity
prices. Lower commodity prices can also impact the Company's ability to
raise capital. Commodity prices for crude oil are impacted by world economic
events that dictate the levels of supply and demand. There were no
derivative contracts during 2024 and 2023.
(b) Credit Risk
Credit risk reflects the risk of loss if counterparties do not fulfill their
contractual obligations. The majority of the Company's account receivable
balances relate to petroleum and natural gas sales. The Company's policy is
to enter into agreements with customers that are well established and well
financed entities in the oil and gas industry such that the level of risk is
mitigated. In Colombia, a significant portion of the sales is with a producing
company and a commodities trader under existing sale/offtake agreements with
prepayment provisions and priced using the Brent benchmark. The Company's
trade account receivables primarily relate to sales of crude oil and natural
gas, which are normally collected within 25 days (in Canada) and up to 15 days
(in Colombia) after the month of production.
Other accounts receivable mainly relate to balances owed by the Company's
partner in one of its blocks, and are mainly recoverable through join
billings. The Company has historically not experienced any collection issues
with its customers and partners.
(c) Market Risk
Market risk is comprised of two components: foreign currency exchange risk and
interest rate risk.
i) Foreign Currency Exchange Risk
The Company operates on an international basis and therefore foreign exchange
risk exposures arise from transactions denominated in currencies other than
the United States dollar. The Company is exposed to foreign currency
fluctuations as it holds cash and incurs expenditures in exploration and
evaluation and administrative costs in foreign currencies. The Company incurs
expenditures in Canadian dollars, United States dollars, British Pounds and
the Colombian peso and is exposed to fluctuations in exchange rates in these
currencies. There are no exchange rate contracts in place.
ii) Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a
result of changes in market interest rates. The Company is not currently
exposed to interest rate risk.
(d) Liquidity Risk
Liquidity risk includes the risk that, as a result of the Company's
operational liquidity requirements:
· The Company will not have sufficient funds to settle a
transaction on the due date;
· The Company will be forced to sell financial assets at a value
which is less than what they are worth; or
· The Company may be unable to settle or recover a financial asset.
The Company's approach to managing its liquidity risk is to ensure, within
reasonable means, sufficient liquidity to meet its liabilities when due, under
both normal and unusual conditions, without incurring unacceptable losses or
jeopardizing the Company's business objectives. The Company prepares annual
capital expenditure budgets which are monitored regularly and updated as
considered necessary. Petroleum and natural gas production is monitored
daily to provide current cash flow estimates and the Company utilizes
authorizations for expenditures on projects to manage capital expenditures.
Any funding shortfall may be met in a number of ways, including, but not
limited to, the issuance of new debt or equity instruments, further
expenditure reductions and/or the introduction of joint venture partners.
(e) Capital Management
The Company's objective is to maintain a capital base sufficient to provide
flexibility in the future development of the business and maintain investor,
creditor and market confidence. The Company manages its capital structure
and makes adjustments in response to changes in economic conditions and the
risk characteristics of the underlying assets. The Company considers its
capital structure to include share capital, bank debt (when available),
promissory notes and working capital, defined as current assets less current
liabilities. From time to time the Company may issue common shares or other
securities, sell assets or adjust its capital spending to manage current and
projected debt levels. The Company adjusts its capital structure based on its
net debt level. Net debt is defined as the principal amount of its
outstanding debt, less working capital items. The Company prepares annual
budgets, which are updated as necessary including current and forecast crude
oil prices, changes in capital structure, execution of the Company's business
