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Arrow Exploration Corp.
Earnings Release • Aug 29, 2024
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Earnings Release
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National Storage Mechanism | Additional information 
RNS Number : 1343C
Arrow Exploration Corp.
29 August 2024
NOT FOR RELEASE, DISTRIBUTION, PUBLICATION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION.
ARROW ANNOUNCES THIRD UBAQUE HORIZONTAL WELL RESULTS AND Q2 2024 INTERIM RESULTS
CNB HZ-4 on production
CALGARY, August 29, 2024 - Arrow Exploration Corp. (AIM: AXL; TSXV: AXL) ("Arrow" or the "Company"), the high-growth operator with a portfolio of assets across key Colombian hydrocarbon basins, is pleased to provide an update on operational activity and announces the filing of its Interim Condensed (unaudited) Consolidated Financial Statements and Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2024 which are available on SEDAR ( www.sedar.com ) and will also be available shortly on Arrow's website at www.arrowexploration.ca .
CNB HZ-4
The third horizontal well on the Carrizales Norte "B" pad (CNB HZ-4) is now on production and exceeding expectations. The well has a current flow rate exceeding 2,500 BOPD gross (1,250 BOPD net to Arrow) and production is continuing to increase. Currently the well has an 8% water cut while still recovering load fluid. Management's expectations are that the CNB HZ-4 well will reach IP production rates similar to the Company's first two horizontal wells. Please note initial production flows are not necessarily indicative of long-term performance or ultimate recovery and a stabilized production rate will be determined in the first few weeks of operations, in keeping with conservative reservoir management. Further updates will be provided in due course.
CNB HZ-4 was spud on July 28, 2024, and reached a target depth of 8,452 feet (true vertical depth) on August 12, 2024. The well was drilled to a total measured depth of 13,335 feet with a horizontal section of approximately 3,940 feet. CNB HZ-4 came on production on August 26, 2024, with the use of an electric submersible pump (ESP) and, based on initial results, has displayed comparable reservoir characteristics as CNB HZ-1.
CNB HZ-3
The CNB HZ-3 is continuing to perform above expectations and is being restricted to a current flow rate of 1,920 BOPD gross (960 BOPD net) with approximately 31% water cut. CNB HZ-3 average production for the first 30 days of production (IP30) was 2,212 BOPD gross (1,106 BOPD net). The well is being restricted to optimize reservoir performance and ultimate recovery.
CNB HZ-1
The CNB HZ-1 is continuing to perform above expectations and is being restricted to a current flow rate of 2,090 BOPD gross (1,045 BOPD net) with approximately 41% water cut. CNB HZ-1 average production for the first 60 days of production (IP60) was 2,375 BOPD gross (1,188 BOPD net).
Drilling Technology
Drilling metrics continue to improve in the horizontal program regarding both time and cost. The improvements reflect the learnings taken from CNB HZ-1 and CNB HZ-3 as the operations team continues to focus on improving capital and operating costs and creating further shareholder value.
The CNB HZ-4 is the first Arrow well to use Autonomous Inflow Control Devices (AICDs) which are designed to limit the water cut in horizontal wells. The results of CNB HZ-4 will be closely monitored to determine if these technologies or others will enhance production and ultimate recovery in the Ubaque reservoir.
Upcoming Drilling
The rig has been moved to the fifth cellar on the Carrizales Norte B Pad where the Company spud the fourth horizontal well (CNB HZ-5) on August 22. Thereafter, the Company expects to drill two more horizontal wells on the B pad, followed by the Chorreron-1 (formerly known as Baquiano-1) exploration well, which is on trend with the Carrizales Norte field.
Corporate Update
Current net corporate production is approximately 5,000 BOE/D, inclusive of CNB HZ-1, CNB-3 and CNB HZ-4.
Arrow's cash position was approximately $12 million on August 1, 2024. Arrow has maintained a healthy balance sheet with no debt.
Q2 2024 Highlights:
· Successfully drilled three development Carrizales Norte (CN) wells, including the first horizontal well.
· Recorded $15.1 million of total oil and natural gas revenue, net of royalties, representing a 47% increase when compared to the same period in 2023 (Q2 2023: $10.3 million).
· Net income of $1.2 million (Q2 2023: loss of $0.8 million).
· Adjusted EBITDA (1) of $8.9 million, a 53% increase when compared to 2023 (Q2 2023: $5.8 million).
· Average corporate production of 2,546 boe/d (Q2 2023: 2,169 boe/d).
· Realized corporate oil operating netbacks (1) of $51.21/bbl.
· Cash position of $10.8 million at the end of Q2 2024.
· Generated H1 2024 operating cashflows of $15.7 million (H1 2023: $7.4 million).
· Recognized an impairment in its Canadian oil & gas properties for $1.5 million due to low natural gas prices.
(1) Non-IFRS measures - see "Non-IFRS Measures" section within the MD&A
Post Period End Highlights:
· Drilled three additional CN wells, including two horizontal wells and one disposal well.
· Spud the CNB HZ-5 from the CNB pad. The Company expects to be able to provide an update on the production figures for CNB HZ-5 in the coming weeks.
Outlook:
· Continuing with the balanced delivery of the 2024 capital program, the majority of which will be focused on the Carrizales Norte field and will include additional horizontal wells.
· Low risk exploration well planned at the Chorreron prospect.
· The remaining 2024 capital program will be self-funded by a combination of cash flow from operations and cash reserves.
Marshall Abbott, CEO of Arrow Exploration Corp., commented:
"The horizontal well program at the CNB pad continues to exceed expectations, and the Company now plans to drill two additional horizontal wells before moving to the Chorreron prospect (formerly named Baquiano). This will result in a total of six horizontal wells at Carrizales Norte in 2024 with additional horizontal wells being planned for 2025. The Arrow team continues to reduce the time and costs needed to drill horizontal and vertical wells, using internally generated development drilling and completion strategies."
"Arrow experienced material growth in production, revenue and earnings in Q2 2024 compared to Q2 2023. This growth was achieved while preparing for the highly successful horizontal well program at Carrizales Norte. This included the Q1 and Q2 Carrizales Norte vertical well program to delineate the Ubaque reservoir, as well as preparing pads, roads, oil transportation and water disposal infrastructure."
"Arrow's focus for the remainder of 2024 will be the completion of the six well horizontal well program at Carrizales Norte as well as a low-risk exploration well at the Chorreron prospect. A second rig is being evaluated to begin development drilling at the RCE field towards the end of 2024."
"In 2025, Arrow plans another aggressive capital program focused on production growth and exploration. Arrow plans to drill low risk exploration wells at Mateguafa Oeste, Capullo, and Mateguafa Attic. The Company is also targeting further horizontal Ubaque and vertical C7 development drilling at Carrizales Norte, and Chorreron, if successful, and the drilling of development vertical wells at Rio Cravo Este in 2025."
"This enhanced capital program underlies the prolific setting of the Tapir Block in the Llanos Basin in Colombia. The block displays significant hydrocarbon density in multiple oil-bearing zones down to 10,000 feet total depth."
FINANCIAL AND OPERATING HIGHLIGHTS
| (in United States dollars, except as otherwise noted) | Three months ended June 30, 2024 | Six months ended June 30, 2024 |
Three months ended June 30, 2023 |
| Total natural gas and crude oil revenues, net of royalties | 15,146,366 | 29,551,287 | 10,280,280 |
| Funds flow from operations (1) | 6,655,696 | 13,866,379 | 3,278,041 |
| Funds flow from operations (1) per share - | |||
| Basic($) | 0.02 | 0.05 | 0.01 |
| Diluted ($) | 0.02 | 0.05 | 0.01 |
| Net income (loss) | 1,247,825 | 4,424,551 | (757,416) |
| Net income (loss) per share - | |||
| Basic ($) | 0.00 | 0.02 | (0.00) |
| Diluted ($) | 0.00 | 0.02 | (0.00) |
| Adjusted EBITDA (1) | 8,884,099 | 18,905,240 | 5,839,960 |
| Weighted average shares outstanding - | |||
| Basic ($) | 285,864,348 | 285,864,348 | 230,808,547 |
| Diluted ($) | 292,536,147 | 292,867,527 | 295,446,047 |
| Common shares end of period | 285,864,348 | 285,864,348 | 234,274,893 |
| Capital expenditures | 8,965,408 | 15,246,736 | 6,870,258 |
| Cash and cash equivalents | 10,826,380 | 10,826,380 | 10,801,494 |
| Current Assets | 19,975,633 | 19,975,633 | 15,159,322 |
| Current liabilities | 13,318,516 | 13,318,516 | 17,522,710 |
| Adjusted working capital(1) | 6,657,117 | 6,657,117 | 6,341,935 |
| Long-term portion of restricted cash(2) | 174,190 | 174,190 | 703,683 |
| Total assets | 67,864,633 | 67,864,633 | 56,305,530 |
| Operating | |||
| Natural gas and crude oil production, before royalties | |||
| Natural gas (Mcf/d) | 926 | 1,343 | 2,318 |
| Natural gas liquids (bbl/d) | 4 | 4 | 3 |
| Crude oil (bbl/d) | 2,387 | 2,409 | 1,779 |
| Total (boe/d) | 2,546 | 2,638 | 2,169 |
| Operating netbacks ($/boe) (1) | |||
| Natural gas ($/Mcf) | ($1.25) | ($0.52) | ($0.05) |
| Crude oil ($/bbl) | $54.54 | $55.38 | $53.64 |
| Total ($/boe) | $51.21 | $50.66 | $44.21 |
(1) Non-IFRS measures - see "Non-IFRS Measures" section within the MD&A
(2) Long term restricted cash not included in working capital
Discussion of Operating Results
The Company continued increasing its production from new wells at CN which allowed the Company to continue to improve its operating results and EBITDA. There has been a decrease in the Company's natural gas production in Canada due to shut in of wells and natural declines.
Average Production by Property
| Average Production Boe/d | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 | Q1 2023 |
| Oso Pardo | 113 | 166 | 80 | 93 | 130 | 138 |
| Ombu (Capella) | - | - | - | - | - | 80 |
| Rio Cravo Este (Tapir) | 1,283 | 1,644 | 1,326 | 1,443 | 1,592 | 1,004 |
| Carrizales Norte (Tapir) | 991 | 622 | 621 | 642 | 57 | - |
| Total Colombia | 2,387 | 2,432 | 2,027 | 2,178 | 1,779 | 1,222 |
| Fir, Alberta | 77 | 78 | 80 | 81 | 77 | 74 |
| Pepper, Alberta | 82 | 220 | 228 | 259 | 313 | 340 |
| TOTAL (Boe/d) | 2,546 | 2,730 | 2,335 | 2,518 | 2,169 | 1,635 |
The Company's average production for the three months ended June 30, 2024 was 2,546 boe/d, which consisted of crude oil production in Colombia of 2,387 bbl/d, natural gas production of 926 Mcf/d, and minor amounts of natural gas liquids from the Company's Canadian properties. The Company's Q2 2024 production, which only included a few weeks' production from the first horizontal well at Carrizales Norte, was 7% lower than its Q1 2024 production and 17% higher when compared to Q2 2023.
Discussion of Financial Results
During Q2 2024 the Company continued to realize good oil prices, offset by lower gas prices, as summarized below:
| Three months ended June 30 | |||
| 2024 | 2023 | Change | |
| Benchmark Prices | |||
| AECO (C$/Mcf) | $1.20 | $2.46 | (51%) |
| Brent ($/bbl) | $83.00 | $74.98 | 11% |
| West Texas Intermediate ($/bbl) | $80.55 | $73.75 | 9% |
| Realized Prices | |||
| Natural gas, net of transportation ($/Mcf) | $0.94 | $1.96 | (52%) |
| Natural gas liquids ($/bbl) | $69.96 | $55.33 | 26% |
| Crude oil, net of transportation ($/bbl) | $72.99 | $67.69 | 8% |
| Corporate average, net of transport ($/boe)(1) | $69.39 | $57.89 | 20% |
(1)Non-IFRS measure
Operating Netbacks
The Company also continued to realize strong oil operating netbacks, as summarized below:
| Three months ended June 30 | ||
| 2024 | 2023 | |
| Natural Gas ($/Mcf) | ||
| Revenue, net of transportation expense | $0.94 | $1.96 |
| Royalties | $0.23 | $0.20 |
| Operating expenses | ($2.42) | ($2.21) |
| Natural Gas operating netback(1) | ($1.25) | ($0.05) |
| Crude oil ($/bbl) | ||
| Revenue, net of transportation expense | $72.99 | $67.69 |
| Royalties | ($8.73) | ($8.46) |
| Operating expenses | ($9.72) | ($5.59) |
| Crude Oil operating netback(1) | $54.54 | $53.64 |
| Corporate ($/boe) | ||
| Revenue, net of transportation expense | $69.39 | $57.89 |
| Royalties | ($8.17) | ($6.76) |
| Operating expenses | ($10.01) | ($6.92) |
| Corporate Operating netback (1) | $51.21 | $44.21 |
(1) Non-IFRS measure
The operating netbacks of the Company continued within healthy levels during 2024 due increasing production from its Colombian assets and improved crude oil prices, which were offset by decreases in natural gas prices.
During Q2 2024, the Company incurred $8.9 million of capital expenditures, primarily in connection with the drilling of three additional CN wells in the Tapir block. This accelerated tempo is expected to continue during the remainder of 2024, funded by cash on hand and cashflow.
For further Information, contact:
| Arrow Exploration | |
| Marshall Abbott, CEO | +1 403 651 5995 |
| Joe McFarlane, CFO | +1 403 818 1033 |
| Canaccord Genuity (Nominated Advisor and Joint Broker) | |
| Henry Fitzgerald-O'Connor James Asensio George Grainger |
+44 (0)20 7523 8000 |
| Auctus Advisors (Joint Broker) | |
| Jonathan Wright | + 44 (0)7711 627449 |
| Rupert Holdsworth Hunt | |
| Camarco (Financial PR) | |
| Andrew Turner | +44 (0)20 3781 8331 |
| Rebecca Waterworth |
About Arrow Exploration Corp.
Arrow Exploration Corp. (operating in Colombia via a branch of its 100% owned subsidiary Carrao Energy S.A.) is a publicly traded company with a portfolio of premier Colombian oil assets that are underexploited, under-explored and offer high potential growth. The Company's business plan is to expand oil production from some of Colombia's most active basins, including the Llanos, Middle Magdalena Valley (MMV) and Putumayo Basin. The asset base is predominantly operated with high working interests, and the Brent-linked light oil pricing exposure combines with low royalties to yield attractive potential operating margins. Arrow's 50% interest in the Tapir Block is contingent on the assignment by Ecopetrol SA of such interest to Arrow. Arrow's seasoned team is led by a hands-on executive team supported by an experienced board. Arrow is listed on the AIM market of the London Stock Exchange and on TSX Venture Exchange under the symbol "AXL".
Forward-looking Statements
This news release contains certain statements or disclosures relating to Arrow that are based on the expectations of its management as well as assumptions made by and information currently available to Arrow which may constitute forward-looking statements or information ("forward-looking statements") under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that Arrow anticipates or expects may, could or will occur in the future (in whole or in part) should be considered forward-looking statements. In some cases, forward-looking statements can be identified by the use of the words "continue", "expect", "opportunity", "plan", "potential" and "will" and similar expressions. The forward-looking statements contained in this news release reflect several material factors and expectations and assumptions of Arrow, including without limitation, Arrow's evaluation of the impacts of global pandemics, the potential of Arrow's Colombian and/or Canadian assets (or any of them individually), the prices of oil and/or natural gas, and Arrow's business plan to expand oil and gas production and achieve attractive potential operating margins. Arrow believes the expectations and assumptions reflected in the forward-looking statements are reasonable at this time, but no assurance can be given that these factors, expectations, and assumptions will prove to be correct.
The forward-looking statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The forward-looking statements contained in this news release are made as of the date hereof and the Company undertakes no obligations to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Glossary
Bbl/d or bop/d: Barrels per day
$/Bbl: Dollars per barrel
Mcf/d: Thousand cubic feet of gas per day
Mmcf/d: Million cubic feet of gas per day
$/Mcf: Dollars per thousand cubic feet of gas
Mboe: Thousands of barrels of oil equivalent
Boe/d: Barrels of oil equivalent per day
$/Boe: Dollars per barrel of oil equivalent
MMbbls: Million of barrels
BOE's may be misleading particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bblis based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
This Announcement contains inside information for the purposes of the UK version of the market abuse regulation (EU No. 596/2014) as it forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018 ("UK MAR").
Non‐IFRS Measures
The Company uses non-IFRS measures to evaluate its performance which are measures not defined in IFRS. Working capital, funds flow from operations, realized prices, operating netback, adjusted EBITDA, and net debt as presented do not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. The Company considers these measures as key measures to demonstrate its ability to generate the cash flow necessary to fund future growth through capital investment, and to repay its debt, as the case may be. These measures should not be considered as an alternative to, or more meaningful than net income (loss) or cash provided by operating activities or net loss and comprehensive loss as determined in accordance with IFRS as an indicator of the Company's performance. The Company's determination of these measures may not be comparable to that reported by other companies.
Arrow Exploration Corp.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 2024 AND 2023
IN UNITED STATES DOLLARS
(UNAUDITED)
Notice of No Auditor Review of the Interim Condensed Consolidated Financial Statements
as at and for the three and six months ended June 30, 2024
Under National Instrument 51-102, Part 4, subsection 4.3 (3)(a), if an auditor has not performed a review of the interim condensed consolidated financial statements, they must be accompanied by a notice indicating that an auditor has not reviewed the financial statements.
The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared by and are the responsibility of the Company's management.
The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity's auditor.
Arrow Exploration Corp.
Interim Consolidated Statements of Financial Position
In United States Dollars
(Unaudited)
| As at | Notes | June 30, 2024 | December 31, 2023 | ||
| ##### ASSETS | |||||
| ##### Current assets | |||||
| Cash | $ | 10,826,380 | $ | 12,135,376 | |
| Restricted cash and deposits | 3 | 253,132 | 611,753 | ||
| Trade and other receivables | 4 | 3,948,253 | 3,536,936 | ||
| Taxes receivable | 5 | 4,588,947 | 4,655,399 | ||
| Deposits and prepaid expenses | 312,374 | 197,402 | |||
| Inventory | 46,547 | 492,332 | |||
| 19,975,633 | 21,629,198 | ||||
| Non-current assets | |||||
| Deferred income taxes | 1,832,995 | 2,031,383 | |||
| Restricted cash and deposits | 3 | 174,190 | 243,081 | ||
| Exploration and evaluation assets | 6 | 1,059,825 | - | ||
| Property and equipment | 7 | 44,821,990 | 38,371,361 | ||
| Total Assets | $ | 67,864,633 | $ | 62,275,023 | |
| ##### LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
| Current Liabilities | |||||
| Accounts payable and accrued liabilities | $ | 8,418,067 | $ | 9,747,906 | |
| Lease obligation | 8 | 49,313 | 103,674 | ||
| Income taxes | 4,851,136 | 3,108,504 | |||
| 13,318,516 | 12,960,084 | ||||
| Non-current liabilities | |||||
| Lease obligations | 8 | 184,072 | 216,919 | ||
| Other liabilities | 375,448 | 345,528 | |||
| Deferred income taxes | 3,182,607 | 3,269,894 | |||
| Decommissioning liability | 9 | 4,684,718 | 3,973,075 | ||
| Total liabilities | 21,745,361 | 20,765,500 | |||
| Shareholders' equity | |||||
| #### Share capital | #### 10 | #### 73,829,795 | #### 73,829,795 | ||
| Contributed surplus | 2,573,068 | 2,161,945 | |||
| Deficit | (29,521,344) | (33,945,895) | |||
| Accumulated other comprehensive loss | (762,247) | (536,322) | |||
| Total shareholders' equity | 46,119,272 | 41,509,523 | |||
| Total liabilities and shareholders' equity | $ | 67,864,633 | $ | 62,275,023 |
Commitments and contingencies (Note 11)
The accompanying notes are an integral part of these interim consolidated financial statements.
On behalf of the Board:
signed "Gage Jull" Director signed "Ian Langley" Director
Gage Jull Ian Langley
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Operations and Comprehensive Income
In United States Dollars
(Unaudited)
| For the three months ended June 30 | For the six months ended June 30 | |||||||
| Notes | 2024 | 2023 | 2024 | 2023 | ||||
| Revenue | ||||||||
| Oil and natural gas | $ 17,167,143 | $ 11,637,968 | $ 33,560,785 | $ 19,602,826 | ||||
| Royalties | (2,020,777) | (1,357,688) | (4,009,498) | (2,329,686) | ||||
| 15,146,366 | 10,280,280 | 29,551,287 | 17,273,140 | |||||
| Expenses | ||||||||
| Operating | 2,475,582 | 1,391,490 | 4,544,593 | 2,509,080 | ||||
| Administrative | 3,713,577 | 3,247,405 | 6,395,499 | 4,866,875 | ||||
| Share based payments | 10 | 309,845 | 159,018 | 411,123 | 291,259 | |||
| Financing costs: | ||||||||
| Accretion | 9 | 41,363 | 32,139 | 78,739 | 61,295 | |||
| Interest | 7,501 | 61,349 | 17,271 | 122,237 | ||||
| Other | 108,773 | 103,172 | 307,837 | 148,854 | ||||
| Derivative loss | - | 2,436,047 | - | 1,081,772 | ||||
| Foreign exchange (gain) loss | 161,351 | (41,141) | (127,387) | (81,956) | ||||
| Depletion and depreciation | 7 | 3,261,894 | 3,640,189 | 6,793,668 | 6,094,553 | |||
| Impairment loss | 7 | 1,542,000 | - | 1,542,000 | - | |||
| Other income | (88,243) | (157,434) | (166,658) | (218,610) | ||||
| 11,533,643 | 10,872,234 | 19,796,685 | 14,875,359 | |||||
| Income (loss) before taxes | 3,612,723 | (591,954) | 9,754,602 | 2,397,781 | ||||
| Income taxes | ||||||||
| Current | 2,713,664 | 2,387,868 | 5,218,949 | 2,387,868 | ||||
| Deferred | (348,766) | (2,222,406) | 111,102 | (2,222,406) | ||||
| 2,364,898 | 165,462 | 5,330,051 | 165,462 | |||||
| Net income (loss) for the period | 1,247,825 | (757,416) | 4,424,551 | 2,232,319 | ||||
| Other comprehensive loss | ||||||||
| Foreign exchange | (82,608) | (93,164) | (225,925) | (111,584) | ||||
| Total other comprehensive loss | (82,608) | (93,164) | (225,925) | (111,584) | ||||
| Total comprehensive income (loss) for the period | $ 1,165,217 | $ (850,580) | $ 4,198,626 | $ 2,120,735 | ||||
| Net income (loss) per share | ||||||||
| - basic | $ 0.00 | $ (0.00) | $ 0.02 | $ 0.01 | ||||
| - Diluted | $ 0.00 | $ (0.00) | $ 0.02 | $ 0.01 | ||||
| Weighted average shares outstanding | ||||||||
| - basic | 285,864,348 | 230,808,547 | 285,864,348 | 226,785,547 | ||||
| - Diluted | 292,536,147 | 295,446,047 | 292,867,527 | 294,694,399 | ||||
The accompanying notes are an integral part of these interim consolidated financial statements.