plan and general industry conditions. The annual budget is approved by the
Board of Directors. The Company's capital includes the following:
March 31, 2024 December 31, 2023
Working capital $ 9,520,829 $ 8,669,114
14. 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 months ended and as at March 31:
Three months ended March 31, 2024 Colombia Canada Total
Revenue:
Oil Sales $ 16,067,291 $ - $ 16,067,291
Natural gas and liquid sales - 326,351 326,351
Royalties (1,972,379) (16,342) (1,988,721)
Expenses (5,586,708) (2,676,335) (8,263,042)
Income taxes (2,965,152) - (2,965,152)
Net income (loss) $ 5,543,052 $ (2,366,326) $ 3,176,727
As at March 31, 2024 Colombia Canada Total
Current assets $ 17,668,035 $ 3,111,046 $ 20,779,081
Non-current:
Deferred income taxes 2,157,575 - 2,157,575
Restricted cash 37,808 200,006 237,814
Exploration and evaluation 578,082 - 578,082
Property, plant and equipment 38,083,385 2,744,003 40,827,388
Total Assets $ 58,524,885 $ 6,055,055 $ 64,579,940
Current liabilities $ 9,414,634 $ 1,843,618 $ 11,258,252
Non-current liabilities:
Deferred income taxes 3,855,953 - 3,855,953
Other liabilities 345,528 - 345,528
Lease obligation - 193,136 193,136
Decommissioning liability 3,708,821 574,040 4,282,861
Total liabilities $ 17,234,936 $ 2,610,794 $ 19,935,730
Three months ended March 31, 2023 Colombia Canada Total
Revenue:
Oil Sales $ 7,473,836 $ - $ 7,473,836
Natural gas and liquid sales - 491,021 491,021
Royalties (929,033) (42,964) (971,997)
Expenses (3,190,316) (812,809) (4,003,125)
Net income (loss) $ 3,354,487 $ (364,752) $ 2,989,735
As at March 31, 2023 Colombia Canada Total
Current assets $ 14,119,230 $ 1,815,983 $ 15,935,213
Non-current:
Deferred income taxes 872,286 - 872,286
Restricted cash 37,808 573,888 611,696
Exploration and evaluation 972,692 - 972,692
Property, plant and equipment 30,678,708 4,649,349 35,328,057
Total Assets $ 46,680,724 $ 7,039,220 $ 53,719,944
Current liabilities $ 3,755,781 $ 9,559,718 $ 13,315,499
Non-current liabilities:
Deferred income taxes 5,066,684 - 5,066,684
Other liabilities 80,484 - 80,484
Lease obligation - 11,307 11,307
Decommissioning liability 2,869,359 741,000 3,610,359
Total liabilities $ 13,189,670 $ 14,104,006 $ 22,084,333
Arrow Exploration Corp.
MANAGEMENT's DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 2024
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") as provided by the
management of Arrow Exploration Corp. ("Arrow" or the "Company"), is dated as
of May 29, 2024 and should be read in conjunction with Arrow's interim
condensed (unaudited) consolidated financial statements and related notes as
at and for the three months ended March 31, 2024 and 2023. Additional
information relating to Arrow, including its annual consolidated financial
statements and related notes for the year ended December 31, 2023 and 2022
(the "Annual Financial Statements"), is available under Arrow's profile on
www.sedar.com (http://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 general economic conditions; volatility in commodity
prices; industry conditions including changes in laws and regulations
including adoption of new environmental laws and regulations, and changes in
how they are interpreted and enforced; competition; lack of availability of
qualified personnel; the results of exploration and development drilling and
related activities; obtaining required approvals of regulatory authorities;
counterparty risk; risks associated with negotiating with foreign governments
as well as country risk associated with conducting international activities;
commodity price volatility; fluctuations in foreign exchange or interest
rates; environmental risks; changes in income tax laws or changes in tax laws
and incentive programs; changes to pipeline capacity; ability to secure a
credit facility; ability to access sufficient capital from internal and
external sources; risk that Arrow's evaluation of its existing portfolio of
development and exploration opportunities is not consistent with future
results; that production may not necessarily be indicative of long term
performance or of ultimate recovery; and certain other risks detailed from
time to time in Arrow's public disclosure documents including, without
limitation, those risks identified in Arrow's 2018 AIF, a copy of which is
available on Arrow's SEDAR profile at www.sedar.com. Readers are cautioned
that the foregoing list of factors is not exhaustive and are cautioned not to
place undue reliance on these forward-looking statements.