Arrow Exploration Corp.
Interim Condensed Statements of Changes in Shareholders' Equity
In United States Dollars
(Unaudited)
| Share Capital | Contributed Surplus | Accumulated other comprehensive loss | Deficit | Total Equity | ||||||
| Balance January 1, 2024 | $ | 73,829,795 | $ | 2,161,945 | $ | (536,322) | $ | (33,945,895) | $ | 41,509,523 |
| Net income for the period | - | - | - | 4,424,551 | 4,424,551 | |||||
| Other comprehensive loss | - | - | (225,925) | - | (225,925) | |||||
| Total comprehensive income | - | - | (225,925) | 4,424,551 | 4,198,626 | |||||
| Share-based compensation | - | 411,123 | - | - | 411,123 | |||||
| Balance June 30, 2024 | $ | 73,829,795 | $ | 2,573,068 | $ | (762,247) | $ | (29,521,344) | $ | 46,119,272 |
| Share Capital | Contributed Surplus | Accumulated other comprehensive loss | Deficit | Total Equity | ||||||
| Balance January 1, 2023 | $ | 57,810,735 | $ | 1,570,491 | $ | (645,372) | $ | (32,839,282) | $ | 25,896,572 |
| Net income for the period | - | - | - | 2,232,319 | 2,232,319 | |||||
| Othe comprehensive loss | - | - | (111,584) | - | (111,584) | |||||
| Total comprehensive income | - | - | (111,584) | 2,232,319 | 2,120,735 | |||||
| Issuances of common shares, net | 3,887,661 | - | - | - | 3,887,661 | |||||
| Share-based compensation | - | 291,259 | - | - | 291,259 | |||||
| Balance June 30, 2023 | $ | 61,698,396 | $ | 1,861,750 | $ | (756,956) | $ | (30,606,963) | $ | 32,196,227 |
The accompanying notes are an integral part of these interim consolidated financial statements.
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Cash Flows
In United States Dollars
(Unaudited)
| For six months ended June 30 | Notes | 2024 | 2023 | |
| Cash flows provided by operating activities | ||||
| Net income | $ 4,424,551 | $ 2,232,319 | ||
| Items not involving cash: | ||||
| Share based payment | 10 | 411,123 | 291,259 | |
| Deferred income tax | 111,102 | (2,222,406) | ||
| Depletion and depreciation | 7 | 6,793,668 | 6,094,553 | |
| Interest on leases | 17,271 | 2,954 | ||
| Interest on promissory note, net of forgiveness | - | 119,283 | ||
| Accretion | 9 | 78,739 | 61,295 | |
| Foreign exchange loss (gain) | 593,659 | (138,235) | ||
| Loss on derivative liability | - | 1,081,772 | ||
| Impairment loss | 7 | 1,542,000 | - | |
| Changes in non‑cash working capital balances: | ||||
| Restricted cash | 427,512 | (103,080) | ||
| Trade and other receivables | (411,317) | 468,003 | ||
| Taxes receivable | 66,453 | (168,689) | ||
| Deposits and prepaid expenses | (114,972) | (35,548) | ||
| Inventory | 445,785 | (170,814) | ||
| Accounts payable and accrued liabilities | (305,814) | 537,898 | ||
| Income tax payable | 1,742,632 | (675,281) | ||
| Settlement of decommissioning obligations | 9 | (105,734) | (4,150) | |
| Cash provided by operating activities | 15,716,658 | 7,371,133 | ||
| Cash flows used in investing activities | ||||
| Additions to exploration and evaluation assets | 6 | (1,059,825) | (2,849,427) | |
| Additions to property and equipment | 10 | (14,186,910) | (8,292,524) | |
| Changes in non-cash working capital | (1,024,027) | 1,740,101 | ||
| Cash flows used in investing activities | (16,270,762) | (9,401,850) | ||
| Cash flows used in financing activities | ||||
| Common shares issued | - | 1,775,003 | ||
| Payment of promissory note | - | (2,018,577) | ||
| Lease payments | 8 | (55,266) | (23,259) | |
| Cash flows used in financing activities | (55,266) | (266,833) | ||
| Effect of changes in the exchange rate on cash | (699,627) | 38,075 | ||
| Decrease in cash | (1,308,997) | (2,259,475) | ||
| Cash, beginning of period | 12,135,377 | 13,060,969 | ||
| #### Cash, end of period | 10,826,380 | 10,801,494 | ||
| Supplemental information | ||||
| Interest paid | $ - | $ 415,026 | ||
| Taxes paid | $ 1,430,337 | $ 1,119,208 | ||
The accompanying notes are an integral part of these interim consolidated financial statements.
1. Corporate Information
Arrow Exploration Corp. ("Arrow" or "the Company") is a public junior oil and gas company engaged in the acquisition, exploration and development of oil and gas properties in Colombia and in Western Canada. The Company's shares trade on the TSX Venture Exchange and the AIM Market of the London Stock Exchange plc under the symbol AXL. The head office of Arrow is located at 203, 2303 - 4th Street SW, Calgary, Alberta, Canada, T2S 2S7 and the registered office is located at 600, 815 8th Avenue SW, Calgary, Alberta, Canada, T2P 3P2.
2. Basis of Presentation
Statement of compliance
These interim condensed consolidated financial statements (the "Financial Statements") have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting. These Financial Statements were authorized for issue by the board of directors of the Company on August 28, 2024. They do not contain all disclosures required by International Financial Reporting Standards ("IFRS") for annual financial statements and, accordingly, should be read in conjunction with the audited consolidated financial statements as at December 31, 2023.
These Financial Statements have been prepared on the historical cost basis, except for financial assets and liabilities recorded in accordance with IFRS 9. The Financial Statements have been prepared using the same accounting policies and methods as the consolidated financial statements for the year ended December 31, 2023, except for the adoption of new accounting standards effective January 1, 2024. In preparing these condensed consolidated financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended December 31, 2023.
Adoption of New Accounting Standards
The Company adopted amendments to IAS 1 Presentation of Financial Statements, issued by the IASB, related to the presentation of liabilities as current or non-current and classification and disclosure of liabilities with covenants. These amendments were adopted by the Company from January 1, 2024 but they did not have a material impact on the interim consolidated financial statements.
3. Restricted Cash and deposits
| June 30 , 2024 |
December 31, 2023 | |||
| Colombia (i) | $ | 290,940 | $ | 312,530 |
| Canada (ii) | 136,382 | 542,304 | ||
| Sub-total | 427,322 | 854,834 | ||
| Long-term portion | (174,190) | (243,081) | ||
| Current portion of restricted cash and deposits | $ | 253,132 | $ | 611,753 |
(i) This balance is comprised of a deposit held as collateral to guarantee abandonment expenditures related to the Tapir and Santa Isabel blocks.
(ii) During 2024, the Company was able to recover its $337,031 (CAD $445,749) deposit related to the Company's liability rating management ("LMR"). The remaining $136,382 (2023: $205,273) pertain to other deposits held in Canada.
4. Trade and other receivables
| June 30 , 2024 |
December 31, 2023 | |||
| Trade receivables, net of advances | $ | 2,840,134 | $ | 2,238,918 |
| Other accounts receivable | 1,108,119 | 1,298,018 | ||
| $ | 3,948,253 | $ | 3,536,936 |
As at June 30, 2024, other accounts receivable include $699,835 (December 31, 2023 - $682,197) receivable from on demand loans with executives and directors.
5. Taxes receivable
| June 30 , 2024 |
December 31, 2023 | |||
| Value-added tax (VAT) credits recoverable | $ | 1,914,220 | $ | 1,703,260 |
| Income tax withholdings and advances, net | 2,674,727 | 2,952,139 | ||
| $ | 4,588,947 | $ | 4,655,399 |
The VAT recoverable balance pertains to non-compensated value-added tax credits originated in Colombia as operational and capital expenditures are incurred. The Company is entitled to compensate or claim for the reimbursement of these VAT credits.
6. Exploration and Evaluation
| June 30 , 2024 |
December 31, 2023 |
|||
| Balance, beginning of the period | $ | - | $ | - |
| Additions, net | 1,059,825 | 3,212,808 | ||
| Reclassification to Property and Equipment (Note 7) | - | (3,212,808) | ||
| Balance, end of the period | $ | 1,059,825 | $ | - |
During 2024, the Company incurred in exploration and development costs associated to its Baquiano prospect in the Tapir block. During 2023, the Company incurred in geological and geophysical costs in its Carrizales Norte prospect located in its Tapir block, and determined the technical feasibility and commercial viability of these assets, transferring $3,212,808 to its property and equipment. An impairment test on these assets was prepared and no losses were identified as a result of such tests.