Non‐IFRS Measures
The Company uses non-IFRS measures to evaluate its performance which are
measures not defined in IFRS. Working capital, funds flow from operations,
realized prices, operating netback, adjusted EBITDA, and net debt as presented
do not have any standardized meaning prescribed by IFRS and therefore may not
be comparable with the calculation of similar measures for other entities. The
Company considers these measures as key measures to demonstrate its ability to
generate the cash flow necessary to fund future growth through capital
investment, and to repay its debt, as the case may be. These measures should
not be considered as an alternative to, or more meaningful than net income or
cash provided by (used in) operating activities or net income and
comprehensive income as determined in accordance with IFRS as an indicator of
the Company's performance. The Company's determination of these measures may
not be comparable to that reported by other companies.
Adjusted working capital is calculated as current assets minus current
liabilities, excluding non-cash liabilities; funds from operations is
calculated as cash flows provided by operating activities adjusted to exclude
changes in non-cash working capital balances; realized price is calculated by
dividing gross revenue by gross production, by product, in the applicable
period; operating netback is calculated as total natural gas and crude
revenues minus royalties, transportation costs and operating expenditures;
adjusted EBITDA is calculated as net income adjusted for interest, income
taxes, depreciation, depletion, amortization and other similar non-recurring
or non-cash charges; and net debt (net cash) is defined as the principal
amount of its outstanding debt, less working capital items excluding non-cash
liabilities.
The Company also presents funds from operations per share, whereby per share
amounts are calculated using weighted- average shares outstanding consistent
with the calculation of net income per share.
A reconciliation of the non-IFRS measures is included as follows:
Three months ended March 31, 2024 Three months ended March 31, 2023
(in United States dollars)
Net income 3,176,727 2,989,735
Add/(subtract):
Share based payments 101,278 132,240
Financing costs:
Accretion on decommissioning obligations 37,376 29,156
Interest 9,769 60,887
Other 199,065 45,682
Depreciation and depletion 3,531,772 2,454,364
Derivative loss - (1,354,275)
Income tax expense 2,965,152 -
Adjusted EBITDA ((1)) 10,021,139 4,357,790
Cash flows provided by operating activities 8,582,288 2,380,195
Minus - Changes in non‑cash working capital balances:
Trade and other receivables (299,554) (1,704,944)
Restricted cash (343,746) 12,266
Taxes receivable 164,078 602,369
Deposits and prepaid expenses 152,963 113,612
Inventory (92) 117,798
Accounts payable and accrued liabilities 297,211 2,482,665
Income tax payable (1,342,465) 236,642
Funds flow from operations ((1)) 7,210,683 4,240,603
((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 ended March 31, 2024 Three months ended March 31, 2023
(in United States dollars, except as otherwise noted)
Total natural gas and crude oil revenues, net of royalties 14,404,921 6,992,860
Funds flow from operations ((1)) 7,210,683 4,240,603
Funds flow from operations ((1)) per share -
Basic($) 0.03 0.02
Diluted ($) 0.02 0.01
Net income 3,176,727 2,989,735
Net income per share -
Basic ($) 0.01 0.01
Diluted ($) 0.01 0.01
Adjusted EBITDA ((1)) 10,021,139 4,271,726
Weighted average shares outstanding -
Basic ($) 285,864,348 222,717,847
Diluted ($) 292,791,385 288,639,348
Common shares end of period 285,864,348 228,979,841
Capital expenditures 6,281,328 4,271,693
Cash and cash equivalents 11,606,342 12,354,424
Current Assets 20,779,081 15,849,150
Current liabilities 11,258,252 13,315,499
Adjusted working capital ((1)) 9,520,829 9,325,680
Long-term portion of restricted cash ((2)) 237,814 831,048
Total assets 64,579,940 53,719,944
Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d) 1,760 4,221
Natural gas liquids (bbl/d) 4 6
Crude oil (bbl/d) 2,432 434
Total (boe/d) 2,730 1,144
Operating netbacks ($/boe) ((1))
Natural gas ($/Mcf) ($0.14) $0.73
Crude oil ($/bbl) $56.27 $48.94
Total ($/boe) $50.10 $20.16
((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 December 31, 2023 the Company held an interest in four oil blocks in
Colombia and oil and natural gas leases in five areas in Canada as follows:
Gross Acres Working Interest Net Acres
COLOMBIA
Tapir 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
Total Colombia 217,390 133,994
CANADA
Ansell Operated 640 100% 640
Fir Non operated 7,680 32% 2,458
Penhold Non-operated 480 13% 61
Pepper Operated 19,200 100% 19,200
Wapiti Non-operated 1,280 13% 160
Total Canada 29,280 22,519
TOTAL 246,670 156,513
The Company's primary producing assets are located in Colombia in the Tapir,
Oso Pardo and Ombu blocks, with natural gas production in Canada at Fir and
Pepper, Alberta.