7. Property and Equipment
| Cost | Oil and Gas Properties | Right of Use and Other Assets | Total |
| Balance, December 31, 2022 | $ 47,545,026 | $ 234,156 | $ 47,779,182 |
| Additions | 23,907,357 | 310,061 | 24,217,418 |
| Dispositions | (111,151) | - | (111,151) |
| Transfers from exploration and evaluation assets | 3,212,808 | - | 3,212,808 |
| Decommissioning adjustment | 738,825 | - | 738,825 |
| Balance, December 31, 2023 | $ 75,292,865 | $ 544,217 | $ 75,837,082 |
| Additions | 14,179,895 | 6,917 | 14,186,812 |
| Adjustment to ROU assets | - | (53,543) | (53,543) |
| Decommissioning additions | 760,060 | - | 760,060 |
| Balance, June 30, 2024 | $ 90,232,820 | $ 497,591 | $ 90,730,411 |
| Accumulated depletion and depreciation and impairment | ||||||||||||
| Balance, December 31, 2022 | $ 13,153,709 | $ 161,236 | $ 13,314,945 | |||||||||
| Depletion and depreciation | 12,120,871 | 65,906 | 12,186,777 | |||||||||
| Impairment loss of oil and gas properties | 11,799,740 | - | 11,799,740 | |||||||||
| Balance, December 31, 2023 | $ 37,074,320 | $ 227,142 | $ 37,301,462 | |||||||||
| Depletion and depreciation | 6,739,870 | 53,798 | 6,793,668 | |||||||||
| Impairment loss | 1,542,000 | - | 1,542,000 | |||||||||
| Balance, June 30, 2024 | $ 45,356,190 | $ 280,940 | $ 45,637,130 | |||||||||
| Foreign exchange | ||||||||||||
| Balance December 31, 2022 | $ (249,908) | $ (8,719) | $ (258,627) | |||||||||
| Effects of movements in foreign exchange rates |
88,671 | 5,697 | 94,368 | |||||||||
| Balance December 31, 2023 | $ (161,237) | $ (3,022) | $ (164,259) | |||||||||
| Effects of movements in foreign exchange rates |
(97,584) | (9,448) | (107,032) | |||||||||
| Balance June 30, 2024 | $ (258,821) | $ (12,470) | $ (271,088) | |||||||||
| Net Book Value | |||
| Balance December 31, 2023 | $ 38,057,308 | $ 314,053 | $ 37,371,361 |
| Balance June 30, 2024 | $ 44,617,809 | $ 204,181 | $ 45,821,990 |
Canada
As at June 30, 2024, the Company determined there were indicators of impairment in its Canada CGU, mainly due to decreases in current and forward gas prices, and prepared estimates of its fair value less costs of disposal of its Canada CGU. It was determined that carrying value of its Canada CGU exceeded its recoverable amount and, therefore, an impairment loss of $1,542,000 was included in the interim consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2024. The following table outlines forecast benchmark prices and exchange rates used in the Company's impairment test as at June 30, 2024:
| Exchange rate | AECO Spot Gas | |
| Year | $US / $Cdn | C$/MMBtu |
| 2024 | 0.75 | 2.24 |
| 2025 | 0.75 | 2.90 |
| 2026 | 0.75 | 4.33 |
| 2027 | 0.75 | 4.34 |
| 2028 Thereafter (inflation %) |
0.75 | 4.30 2.0%/yr |
The recoverable amount was estimated at their fair value less costs of disposal, based on the net present value of the future cash flows from oil and gas reserves as estimated by the Company's independent reserve evaluator at December 31, 2023, updated to reflect changes in prices forecast, and an internal valuation of undeveloped land. The fair value less costs of disposal used to determine the recoverable amounts are classified as Level 3 fair value measurements as certain key assumptions are not based on observable market data but rather, the Company's best estimate. The Company used a 18.3% (2023: 18.3%) pre-tax discount rate, which took into account risks specific to the Canada CGU. The key assumptions in the internal valuation of undeveloped land were the determination of the transactions considered precedent, the discount applied to the Company's lands and the probability of obtaining extensions on related lands. The Company utilized an average value per acre of $89.63 in the impairment test as at June 30, 2024.
As at December 31, 2023, the Company determined there were indicators of impairment in its Canada CGU, mainly due to decreases in forward gas prices and revision of reserves, and prepared estimates of its fair value less costs of disposal of its Canada CGU. It was determined that carrying value of its Canada CGU exceeded its recoverable amount and, therefore, an impairment loss of $1,248,400 was included in the consolidated statements of operations and comprehensive income for the year ended December 31, 2023.
Colombia
During 2023, the Agencia Nacional de Hidrocarburos ("ANH") approved the suspension of the obligations and operations of the OMBU contract due to force majeure circumstances generated by the blockades and social unrest around the Capella field. The suspension was for an initial term of three months and has been extended until August 2024. The Company determined there were indicators of impairment in the Capella CGU and recorded an impairment loss of $10,551,340 corresponding to the full carrying value of the Capella CGU as at December 31, 2023.
8. Lease Obligations
A reconciliation of the discounted lease obligation is set forth below:
| 2024 | 2023 | |||
| Obligation, beginning of the period | 320,593 | $ 63,751 | ||
| Additions | - | 302,930 | ||
| Changes to leases | (53,543) | - | ||
| Lease payments | (40,461) | (74,211) | ||
| Interest | 17,254 | 22,011 | ||
| Effects of movements in foreign exchange rates | (10,458) | 6,112 | ||
| Obligation, end of the period | 233,385 | 320,593 | ||
| Current portion | (49,313) | (103,674) | ||
| Long-term portion | 184,072 | 216,919 |
During 2024, the Company recognized the impact of a change in payment terms of its office lease and recognized a decrease in lease liabilities and ROU assets for $ 53,543. As at June 30, 2024, the Company has the following future lease obligations:
| Less than one year | 49,313 | ||
| 2 - 5 years | 269,676 | ||
| Total lease payments | 318,989 | ||
| Amounts representing interest over the term | (85,604) | ||
| Present value of the net obligation | 233,385 |
9. Decommissioning Liability
The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the decommissioning of oil and gas properties:
| June 30, 2024 |
December 31, 2023 |
||
| Obligation, beginning of the period | 3,973,075 | $ 3,303,301 | |
| Additions | 760,060 | 1,000,889 | |
| Change in estimated cash flows | - | (262,066) | |
| Payments or settlements | (105,734) | (19,545) | |
| Dispositions | - | (191,081) | |
| Accretion expense | 78,739 | 127,478 | |
| Effects of movements in foreign exchange rates | (21,422) | 14,099 | |
| Obligation, end of the period | 4,684,718 | 3,973,075 |
T he obligation was calculated using a risk-free discount rate range of 1.25% to 4.50% in Canada (2023: 1.25% to 4.50%) and between 4.00% and 4.29% in Colombia (2022: 4.00% and 4.29%) with an inflation rate of 2.5% and 2.6%, respectively (2023: 2.5% and 2.6%). The majority of costs are expected to occur between 2024 and 2038. The undiscounted amount of cash flows, required over the estimated reserve life of the underlying assets, to settle the obligation, adjusted for inflation, is estimated at $6,396,370 (2023: $5,686,938) .
10. Share Capital
(a) Authorized: Unlimited number of common shares without par value
(b) Issued:
| June 30, 2024 | December 31, 2023 | |||
| Common shares | Shares | Amounts | Shares | Amounts |
| Balance beginning of the period | 285,864,348 | 73,829,795 | 218,401,931 | 57,810,735 |
| Issued from warrants exercised | - | - | 67,462,417 | 16,019,060 |
| Balance at end of the period | 285,864,348 | 73,829,795 | 285,864,348 | 73,829,795 |
(b) Stock options:
The Company has a stock option plan that provides for the issuance to its directors, officers, employees and consultants options to purchase a number of non-transferable common shares not exceeding 10% of the common shares that are outstanding.
The exercise price is based on the closing price of the Company's common shares on the day prior to the day of the grant. A summary of the Company stock option plan as at June 30, 2024 and December 31, 2023 and changes during the periods ended on those dates is presented below:
| June 30, 2024 | December 31, 2023 | |||
| Stock Options | Number of options | Weighted average exercise price (CAD $) |
Number of options | Weighted average exercise price (CAD $) |
| Beginning of period | 20,531,668 | $0.24 | 20,590,000 | $0.18 |
| Granted | 9,843,887 | $0.38 | 1,650,000 | $0.27 |
| Expired/Forfeited | - | - | (1,375,000) | $0.12 |
| Exercised | (3,545,555) | $0.19 | (333,332) | $0.11 |
| End of period | 26,830,000 | $0.29 | 20,531,668 | $0.24 |
| Exercisable, end of period | 7,317,220 | $0.25 | 9,879,441 | $0.42 |
| Date of Grant | Number Outstanding | Exercise Price (CAD $) |
Weighted Average Remaining Contractual Life |
Date of Expiry |
Number Exercisable June 30, 2024 |
| October 22, 2018 | 750,000 | $1.15 | Oct. 22, 2028 | 750,000 | |
| May 3, 2019 | 235,000 | $0.31 | May 3, 2029 | 235,000 | |
| March 20, 2020 | 1,200,000 | $0.05 | Mar. 20, 2030 | 1,200,000 | |
| April 13, 2020 | 1,200,000 | $0.05 | April 13, 2030 | 1,200,000 | |
| December 13, 2021 | 5,150,002 | $0.13 | June 13, 2024 and 2025 | 2,166,666 | |
| June 9, 2022 | 1,200,001 | $0.28 | Dec. 9, 2023, 2024 and 2025 | 433,333 | |
| September 7, 2022 | 833,334 | $0.26 | Mar. 7, 2024, 2025 and 2026 | - | |
| December 21, 2022 | 4,951,110 | $0.28 | June 21, 2024, 2025 and 2026 | 1,298,888 | |
| January 23, 2023 | 466,666 | $0.32 | July 23, 2024, 2025 and 2026 | 33,333 | |
| September 21, 2023 | 1,000,000 | $0.33 | Mar. 21, 2025, 2026 and 2027 | - | |
| April 29, 2024 | 9,843,887 | $0.38 | Oct.29 2025, 2026 and 2027 | - | |
| Total | 26,830,000 | $0.23 | 2.38 years | 7,317,220 |
During the three and six months ended June 30, 2024, the Company recognized $309,845 and $411,123, respectively (2023: $159,018 and $291,259) as share-based compensation expense, with a corresponding effect in the contributed surplus account.
11. Commitments and Contingencies
Exploration and Production Contracts
The Company has entered into a number of exploration contracts in Colombia which require the Company to fulfill work program commitments and issue financial guarantees related thereto. In aggregate, the Company has outstanding exploration commitments at June 30, 2024 of $12 million. The Company has made an application to the ANH to mutually cancel its COR-39 contract. Presented below are the Company's exploration and production contractual commitments at June 30, 2024:
| Block | Less than 1 year | 1-3 years | Thereafter | Total | |
| COR-39 | - | 12,000,000 | - | 12,000,000 | |
| Total | - | 12,000,000 | - | 12,000,000 |
Contingencies
From time to time, the Company may be involved in litigation or has claims sought against it in the normal course of business operations. Management of the Company is not currently aware of any claims or actions that would materially affect the Company's reported financial position or results from operations. Under the terms of certain agreements and the Company's by-laws the Company indemnifies individuals who have acted at the Company's request to be a director and/or officer of the Company, to the extent permitted by law, against any and all damages, liabilities, costs, charges or expenses suffered by or incurred by those individuals.
Letters of Credit
At June 30, 2024, the Company had obligations under Letters of Credit ("LC's") outstanding totaling $2.8 million to guarantee work commitments on exploration blocks and other contractual commitments. In the event the Company fails to secure the renewal of the letters of credit underlying the ANH guarantees, or any of them, the ANH could decide to cancel the underlying exploration and production contract for a particular block, as applicable.
| Current Outstanding Letters of Credit | |||||
| Contract | Beneficiary | Issuer | Type | Amount (US $) |
Renewal Date |
| SANTA ISABEL | ANH | Carrao Energy | Abandonment | $563,894 | April 14, 2025 |
| ANH | Carrao Energy | Financial Capacity | $1,672,162 | December 30, 2024 | |
| CORE - 39 | ANH | Carrao Energy | Compliance | $100,000 | December 30, 2024 |
| OMBU | ANH | Carrao Energy | Financial Capacity | $436,300 | October 14, 2024 |
| Total | $2,772,356 |
12. Risk Management
The Company holds various forms of financial instruments. The nature of these instruments and the Company's operations expose the Company to commodity price, credit and foreign exchange risks. The Company manages its exposure to these risks by operating in a manner that minimizes its exposure to the extent practical.
(a) Commodity price risk
Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in commodity prices. Lower commodity prices can also impact the Company's ability to raise capital. Commodity prices for crude oil are impacted by world economic events that dictate the levels of supply and demand. There were no derivative contracts during 2024.
(b) Credit Risk
Credit risk reflects the risk of loss if counterparties do not fulfill their contractual obligations. The majority of the Company's account receivable balances relate to petroleum and natural gas sales. The Company's policy is to enter into agreements with customers that are well established and well financed entities in the oil and gas industry such that the level of risk is mitigated. In Colombia, a significant portion of the sales is with a producing company and a commodities trader under existing sale/offtake agreements with prepayment provisions and priced using the Brent benchmark. The Company's trade account receivables primarily relate to sales of crude oil and natural gas, which are normally collected within 25 days (in Canada) and up to 15 days (in Colombia) after the month of production. Other accounts receivable mainly relate to balances owed by the Company's partner in one of its blocks, and are mainly recoverable through join billings. The Company has historically not experienced any collection issues with its customers and partners.
(c) Market Risk
Market risk is comprised of two components: foreign currency exchange risk and interest rate risk.
i) Foreign Currency Exchange Risk
The Company operates on an international basis and therefore foreign exchange risk exposures arise from transactions denominated in currencies other than the United States dollar. The Company is exposed to foreign currency fluctuations as it holds cash and incurs expenditures in exploration and evaluation and administrative costs in foreign currencies. The Company incurs expenditures in Canadian dollars, United States dollars, British Pounds and the Colombian peso and is exposed to fluctuations in exchange rates in these currencies. There are no exchange rate contracts in place.
ii) Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is not currently exposed to interest rate risk.
(d) Liquidity Risk
Liquidity risk includes the risk that, as a result of the Company's operational liquidity requirements:
· The Company will not have sufficient funds to settle a transaction on the due date;
· The Company will be forced to sell financial assets at a value which is less than what they are worth; or
· The Company may be unable to settle or recover a financial asset.
The Company's approach to managing its liquidity risk is to ensure, within reasonable means, sufficient liquidity to meet its liabilities when due, under both normal and unusual conditions, without incurring unacceptable losses or jeopardizing the Company's business objectives. The Company prepares annual capital expenditure budgets which are monitored regularly and updated as considered necessary. Petroleum and natural gas production is monitored daily to provide current cash flow estimates and the Company utilizes authorizations for expenditures on projects to manage capital expenditures. Any funding shortfall may be met in a number of ways, including, but not limited to, the issuance of new debt or equity instruments, further expenditure reductions and/or the introduction of joint venture partners.
(e) Capital Management
The Company's objective is to maintain a capital base sufficient to provide flexibility in the future development of the business and maintain investor, creditor and market confidence. The Company manages its capital structure and makes adjustments in response to changes in economic conditions and the risk characteristics of the underlying assets. The Company considers its capital structure to include share capital, bank debt (when available), promissory notes and working capital, defined as current assets less current liabilities. From time to time the Company may issue common shares or other securities, sell assets or adjust its capital spending to manage current and projected debt levels. The Company adjusts its capital structure based on its net debt level. Net debt is defined as the principal amount of its outstanding debt, less working capital items. The Company prepares annual budgets, which are updated as necessary including current and forecast crude oil prices, changes in capital structure, execution of the Company's business plan and general industry conditions. The annual budget is approved by the Board of Directors. The Company's capital includes the following:
| June 30, 2024 | December 31, 2023 | |
| Working capital | $ 6,657,117 | $ 8,669,114 |
13. Segmented Information
The Company has two reportable operating segments: Colombia and Canada. The Company, through its operating segments, is engaged primarily in oil exploration, development and production, and the acquisition of oil and gas properties. The Canada segment is also considered the corporate segment. The following tables show information regarding the Company's segments for the three and six months ended and as at June 30:
| Three months ended June 30, 2024 | Colombia | Canada | Total | ||||||||
| Revenue: | |||||||||||
| Oil Sales | $ | 17,062,022 | $ | - | $ | 17,062,022 | |||||
| Natural gas and liquid sales | - | 105,121 | 105,121 | ||||||||
| Royalties | (2,040,580) | 19,803 | (2,020,777) | ||||||||
| Expenses | (6,258,927) | (3,732,716) | (9,991,643) | ||||||||
| Impairment loss | - | (1,542,000) | (1,542,000) | ||||||||
| Income taxes | (2,364,898) | - | (2,364,898) | ||||||||
| Net income (loss) | $ | 6,397,617 | $ | (5,149,792) | $ | 1,247,825 | |||||
| Six months ended June 30, 2024 | Colombia | Canada | Total | ||||||||
| Revenue: | |||||||||||
| Oil Sales | $ | 33,129,313 | $ | - | $ | 33,129,313 | |||||
| Natural gas and liquid sales | - | 431,472 | 431,472 | ||||||||
| Royalties | (4,012,959) | 3,461 | (4,009,498) | ||||||||
| Expenses | (11,845,635) | (6,409,050) | (18,254,685) | ||||||||
| Impairment loss | - | (1,542,000) | (1,542,000) | ||||||||
| Income taxes | (5,330,051) | - | (5,330,051) | ||||||||
| Net income (loss) | $ | 11,940,668 | $ | (7,516,117) | $ | 4,424,551 | |||||
| As at June 30, 2024 | Colombia | Canada | Total | |||
| Current assets | $ | 17,499,989 | $ | 2,475,644 | $ | 19,975,633 |
| Non-current: | ||||||
| Deferred income taxes | 1,832,995 | - | 1,832,995 | |||
| Restricted cash | 37,808 | 136,382 | 174,190 | |||
| Exploration and evaluation | 1,059,825 | - | 1,059,825 | |||
| Property, plant and equipment | 43,859,733 | 962,257 | 44,821,990 | |||
| Total Assets | $ | 64,290,350 | $ | 3,574,283 | $ | 67,864,633 |
| Current liabilities | $ | 11,487,165 | $ | 1,831,351 | $ | 13,318,516 |
| Non-current liabilities: | ||||||
| Deferred income taxes | 3,182,607 | - | 3,182,607 | |||
| Other liabilities | 375,448 | - | 375,448 | |||
| Lease obligation | - | 184,072 | 184,072 | |||
| Decommissioning liability | 4,147,564 | 537,154 | 4,684,718 | |||
| Total liabilities | $ | 19,192,784 | $ | 2,552,577 | $ | 21,745,361 |
| Three months ended June 30, 2023 | Colombia | Canada | Total | ||||||
| Revenue: | |||||||||
| Oil Sales | $ | 11,206,886 | $ | - | $ | 11,206,886 | |||
| Natural gas and liquid sales | - | 431,082 | 431,082 | ||||||
| Royalties | (1,399,621) | 41,933 | (1,357,688) | ||||||
| Expenses | (5,270,072) | (5,502,162) | (10,872,234) | ||||||
| Income taxes | (165,462) | - | (165,462) | ||||||
| Net income (loss) | $ | 4,371,731 | $ | (5,129,147) | $ | (757,416) | |||
| Six months ended June 30, 2023 | Colombia | Canada | Total | ||||||
| Revenue: | |||||||||
| Oil Sales | $ | 18,680,723 | $ | - | $ | 18,680,723 | |||
| Natural gas and liquid sales | - | 922,103 | 922,103 | ||||||
| Royalties | (2,328,654) | (1,032) | (2,329,686) | ||||||
| Expenses | (8,460,388) | (6,414,971) | (14,875,359) | ||||||
| Income taxes | (165,462) | - | (165,462) | ||||||
| Net income (loss) | $ | 7,726,219 | $ | (5,493,900) | $ | 2,232,319 | |||
| As at June 30, 2023 | Colombia | Canada | Total | ||||||
| Current assets | $ | 13,847,131 | $ | 1,312,191 | $ | 15,159,322 | |||
| Non-current: | |||||||||
| Deferred income taxes | 533,558 | - | 533,558 | ||||||
| Restricted cash | 37,808 | 665,875 | 703,683 | ||||||
| Exploration and evaluation | 2,849,427 | - | 2,849,427 | ||||||
| Property, plant and equipment | 32,495,634 | 4,563,906 | 37,059,540 | ||||||
| Total Assets | $ | 49,763,558 | $ | 6,541,972 | $ | 56,305,530 | |||
| Current liabilities | $ | 8,150,721 | $ | 9,371,989 | $ | 17,522,710 | |||
| Non-current liabilities: | |||||||||
| Deferred income taxes | 2,505,549 | - | 2,505,549 | ||||||
| Other liabilities | 264,881 | - | 264,881 | ||||||
| Lease obligation | - | 171,517 | 171,517 | ||||||
| Decommissioning liability | 3,080,832 | 563,814 | 3,644,646 | ||||||
| Total liabilities | $ | 14,001,983 | $ | 10,107,320 | $ | 24,109,303 | |||
Arrow Exploration Corp.
MANAGEMENT's DISCUSSION AND ANALYSIS
THREE AND SIX MONTHS ENDED JUNE 30, 2024
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") as provided by the management of Arrow Exploration Corp. ("Arrow" or the "Company"), is dated as of August 28, 2024 and should be read in conjunction with Arrow's interim condensed (unaudited) consolidated financial statements and related notes as at and for the three and six months ended June 30, 2024 and 2023. Additional information relating to Arrow, including its annual consolidated financial statements and related notes for the year ended December 31, 2023 and 2022 (the "Annual Financial Statements"), is available under Arrow's profile on www.sedar.com .
Advisories
Basis of Presentation
The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), and all amounts herein are expressed in United States dollars, unless otherwise noted, and all tabular amounts are expressed in United States dollars, unless otherwise noted. Additional information for the Company may be found on SEDAR at www.sedar.com.