Llanos Basin
Within the Llanos Basin, the Company is engaged in the exploration,
development and production of oil within the Tapir block. In the Llanos Basin
most oil accumulations are associated with three-way dip closure against
NNE-SSW trending normal faults and can have pay within multiple reservoirs.
The Tapir block contain large areas not yet covered by 3D seismic, and in
Management's opinion offer substantial exploration upside.
(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 March 31, 2024 Financial and Operational Highlights
· Arrow recorded $14,404,921 in revenues, net of royalties, on
crude oil sales of 219,160 bbls, 395 bbls of natural gas liquids ("NGL's") and
160,119 Mcf of natural gas sales;
· Funds flow from operations of $7,210,683;
· Net income of $3,176,727 and adjusted EBITDA was $10,021,139;
· Drilled four development wells at its Carrizales Norte field
Results of Operations
The Company increased its production from new wells at both Rio Cravo Este and
Carrizales Norte fields in the Tapir block. These have allowed the Company to
continue to improve its operating results and EBITDA. There has also been a
decrease in the Company's natural gas production in Canada due to natural
declines.
Average Production by Property
Average Production Boe/d Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022
Oso Pardo 166 80 93 130 138 115
Ombu (Capella) - - - - 80 238
Rio Cravo Este (Tapir) 1,644 1,326 1,443 1,592 1,004 832
Carrizales Norte (Tapir) 622 621 642 57 - -
Total Colombia 2,432 2,027 2,178 1,779 1,222 1,185
Fir, Alberta 78 80 81 77 74 79
Pepper, Alberta 220 228 259 313 340 472
TOTAL (Boe/d) 2,730 2,335 2,518 2,169 1,635 1,736
The Company's average production for the three months ended March 31, 2024 was
2,730 boe/d, which consisted of crude oil production in Colombia of 2,432
bbl/d, natural gas production of 1,760 Mcf/d, and minor amounts of natural gas
liquids from the Company's Canadian properties. The Company's Q1 2024
production was 17% higher than its Q4 2023 production and 67% higher when
compared to Q1 2023.
Average Daily Natural Gas and Oil Production and Sales Volumes
Three months ended
March 31
2024 2023
Natural Gas (Mcf/d)
Natural gas production 1,760 2,459
Natural gas sales 1,760 2,459
Realized Contractual Natural Gas Sales 1,760 2,459
Crude Oil (bbl/d)
Crude oil production 2,432 1,222
Inventory movements and other 3 (89)
Crude Oil Sales 2,435 1,133
Corporate
Natural gas production (boe/d) 294 410
Natural gas liquids(bbl/d) 4 4
Crude oil production (bbl/d) 2,432 1,222
Total production (boe/d) 2,730 1,635
Inventory movements and other (boe/d) 3 (89)
Total Corporate Sales (boe/d) 2,733 1,546
During the three months ended March 31, 2024 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
March 31
2024 2023
Natural Gas
Natural gas revenues $ 300,224 $ 467,876
NGL revenues 26,127 23,145
Royalties (16,342) (42,964)
Revenues, net of royalties 310,009 448,057
Oil
Oil revenues $ 16,067,291 $ 7,473,836
Royalties (1,972,379) (929,033)
Revenues, net of royalties 14,094,912 6,544,803
Corporate
Natural gas revenues $ 300,224 $ 467,876
NGL revenues 26,127 23,145
Oil revenues 16,067,291 7,473,836
Total revenues 16,393,642 7,964,857
Royalties (1,988,721) (971,997)
Natural gas and crude oil revenues, net of royalties, as reported $ 14,404,921 $ 6,992,860
Natural gas and crude oil revenues, net of royalties, for the three months
ended March 31, 2024 was $14,404,921 (2023: $6,992,860) which represents an
increase of 106% when compared to the same 2023 period, and 7% higher than Q4
2023. These significant increases are mainly due to increased oil production
in Colombia, offset by decrease in revenue in Canada.