Advisory Regarding Forward‐Looking Statements
This MD&A contains certain statements or disclosures relating to Arrow that are based on the expectations of its management as well as assumptions made by and information currently available to Arrow which may constitute forward-looking statements or information ("forward-looking statements") under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that Arrow anticipates or expects may, could or will occur in the future (in whole or in part) should be considered forward-looking statements. In some cases, forward-looking statements can be identified by the use of the words "believe", "continue", "could", "expect", "likely", "may", "outlook", "plan", "potential", "will", "would" and similar expressions. In particular, but without limiting the foregoing, this MD&A contains forward-looking statements pertaining to the following: global pandemics and their impact; tax liability; capital management strategy; capital structure; credit facilities and other debt; performance by Canacol (as defined herein) and the Company in connection with the Note (as defined herein) and letters of credit; Arrow's costless collar structure; cost reduction initiatives; potential drilling on the Tapir block; capital requirements; expenditures associated with asset retirement obligations; future drilling activity and the development of the Rio Cravo Este structure on the Tapir Block. Statements relating to "reserves" and "resources" are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future.
The forward-looking statements contained in this MD&A reflect several material factors and expectations and assumptions of Arrow including, without limitation: current and anticipated commodity prices and royalty regimes; the impact of the global pandemics; the financial impact of Arrow's costless collar structure; availability of skilled labour; timing and amount of capital expenditures; future exchange rates; commodity prices; the impact of increasing competition; general economic conditions; availability of drilling and related equipment; receipt of partner, regulatory and community approvals; royalty rates; changes in income tax laws or changes in tax laws and incentive programs; future operating costs; effects of regulation by governmental agencies; uninterrupted access to areas of Arrow's operations and infrastructure; recoverability of reserves; future production rates; timing of drilling and completion of wells; pipeline capacity; that Arrow will have sufficient cash flow, debt or equity sources or other financial resources required to fund its capital and operating expenditures and requirements as needed; that Arrow's conduct and results of operations will be consistent with its expectations; that Arrow will have the ability to develop its oil and gas properties in the manner currently contemplated; current or, where applicable, proposed industry conditions, laws and regulations will continue in effect or as anticipated; that the estimates of Arrow's reserves and production volumes and the assumptions related thereto (including commodity prices and development costs) are accurate in all material respects; that Arrow will be able to obtain contract extensions or fulfil the contractual obligations required to retain its rights to explore, develop and exploit any of its undeveloped properties; and other matters.
Arrow believes the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct. The forward-looking statements included in this MD&A are not guarantees of future performance and should not be unduly relied upon.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements including, without limitation: the impact of general economic conditions; volatility in commodity prices; industry conditions including changes in laws and regulations including adoption of new environmental laws and regulations, and changes in how they are interpreted and enforced; competition; lack of availability of qualified personnel; the results of exploration and development drilling and related activities; obtaining required approvals of regulatory authorities; counterparty risk; risks associated with negotiating with foreign governments as well as country risk associated with conducting international activities; commodity price volatility; fluctuations in foreign exchange or interest rates; environmental risks; changes in income tax laws or changes in tax laws and incentive programs; changes to pipeline capacity; ability to secure a credit facility; ability to access sufficient capital from internal and external sources; risk that Arrow's evaluation of its existing portfolio of development and exploration opportunities is not consistent with future results; that production may not necessarily be indicative of long term performance or of ultimate recovery; and certain other risks detailed from time to time in Arrow's public disclosure documents including, without limitation, those risks identified in Arrow's 2018 AIF, a copy of which is available on Arrow's SEDAR profile at www.sedar.com. Readers are cautioned that the foregoing list of factors is not exhaustive and are cautioned not to place undue reliance on these forward-looking statements.
Non‐IFRS Measures
The Company uses non-IFRS measures to evaluate its performance which are measures not defined in IFRS. Working capital, funds flow from operations, realized prices, operating netback, adjusted EBITDA, and net debt as presented do not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. The Company considers these measures as key measures to demonstrate its ability to generate the cash flow necessary to fund future growth through capital investment, and to repay its debt, as the case may be. These measures should not be considered as an alternative to, or more meaningful than net income or cash provided by (used in) operating activities or net income and comprehensive income as determined in accordance with IFRS as an indicator of the Company's performance. The Company's determination of these measures may not be comparable to that reported by other companies.
Adjusted working capital is calculated as current assets minus current liabilities, excluding non-cash liabilities; funds from operations is calculated as cash flows provided by operating activities adjusted to exclude changes in non-cash working capital balances; realized price is calculated by dividing gross revenue by gross production, by product, in the applicable period; operating netback is calculated as total natural gas and crude revenues minus royalties, transportation costs and operating expenditures; adjusted EBITDA is calculated as net income adjusted for interest, income taxes, depreciation, depletion, amortization and other similar non-recurring or non-cash charges; and net debt (net cash) is defined as the principal amount of its outstanding debt, less working capital items excluding non-cash liabilities.
The Company also presents funds from operations per share, whereby per share amounts are calculated using weighted- average shares outstanding consistent with the calculation of net income per share.
A reconciliation of the non-IFRS measures is included as follows:
| (in United States dollars) | Three months ended June 30, 2024 | Six months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2023 |
| Net income (loss) | 1,770,825 | 4,947,551 | (757,416) | 2,232,319 |
| Add/(subtract): | ||||
| Share based payments | 309,845 | 411,123 | 159,018 | 291,258 |
| Financing costs: | ||||
| Accretion on decommissioning obligations | 41,363 | 78,739 | 32,139 | 61,295 |
| Interest | 7,501 | 17,271 | 61,349 | 122,237 |
| Other | 108,773 | 307,837 | 103,172 | 148,854 |
| Depreciation and depletion | 2,738,894 | 6,270,668 | 3,640,189 | 6,094,553 |
| Derivative loss | - | - | 2,436,047 | 1,081,772 |
| Impairment loss | 1,542,000 | 1,542,000 | - | - |
| Income taxes, current and deferred | 2,364,898 | 5,330,051 | 165,462 | 165,462 |
| Adjusted EBITDA (1) | 8,884,099 | 18,905,240 | 5,839,960 | 10,197,750 |
| Cash flows provided by operating activities | 7,134,370 | 15,716,658 | 4,990,938 | 7,371,133 |
| Minus - Changes in non‑cash working capital balances: | ||||
| Trade and other receivables | 710,871 | 411,317 | 1,236,941 | (468,003) |
| Restricted cash | (83,766) | (427,512) | 90,814 | 103,080 |
| Taxes receivable | (230,531) | (66,453) | (433,680) | 168,689 |
| Deposits and prepaid expenses | (37,991) | 114,972 | (78,064) | 35,548 |
| Inventory | (445,693) | (445,785) | 53,016 | 170,814 |
| Accounts payable and accrued liabilities | 8,603 | 305,814 | (3,020,563) | (537,898) |
| Income taxes | (400,167) | (1,742,632) | 438,639 | 675,281 |
| Funds flow from operations (1) | 6,655,696 | 13,866,379 | 3,278,041 | 7,518,644 |
(1) Non-IFRS measures
The term barrel of oil equivalent ("boe") is used in this MD&A. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 thousand cubic feet ("Mcf") of natural gas to one barrel of oil ("bbl") is used in the MD&A. This conversion ratio of 6:1 is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
FINANCIAL AND OPERATING HIGHLIGHTS
| (in United States dollars, except as otherwise noted) | Three months ended June 30, 2024 | Six months ended June 30, 2024 |
Three months ended June 30, 2023 |
| Total natural gas and crude oil revenues, net of royalties | 15,146,366 | 29,551,287 | 10,280,280 |
| Funds flow from operations (1) | 6,655,696 | 13,866,379 | 3,278,041 |
| Funds flow from operations (1) per share - | |||
| Basic($) | 0.02 | 0.05 | 0.01 |
| Diluted ($) | 0.02 | 0.05 | 0.01 |
| Net income (loss) | 1,247,825 | 4,424,551 | (757,416) |
| Net income (loss) per share - | |||
| Basic ($) | 0.00 | 0.02 | (0.00) |
| Diluted ($) | 0.00 | 0.02 | (0.00) |
| Adjusted EBITDA (1) | 8,884,099 | 18,905,240 | 5,839,960 |
| Weighted average shares outstanding - | |||
| Basic ($) | 285,864,348 | 285,864,348 | 230,808,547 |
| Diluted ($) | 292,536,147 | 292,867,527 | 295,446,047 |
| Common shares end of period | 285,864,348 | 285,864,348 | 234,274,893 |
| Capital expenditures | 8,965,408 | 15,246,736 | 6,870,258 |
| Cash and cash equivalents | 10,826,380 | 10,826,380 | 10,801,494 |
| Current Assets | 19,975,633 | 19,975,633 | 15,159,322 |
| Current liabilities | 13,318,516 | 13,318,516 | 17,522,710 |
| Adjusted working capital(1) | 6,657,117 | 6,657,117 | 6,341,935 |
| Long-term portion of restricted cash(2) | 174,190 | 174,190 | 703,683 |
| Total assets | 67,864,633 | 67,864,633 | 56,305,530 |
| Operating | |||
| Natural gas and crude oil production, before royalties | |||
| Natural gas (Mcf/d) | 926 | 1,343 | 2,318 |
| Natural gas liquids (bbl/d) | 4 | 4 | 3 |
| Crude oil (bbl/d) | 2,387 | 2,409 | 1,779 |
| Total (boe/d) | 2,546 | 2,638 | 2,169 |
| Operating netbacks ($/boe) (1) | |||
| Natural gas ($/Mcf) | ($1.25) | ($0.52) | ($0.05) |
| Crude oil ($/bbl) | $54.54 | $55.38 | $53.64 |
| Total ($/boe) | $51.21 | $50.66 | $44.21 |
(1) Non-IFRS measures - see "Non-IFRS Measures" section within this MD&A
(2) Long term restricted cash not included in working capital
The Company
Arrow is a junior oil and gas company engaged in the acquisition, exploration and development of oil and gas properties in Colombia and Western Canada. The Company's shares trade on the TSX Venture Exchange and the London AIM exchange under the symbol AXL.
The Company and Arrow Exploration Ltd. entered into an arrangement agreement dated June 1, 2018, as amended, whereby the parties completed a business combination pursuant to a plan of arrangement under the Business Corporations Act (Alberta) ("ABCA") on September 28, 2018. Arrow Exploration Ltd. and Front Range's then wholly-owned subsidiary, 2118295 Alberta Ltd., were amalgamated to form Arrow Holdings Ltd., a wholly-owned subsidiary of the Company (the "Arrangement"). On May 31, 2018, Arrow Exploration Ltd. entered in a share purchase agreement, as amended, with Canacol Energy Ltd. ("Canacol"), to acquire Canacol's Colombian oil properties held by its wholly-owned subsidiary Carrao Energy S.A. ("Carrao"). On September 27, 2018, Arrow Exploration Ltd. closed the agreement with Canacol.
On May 31, 2018, Arrow Exploration Ltd., entered into a purchase and sale agreement to acquire a 50% beneficial interest in a contract entered into with Ecopetrol S.A. pertaining to the exploration and production of hydrocarbons in the Tapir block from Samaria Exploration & Production S.A. ("Samaria"). On September 27, 2018, Arrow Exploration Ltd. closed the agreement with Samaria. As at June 30, 2024 the Company held an interest in four oil blocks in Colombia and oil and natural gas leases in five areas in Canada as follows:
| Gross Acres | Working Interest | Net Acres | ||
| COLOMBIA | ||||
| Tapir | 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 km2 and lies between the Putumayo and Llanos Basins. The primary reservoir target is the Upper Eocene aged Mirador formation. The Capella structure is a large, elongated northeast-southwest fault-related anticline, with approximately 17,500 acres in closure at the Mirador level. The field is located approximately 250 km away from the nearest offloading station at Neiva, where production from Capella is trucked.
The Capella No. 1 discovery well was drilled in July 2008 and was followed by a series of development wells. The Company earned a 10% working interest in the Ombu E&P Contract by paying 100% of all activities associated with the drilling, completion, and testing of the Capella No. 1 well. The Capella field is currently suspended and temporarily shut in.
Fir, Alberta
The Company has an average non-operated 32% WI in 12 gross (3.84 net) sections of oil and natural gas rights and 17 gross (4.5 net) producing natural gas wells at Fir. The wells produce raw natural gas into the Cecilia natural gas plant where it is processed.
Pepper, Alberta
The Company holds a 100% operated WI in 37 sections of Montney P&NG rights on its Pepper asset in West Central Alberta. The 6-26-53-23W5M Montney gas well (West Pepper) is tied into the Galloway gas plant for processing. The 3-21-52-22W5M Montney gas well (East Pepper) is currently tied into the Sundance gas plant for processing. The majority of lands have tenure extending into 2025. Both West Pepper and East Pepper wells are currently shut in due to current low natural gas prices in Canada.
Three months ended June 30, 2024 Financial and Operational Highlights
· Arrow recorded $15,146,366 in revenues, net of royalties, on crude oil sales of 233,757 bbls, 370 bbls of natural gas liquids ("NGL's") and 84,269 Mcf of natural gas sales;
· Funds flow from operations of $6,655,696;
· Net income of $1,247,825 and adjusted EBITDA was $8,884,099;
· Drilled three wells (two development and one water injector) at its Carrizales Norte field
Results of Operations
The Company increased its production from its new wells at its Carrizales Norte field in the Tapir block. These have allowed the Company to continue to improve its operating results and EBITDA. There has also been a decrease in the Company's natural gas production in Canada due to shut ins in some wells and natural declines.
Average Production by Property
| Average Production Boe/d | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 | Q1 2023 |
| Oso Pardo | 113 | 166 | 80 | 93 | 130 | 138 |
| Ombu (Capella) | - | - | - | - | - | 80 |
| Rio Cravo Este (Tapir) | 1,283 | 1,644 | 1,326 | 1,443 | 1,592 | 1,004 |
| Carrizales Norte (Tapir) | 991 | 622 | 621 | 642 | 57 | - |
| Total Colombia | 2,387 | 2,432 | 2,027 | 2,178 | 1,779 | 1,222 |
| Fir, Alberta | 77 | 78 | 80 | 81 | 77 | 74 |
| Pepper, Alberta | 82 | 220 | 228 | 259 | 313 | 340 |
| TOTAL (Boe/d) | 2,546 | 2,730 | 2,335 | 2,518 | 2,169 | 1,635 |
The Company's average production for the three months ended June 30, 2024 was 2,546 boe/d, which consisted of crude oil production in Colombia of 2,387 bbl/d, natural gas production of 926 Mcf/d, and minor amounts of natural gas liquids from the Company's Canadian properties. The Company's Q2 2024 production was 7% lower than its Q1 2024 production and 17% higher when compared to Q2 2023.
Average Daily Natural Gas and Oil Production and Sales Volumes
| Three months ended June 30 |
Six months ended June 30 |
||||
| 2024 | 2023 | 2024 | 2023 | ||
| Natural Gas (Mcf/d) | |||||
| Natural gas production | 926 | 2,318 | 1,343 | 2,388 | |
| Natural gas sales | 926 | 2,318 | 1,343 | 2,388 | |
| Realized Contractual Natural Gas Sales | 926 | 2,318 | 1,343 | 2,388 | |
| Crude Oil (bbl/d) | |||||
| Crude oil production | 2,387 | 1,779 | 2,409 | 1,502 | |
| Inventory movements and other | 181 | 40 | 93 | (24) | |
| Crude Oil Sales | 2,569 | 1,819 | 2,502 | 1,478 | |
| Corporate | |||||
| Natural gas production (boe/d) | 155 | 386 | 224 | 398 | |
| Natural gas liquids(bbl/d) | 4 | 4 | 4 | 4 | |
| Crude oil production (bbl/d) | 2,387 | 1,779 | 2,409 | 1,502 | |
| Total production (boe/d) | 2,546 | 2,169 | 2,638 | 1,904 | |
| Inventory movements and other (boe/d) | 181 | 40 | 93 | (24) | |
| Total Corporate Sales (boe/d) | 2,728 | 2,209 | 2,731 | 1,880 |
During the three and six months ended June 30, 2024 the majority of production was attributed to Colombia, where most of Company's blocks were producing. The volumes reported as inventory movements correspond to the sale of 18,990 barrels of oil that were stored at the non-operated Capella field in the OMBU block.
Natural Gas and Oil Revenues
| Three months ended June 30 |
Six months ended June 30 |
||||
| 2024 | 2023 | 2024 | 2023 | ||
| Natural Gas | |||||
| Natural gas revenues | 79,226 | 413,632 | 379,450 | 881,508 | |
| NGL revenues | 25,894 | 17,450 | 52,022 | 40,595 | |
| Royalties | 19,803 | 41,933 | 3,461 | (1,032) | |
| Revenues, net of royalties | 124,924 | 473,015 | 434,933 | 921,071 | |
| Oil | |||||
| Oil revenues | 17,062,022 | 11,206,886 | 33,129,313 | 18,680,723 | |
| Royalties | (2,040,580) | (1,399,621) | (4,012,959) | (2,328,654) | |
| Revenues, net of royalties | 15,021,442 | 9,807,265 | 29,116,354 | 16,352,069 | |
| Corporate | |||||
| Natural gas revenues | 79,226 | 413,632 | 379,450 | 881,508 | |
| NGL revenues | 25,894 | 17,450 | 52,022 | 40,595 | |
| Oil revenues | 17,062,022 | 11,206,886 | 33,129,313 | 18,680,723 | |
| Total revenues | 17,167,143 | 11,637,968 | 33,560,785 | 19,602,826 | |
| Royalties | (2,020,777) | (1,357,688) | (4,009,498) | (2,329,686) | |
| Natural gas and crude oil revenues, net of royalties | 15,146,366 | 10,280,280 | 29,551,287 | 17,273,140 |
Natural gas and crude oil revenues, net of royalties, for the three and six months ended June 30, 2024 were $15,145,366 and $29,551,287, respectively (2023: $10,280,280 and $17,273,140), which represents an increase of 47% and 71%, respectively, when compared to the same 2023 periods, and 5% higher than Q1 2024. These significant increases are mainly due to increased oil production in Colombia, offset by decrease in revenue in Canada.
Average Benchmark and Realized Prices
| Three months ended June 30 | Six months ended June 30 | |||||
| 2024 | 2023 | Change | 2024 | 2023 | Change | |
| Benchmark Prices | ||||||
| AECO (C$/Mcf) | $1.20 | $2.46 | (51%) | $1.87 | $2.85 | (34%) |
| Brent ($/bbl) | $83.00 | $74.98 | 11% | $83.84 | $77.10 | 9% |
| West Texas Intermediate ($/bbl) | $80.55 | $73.75 | 9% | $78.75 | $74.90 | 5% |
| Realized Prices | ||||||
| Natural gas, net of transportation ($/Mcf) | $0.94 | $1.96 | (52%) | $1.55 | $2.04 | (24%) |
| Natural gas liquids ($/bbl) | $69.96 | $55.33 | 26% | $68.02 | $61.01 | 11% |
| Crude oil, net of transportation ($/bbl) | $72.99 | $67.69 | 8% | $73.15 | $69.83 | 5% |
| Corporate average, net of transport ($/boe)(1) | $69.39 | $57.89 | 20% | $67.99 | $57.62 | 18% |
(1)Non-IFRS measure
The Company realized prices of $69.39 and $67.99 per boe during the three and six months ended June 30, 2024, respectively (2023: $57.89 and $57.62), due to increased in oil prices during 2024, partially offset by natural gas prices which decreased during this period .
Operating Expenses
| Three months ended June 30 | Six months ended June 30 | |||
| 2024 | 2023 | 2024 | 2023 | |
| Natural gas & NGL's | 204,106 | 465,154 | 510,330 | 982,807 |
| Crude oil | 2,271,476 | 926,336 | 4,034,263 | 1,526,273 |
| Total operating expenses | 2,475,582 | 1,391,490 | 4,544,593 | 2,509,080 |
| Natural gas ($/Mcf) | $2.42 | $2.21 | $2.09 | $2.27 |
| Crude oil ($/bbl) | $9.72 | $5.59 | $8.91 | $5.71 |
| Corporate ($/boe)(1) | $10.01 | $6.92 | $9.21 | $7.37 |
(1)Non-IFRS measure
During the three and six months ended June 30, 2024, Arrow incurred operating expenses of $2,475,582 and $4,544,593, respectively (2023: $1,391,490 and $2,509,080). This increase in operating costs is mainly due to increased production in the Company's Carrizales Norte field, including production of heavier oil, and $464,900 of additional operating costs corresponding to the Capella inventory volumes sold during Q2 2024.
Operating Netbacks
| Three months ended June 30 | Six months ended June 30 | |||
| 2024 | 2023 | 2024 | 2023 | |
| Natural Gas ($/Mcf) | ||||
| Revenue, net of transportation expense | $0.94 | $1.96 | $1.55 | $2.03 |
| Royalties | $0.23 | $0.20 | $0.01 | ($0.00) |
| Operating expenses | ($2.42) | ($2.21) | ($2.09) | ($2.27) |
| Natural Gas operating netback(1) | ($1.25) | ($0.05) | ($0.52) | ($0.24) |
| Crude oil ($/bbl) | ||||
| Revenue, net of transportation expense | $72.99 | $67.69 | $73.15 | $69.83 |
| Royalties | ($8.73) | ($8.46) | ($8.86) | ($8.70) |
| Operating expenses | ($9.72) | ($5.59) | ($8.91) | ($5.71) |
| Crude Oil operating netback(1) | $54.54 | $53.64 | $55.38 | $55.42 |
| Corporate ($/boe) | ||||
| Revenue, net of transportation expense | $69.39 | $57.89 | $67.99 | $57.62 |
| Royalties | ($8.17) | ($6.76) | ($8.12) | ($6.85) |
| Operating expenses | ($10.01) | ($6.92) | ($9.21) | ($7.37) |
| Corporate Operating netback (1) | $51.21 | $44.21 | $50.66 | $43.40 |
(1) Non-IFRS measure
The operating netbacks of the Company continued within healthy levels during 2024 due increasing production from its Colombian assets and improved crude oil prices, which were offset by decreases in natural gas prices.