Average Benchmark and Realized Prices
Three months ended March 31
2024 2023 Change
Benchmark Prices
AECO ($/Mcf) $2.55 $3.28 (22%)
Brent ($/bbl) $84.67 $79.21 7%
West Texas Intermediate ($/bbl) $76.95 $76.10 1%
Realized Prices
Natural gas, net of transportation ($/Mcf) $1.87 $2.11 (11%)
Natural gas liquids ($/bbl) $66.20 $66.13 0%
Crude oil, net of transportation ($/bbl) $73.31 $73.31 0%
Corporate average, net of transport ($/boe) $66.58 $57.23 16%
( (1)Non-IFRS measure)
The Company realized prices of $66.58 per boe during the three months ended
March 31, 2024 (2023: $57.23) due to small increases in oil prices during
2024, except for natural gas prices which decreased during this period.
Operating Expenses
Three months ended
March 31
2024 2023
Natural gas & NGL's 306,224 517,653
Crude oil 1,762,787 599,937
Total operating expenses 2,069,011 1,117,590
Natural gas ($/Mcf) $1.91 $2.34
Crude oil ($/bbl) $8.04 $5.88
Corporate ($/boe)((1)) $8.40 $8.03
((1)Non-IFRS measure)
During the three months ended March 31, 2024, Arrow incurred in operating
expenses of $2,069,011 (2023: $1,117,590). This increase is mainly due to
increase in production in the Company's Carrizales Norte field in the Tapir
block and higher costs of producing heavier oil. The Company's corporate
operating expense of $8.40 per boe (2023: $8.03) which is slightly higher than
Q1 2023.
Operating Netbacks
Three months ended
March 31
2024 2023
Natural Gas ($/Mcf)
Revenue, net of transportation expense $1.87 $2.11
Royalties ($0.10) (0.19)
Operating expenses ($1.91) (2.34)
Natural gas operating netback((1)) ($0.14) ($0.42)
Crude oil ($/bbl)
Revenue, net of transportation expense $73.31 $73.31
Royalties ($9.00) (9.11)
Operating expenses ($8.04) (5.88)
Crude oil operating netback((1)) $56.27 $58.31
Corporate ($/boe)
Revenue, net of transportation expense $66.58 $57.23
Royalties ($8.08) (6.98)
Operating expenses ($8.40) (8.03)
Corporate operating netback((1)) $50.10 $42.21
( (1))Non-IFRS measure
The operating netbacks of the Company continued within healthy levels during
2024 due increasing production from its Colombian assets and improved crude
oil prices, which were offset by decreases in natural gas prices.
General and Administrative Expenses (G&A)
Three months ended
March 31
2024 2023
General & administrative expenses 2,937,113 1,752,947
G&A recovered from 3(rd) parties (255,191) (134,199)
Total G&A 2,681,922 1,618,748
Total G&A per boe $10.89 $11.63
For the three months ended March 31, 2024, G&A expenses before recoveries
totaled $2,937,113 (2023: $1,752,947), which represent an increase when
compared to the same period in 2023, but a decrease when compared with Q4
2023. This variance is mainly due to additional personnel and payment of
performance bonuses to employees. Despite these increased expenses, due to the
Company's increased production, G&A expenses were reduced, on a per barrel
basis, when compared to 2023.