General and Administrative Expenses (G&A)
| Three months ended June 30 | Six months ended June 30 | |||
| 2024 | 2023 | 2024 | 2023 | |
| General & administrative expenses | 3,875,274 | 3,437,678 | 6,812,387 | 5,190,625 |
| G&A recovered from 3rd parties | (161,697) | (189,551) | (416,888) | (323,750) |
| Total G&A | 3,713,577 | 3,248,127 | 6,395,499 | 4,866,875 |
| Cost per boe | $15.01 | $23.34 | $12.96 | $14.31 |
For the three and six months ended June 30, 2024, G&A expenses before recoveries totaled $3,875,274 and $6,812,387, respectively (2023: $3,437,678 and $5,190,625). This increase is mainly due to additional personnel and payment of performance bonuses to employees. Despite these increased expenses, due to the Company's increased production, G&A expenses were reduced, on a per barrel basis, when compared to 2023.
Share-based Compensation
| Three months ended June 30 | Six months ended June 30 | |||
| 2024 | 2023 | 2024 | 2023 | |
| Share-based Payments | 309,845 | 159,018 | 411,123 | 291,259 |
Share-based compensation expense for the three and six months ended June 30, 2024 totaled $309,845 and $411,123, respectively (2023: $159,018 and $291,259). During Q2 2024, the Company granted 9,843,887 new options to its personnel and Directors, which has caused an increase in the shared-based payments expenses for 2024.
Financing Costs
| Three months ended June 30 | Six months ended June 30 | |||
| 2024 | 2023 | 2024 | 2023 | |
| Financing expense paid or payable | 116,274 | 164,521 | 325,108 | 271,091 |
| Non-cash financing costs | 41,363 | 32,139 | 78,739 | 61,295 |
| Net financing costs | 157,637 | 196,660 | 403,847 | 332,386 |
The finance expense for 2024 is mostly related to financial transactions tax paid in Colombia. Finance expense for 2023 is mostly related to interest on the promissory note due to Canacol. The non-cash finance cost represents an increase in the present value of the decommissioning obligation for the current periods. The amount of this expense will fluctuate commensurate with the asset retirement obligation as new wells are drilled or properties are acquired or disposed.
Depletion and Depreciation
| Three months ended June 30 |
Six months ended June 30 |
|||
| 2024 | 2023 | 2024 | 2023 | |
| Depletion and depreciation | 3,261,894 | 3,640,189 | 6,793,668 | 6,094,553 |
Depletion and depreciation expense for the three and six months ended June 30, 2024 totaled $3,261,894 and $6,793,668, respectively (2023: $3,640,189 and $6,094,553). The increase is due to higher carrying value of depletable property and equipment and increased production. The Company uses the unit of production method and proved plus probable reserves to calculate its depletion and depreciation expense.
Impairment loss
| Three months ended June 30 | Six months ended June 30 | |||
| 2024 | 2023 | 2024 | 2023 | |
| Impairment loss | 1,542,000 | - | 1,542,000 | - |
As at June 30, 2024, the Company reviewed its cash-generating units ("CGU") for property and equipment and determined that there were indicators of impairment loss in its Canada CGU and recognized a loss of $1,542,000. This impairment loss was mainly caused by decreases in the forecast prices of natural gas.
LIQUIDITY AND CAPITAL RESOURCES
Capital Management
The Company's objective is to maintain a capital base sufficient to provide flexibility in the future development of the business and maintain investor, creditor and market confidence. The Company manages its capital structure and makes adjustments in response to changes in economic conditions and the risk characteristics of the underlying assets. The Company considers its capital structure to include share capital, debt and adjusted working capital. In order to maintain or adjust the capital structure, from time to time the Company may issue common shares or other securities, sell assets or adjust its capital spending to manage current and projected debt levels.
As at June 30, 2024 the Company has a working capital of $6,657,117. The Company has maintained a healthy working capital, using its operational cash flows to settle its obligations and to continue growing its operations. The stability in energy commodity prices has allowed the Company's capacity to generate sufficient financial resources to sustain its operations and growth. As at June 30, 2024 the Company's net debt (net cash) was calculated as follows:
| June 30, 2024 | ||||
| Current assets | $ | 19,975,633 | ||
| Less: | ||||
| Accounts payable and accrued liabilities | 8,418,067 | |||
| Income taxes payable | 4,851,136 | |||
| Net debt (Net cash) (1) | $ | (6,706,430) |
(1) Non-IFRS measure
Working Capital
As at June 30, 2024 the Company's adjusted working capital was calculated as follows:
| June 30, 2024 | ||||
| Current assets: | ||||
| Cash | $ | 10,826,380 | ||
| Restricted cash and deposits | 253,132 | |||
| Trade and other receivables | 3,948,253 | |||
| Taxes receivable | 4,588,947 | |||
| Other current assets | 358,921 | |||
| Less: | ||||
| Accounts payable and accrued liabilities | 8,418,067 | |||
| Lease obligation | 49,313 | |||
| Income tax payable | 4,851,136 | |||
| Working capital(1) | $ | 6,657,117 |
(1) Non-IFRS measure
Debt Capital
As at June 30, 2024 the Company does not have any outstanding debt balance.
Letters of Credit
As at June 30, 2024, the Company had obligations under Letters of Credit ("LC's") outstanding totaling $2.8 million to guarantee work commitments on exploration blocks and other contractual commitments. In the event the Company fails to secure the renewal of the letters of credit underlying the ANH guarantees, or any of them, the ANH could decide to cancel the underlying exploration and production contract for a particular block, as applicable.
| Current Outstanding Letters of Credit | |||||
| Contract | Beneficiary | Issuer | Type | Amount (US $) |
Renewal Date |
| SANTA ISABEL | ANH | Carrao Energy | Abandonment | $563,894 | April 14, 2025 |
| ANH | Carrao Energy | Financial Capacity | $1,672,162 | December 30, 2024 | |
| CORE - 39 | ANH | Carrao Energy | Compliance | $100,000 | December 30, 2024 |
| OMBU | ANH | Carrao Energy | Financial Capacity | $436,300 | October 14, 2024 |
| Total | $2,772,356 |
Share Capital
As at June 30, 2024, the Company had 285,864,348 common shares and 26,830,000 stock options outstanding.
CONTRACTUAL OBLIGATIONS
The following table provides a summary of the Company's cash requirements to meet its financial liabilities and contractual obligations existing at June 30, 2024:
| Less than 1 year | 1-3 years | Thereafter | Total | |||||
| Exploration and production contracts | - | 12,000,000 | - | 12,000,000 | ||||
Exploration and Production Contracts
The Company has entered into a number of exploration contracts in Colombia which require the Company to fulfill work program commitments. In aggregate, the Company has outstanding commitments of $12 million. The Company have made an application to cancel its commitments on the COR-39.
SUMMARY OF THREE MONTHS RESULTS
| 2024 | 2023 | 2022 | ||||||
| Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | |
| Oil and natural gas sales, net of royalties | 15,146,366 | 14,404,921 | 13,406,513 | 13,990,353 | 10,280,280 | 6,992,860 | 8,931,562 | 7,614,336 |
| Net income (loss) | 1,247,825 | 3,176,727 | (10,492,053) | 7,153,120 | (757,416) | 2,989,735 | 2,968,117 | 2,041,955 |
| Income (loss) per share - basic diluted |
0.00 0.00 |
0.01 0.01 |
(0.04) (0.04) |
0.03 0.02 |
(0.00) (0.00) |
0.01 0.01 |
0.01 0.01 |
0.02 0.00 |
| Working capital (deficit) | 6,657,117 | 9,520,829 | 8,669,114 | 10,822,475 | (2,363,388) | 2,619,715 | (1,316,665) | 7,392,310 |
| Total assets | 67,864,633 | 64,579,940 | 62,275,023 | 62,755,250 | 56,305,530 | 53,719,944 | 53,190,248 | 46,979,259 |
| Net capital expenditures | 8,965,408 | 6,281,329 | 10,471,447 | 5,471,561 | 6,870,258 | 4,271,693 | 2,106,463 | 4,836,860 |
| Average daily production (boe/d) | 2,638 | 2,730 | 2,666 | 2,518 | 2,169 | 1,635 | 1,736 | 1,503 |
The Company's oil and natural gas sales have increased 47% in Q2 2024 when compared to Q2 2023 due to increased production in its existing assets and stable commodity prices.
The Company's production levels in Colombia continue growing. Trends in the Company's net income are also impacted most significantly by operating expenses, financing costs, income taxes, depletion, depreciation and impairment of oil and gas properties, and other income.
OUTSTANDING SHARE DATA
At August 28, 2024 the Company had the following securities issued and outstanding:
| Number | Exercise Price | Expiry Date | ||||
| Common shares | 285,864,348 | n/a | n/a | |||
| Stock options | 750,000 | CAD$ 1.15 | October 22, 2028 | |||
| Stock options | 235,000 | CAD$ 0.31 | May 3, 2029 | |||
| Stock options | 1,200,000 | CAD$ 0.05 | March 20, 2030 | |||
| Stock options | 1,200,000 | CAD$ 0.05 | April 13, 2030 | |||
| Stock options | 2,983,336 | GBP 0.07625 | June 13, 2024 and 2025 | |||
| Stock options | 1,200,001 | CAD$0.28 | Dec. 9, 2024 and 2025 | |||
| Stock options | 833,334 | CAD$0.26 | Mar. 7, 2025 and 2026 | |||
| Stock options | 3,652,222 | GBP 0.1675 | June 21, 2024, 2025 and 2026 | |||
| Stock options | 433,333 | GBP 0.1925 | July 23, 2024, 2025 and 2026 | |||
| Stock options | 1,000,000 | CAD $0.33 | Mar. 21, 2025, 2026 and 2027 | |||
| Stock options | 9,843,887 | CAD $0.375 | Oct. 29 2025, 2026 and 2027 |
OUTLOOK
The Company has deployed the capital raised at the time of the Admission to AIM on a successful drilling campaigns at Rio Cravo and Carrizales Norte on the Tapir Block. These successful campaigns have translated into production growth and in positive cashflows during 2023 and 2022, providing Arrow with the funds required to continue with its capital program for 2024.
During 2024, the Company has drilled ten wells at Carrizales Norte, which have increased overall production, including three horizontal wells. This confirms Arrow's commitment to increase production and shareholder value. The Company is able to support its 2024 capital program with current cash on hand and cash flow from operations.
CRITICAL ACCOUNTING ESTIMATES
A summary of the Company's critical accounting estimates is contained in Note 3 Annual Financial Statements. These accounting policies are subject to estimates and key judgements about future events, many of which are beyond Arrow's control.
SUMMARY OF MATERIAL ACCOUNTING POLICIES
A summary of the Company's material accounting policies is included in note 3 of the Annual Financial Statements. These accounting policies are consistent with those of the previous financial year.
RISKS AND UNCERTAINTIES
The Company is subject to financial, business and other risks, many of which are beyond its control and which could have a material adverse effect on the business and operations of the Company. Please refer to "Risk Factors" in the MD&A for the year ended December 31, 2023 for a description of the financial, business and other risk factors affecting the Company which are available on SEDAR at www.sedar.com
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