Share-based Compensation
Three months ended
March 31
2024 2023
Share-based Compensation expense 101,278 132,240
Share-based compensation expense for the three months ended March 31, 2024
totaled $101,278 (2023: $132,240). During 2023, the Company granted 1,650,000
options to its personnel and Directors, which was offset by reversal of
expenses from cancelled options due to resignations of option holders. No
options were granted during Q1 2024.
Financing Costs
Three months ended
March 31
2024 2023
Financing expense paid or payable 208,834 106,570
Non-cash financing costs 37,376 29,156
Net financing costs 246,210 135,726
The finance expense for 2023 represents mostly interest on the promissory note
due to Canacol. The non-cash finance cost represents an increase in the
present value of the decommissioning obligation for the current periods. The
amount of this expense will fluctuate commensurate with the asset retirement
obligation as new wells are drilled or properties are acquired or disposed.
Depletion and Depreciation
Three months ended
March 31
2024 2023
Depletion and depreciation 3,531,772 2,454,364
Depletion and depreciation expense for the three months ended March 31, 2024
totaled $3,531,772 (2023: $2,454,364). The increase is due to higher carrying
value of depletable property and equipment and increased production. The
Company uses the unit of production method and proved plus probable reserves
to calculate its depletion and depreciation expense.
Gain on Derivative Liability
Three months ended
March 31
2024 2023
Gain on Derivative Liability - (1,354,275)
During the three months ended March 31, 2024, the Company recorded no gain or
loss in derivative liability (2023: gain of $1,354,275) related to the
valuation of its outstanding warrants issued during its AIM listing and
private placement completed in 2021, which were mostly settled or expired
during 2023.
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 March 31, 2024 the Company has a working capital of $9,520,829. The
Company has maintained a healthy working capital, using its operational cash
flows to settle its obligations and to continue growing its operations. The
stability in energy commodity prices has allowed the Company's capacity to
generate sufficient financial resources to sustain its operations and growth.
As at March 31, 2024 the Company's net debt (net cash) was calculated as
follows:
March 31, 2024
Current assets $ 20,779,081
Less:
Accounts payable and accrued liabilities 6,698,702
Income taxes payable 4,450,967
Net debt (Net cash) ((1)) $ (9,629,412)
((1))Non-IFRS measure
Working Capital
As at March 31, 2024 the Company's adjusted working capital was calculated as
follows:
March 31, 2024
Current assets:
Cash $ 11,606,342
Restricted cash and deposits 273,274
Trade and other receivables 3,237,382
Taxes receivable 4,819,478
Other current assets 842,605
Less:
Accounts payable and accrued liabilities 6,698,702
Lease obligation 108,583
Income tax payable 4,450,967
Working capital((1)) $ 9,520,829
((1))Non-IFRS measure
Debt Capital
As at March 31, 2024 the Company does not have any outstanding debt balance.
Letters of Credit
As at March 31, 2024, 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 Renewal Date
(US $)
SANTA ISABEL ANH Carrao Energy Abandonment $563,894 April 14, 2025
ANH Carrao Energy Financial Capacity $1,672,162 June 30, 2024
CORE - 39 ANH Carrao Energy Compliance $100,000 June 30, 2024
OMBU ANH Carrao Energy Financial Capacity $436,300 October 14, 2024
Total $2,772,356
Share Capital
As at March 31, 2024, the Company had 285,864,348 common shares and 17,354,447
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 March
31, 2024:
Less than 1 year 1-3 years Thereafter Total
Exploration and production contracts - 12,000,000 - 12,000,000
Exploration and Production Contracts
The Company has entered into a number of exploration contracts in Colombia
which require the Company to fulfill work program commitments. In aggregate,
the Company has outstanding commitments of $12 million. The Company have made
an application to cancel its commitments on the COR-39.
SUMMARY OF THREE MONTHS RESULTS
2024 2023 2022
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
Oil and natural gas sales, net of royalties
14,404,921 13,406,513 13,990,353 11,637,968 6,992,860 8,931,562 7,614,336 5,024,604
Net income (loss) 3,176,727 (10,492,053) 7,153,120 (757,416) 2,989,735 2,968,117 2,041,955 768,318
Income (loss) per share -
basic 0.01 (0.04) 0.03 (0.00) 0.01 0.01 0.02 0.00
diluted 0.01 (0.04) 0.02 (0.00) 0.01 0.01 0.00 0.00
Working capital (deficit) 9,520,829 8,669,114 10,822,475 (2,363,388) 2,619,715 (1,316,665) 7,392,310 5,594,027
Total assets 64,579,940 62,275,023 62,755,250 56,305,530 53,719,944 53,190,248 46,979,259 42,670,153
Net capital expenditures 6,281,329 10,471,447 5,471,561 6,870,258 4,271,693 2,106,463 4,836,860 2,777,611
Average daily production (boe/d) 2,730 2,666 2,518 2,169 1,635 1,736 1,503 980
The Company's oil and natural gas sales have increased 106% in Q1 2024 when
compared to Q1 2023 due to increased production in its existing assets and
stable commodity prices. The Company's production levels in Colombia continue
growing. Trends in the Company's net income are also impacted most
significantly by operating expenses, financing costs, income taxes, depletion,
depreciation and impairment of oil and gas properties, and other income.
OUTSTANDING SHARE DATA
At May 29, 2024 the Company had the following securities issued and
outstanding:
Number Exercise Price Expiry Date
Common shares 285,864,348 n/a n/a
Stock options 750,000 CAD$ 1.15 October 22, 2028
Stock options 270,000 CAD$ 0.31 May 3, 2029
Stock options 1,200,000 CAD$ 0.05 March 20, 2030
Stock options 1,200,000 CAD$ 0.05 April 13, 2030
Stock options 5,150,002 GBP 0.07625 June 13, 2024 and 2025
Stock options 1,533,335 CAD$0.28 Dec. 9, 2024 and 2025
Stock options 833,334 CAD$0.26 Mar. 7, 2025 and 2026
Stock options 4,951,110 GBP 0.1675 June 21, 2024, 2025 and 2026
Stock options 466,666 GBP 0.1925 July 23, 2024, 2025 and 2026
Stock options 1,000,000 CAD $0.33 Mar. 21, 2025, 2026 and 2027
Stock options 9,843,887 CAD $0.375 Oct. 29 2025, 2026 and 2027
OUTLOOK
The Company has deployed the capital raised at the time of the Admission to
AIM on a successful drilling campaigns at Rio Cravo and Carrizales Norte on
the Tapir Block. These successful campaigns have translated into production
growth and in positive cashflows during 2023 and 2022, providing Arrow with
the funds required to continue with its capital program for 2024.
During 2024, the Company has drilled six wells at Carrizales Norte, which have
increased overall production, and has spud its first horizontal well. This
confirms Arrow's commitment to increase production and shareholder value. The
Company is able to support its 2024 capital program with current cash on hand
and cash flow from operations.
CRITICAL ACCOUNTING ESTIMATES
A summary of the Company's critical accounting estimates is contained in Note
3 Annual Financial Statements. These accounting policies are subject to
estimates and key judgements about future events, many of which are beyond
Arrow's control.
SUMMARY OF MATERIAL ACCOUNTING POLICIES
A summary of the Company's material accounting policies is included in note 3
of the Annual Financial Statements. These accounting policies are consistent
with those of the previous financial year.
RISKS AND UNCERTAINTIES
The Company is subject to financial, business and other risks, many of which
are beyond its control and which could have a material adverse effect on the
business and operations of the Company. Please refer to "Risk Factors" in the
MD&A for the year ended December 31, 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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