Arrow Exploration Corp.

National Storage Mechanism | Additional information

RNS Number : 4766X

30 August 2022

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.

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ARROW ANNOUNCES SECOND QUARTER RESULTS

CALGARY, August 29, 2022 - Arrow Exploration Corp. (AIM: AXL; TSXV: AXL) ("Arrow" or the "Company") announces the filing of its unaudited interim Financial Statements and Management's Discussion and Analysis ("MD&A") for the quarter ended June 30, 2022, which are available on SEDAR (www.sedar.com). All dollar figures are in U.S. dollars, except as otherwise noted.

The first six months of 2022 saw the Company deploy the capital it raised at the time of its Admission to AIM on a successful two well drilling campaign at Rio Cravo on the Tapir Block. The better than forecasted results from this drilling campaign and the subsequent generation of positive cashflows in Q3 means Arrow is pleased to be committing to a further drilling program. Commencing in Q4 2022, the Company expects to drill up to three further wells at Rio Cravo and plans a two well program on the Carrizales Norte Structure on the Tapir Block. A letter of intent has been signed with a drilling contractor to execute the planned five well program on the Tapir Block. Along with workovers to other existing wells, the Company will seek to tie in the East Pepper well in Q4 2022, confirming Arrow remains on target to increase production to 3,000 boe/d within 18 months of AIM Admission. The Company anticipates being able to support the planned 2023 CAPEX program with current cash and cashflow from operations. Arrow continues to focus on growth and improving its balance sheet and free cash flow.

2022 SECOND QUARTER INTERIM RESULTS

FINANCIAL AND OPERATING HIGHLIGHTS


(In United States dollars, except as otherwise noted)	Three months ended June 30, 2022	Six months ended June 30, 2022	Three months ended June 30, 2021
Total natural gas and crude oil revenues, net of royalties	5,024,604	8,427,566	941,620

Funds flow from (used in) operations (1)	2,613,843	2,926,795	(247,010)
Funds flow from (used in) operations (1) per share -
Basic ($)	0.01	0.01	(0.00)
Diluted ($)	0.00	0.00	(0.00)
Net income (loss)	768,318	(4,663,547)	(734,317)
Net income (loss) per share -
Basic ($)	0.00	(0.02)	(0.01)
Diluted ($)	0.00	(0.02)	(0.01)
Adjusted EBITDA (1)	2,809,713	3,371,998	(529,784)
Weighted average shares outstanding -
Basic ($)	214,367,388	213,979,850	68,674,602
Diluted ($)	288,231,900	270,189,255	68,674,602
Common shares end of period	214,667,143	214,667,143	68,674,602
Capital expenditures	2,777,611	3,503,276	(15,378)
Cash and cash equivalents	7,368,252	7,368,252	4,559,231
Current Assets	12,190,063	12,190,063	8,773,936
Current liabilities	6,596,035	6,596,035	5,632,719
Working capital (1)	5,594,028	5,594,028	3,141,217
Long-term portion of restricted cash (2)	867,047	867,047	503,257
Total assets	42,670,153	42,670,153	25,948,551

Operating

Natural gas and crude oil production, before royalties
Natural gas (Mcf/d)	2,398	3,329	373
Natural gas liquids (bbl/d)	5	6	4
Crude oil (bbl/d)	575	505	264
Total (boe/d)	980	1,066	331

Operating netbacks ($/boe) (1)
Natural gas ($/Mcf)	$2.18	$1.26	$0.74
Crude oil ($/bbl)	$80.04	$66.37	$27.31
Total ($/boe)	$49.18	$33.27	$22.37

(1) Non-IFRS measures - see "Non-IFRS Measures" section within the second quarter 2022 MD&A

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

Discussion of Operating Results

The Company's second quarter 2022 average corporate production decreased by 29% to 899 boe/d, compared to the first quarter 2022 average production of 1,144 boe/d. This decrease was largely attributable to the West Pepper well in Alberta, Canada, which was brought on production in December 2021 and has been recently affected by a third party's temporary processing facility constraints. Arrow's production on a quarterly basis is summarized below.


Average Production Boe/d	Q2 2022	Q1 2022	Q4 2021	Q3 2021	Q2 2021
Oso Pardo	112	121	123	137	20
Ombu (Capella)	97	177	190	193	97
Rio Cravo Este (Tapir)	366	136	142	151	147
Total Colombia	575	434	455	481	264
Fir, Alberta	86	73	82	94	67
Pepper, Alberta	319	636	181	-	-
TOTAL (Boe/d)	980	1,144	719	575	331

For the three months ended June 30, 2022, the Company's average production mix consisted of crude oil and natural gas production in Colombia of 575 bbl/d (2021: 264 bbl/d) and 2,398 Mcf/d (2021: 373 Mcf/d), along with minor amounts of natural gas liquids from Arrow's Canadian properties.

During the quarter, the Company successfully drilled the RCE-2 and RCS-1 wells, which were put into production and have contributed to the increase in Colombia's crude oil production.

Discussion of Financial Results

During Q2 2022 the Company continued to realize good oil and gas prices, as summarized below.


	Three months ended June 30
2022	2021	Change
Benchmark Prices
AECO ($/Mcf)	$5.42	$2.48	119%
Brent ($/bbl)	$111.98	$69.08	62%
West Texas Intermediate ($/bbl)	$108.40	$66.19	64%
Realized Prices
Natural gas, net of transportation ($/Mcf)	$5.45	$3.05	78%
Natural gas liquids ($/bbl)	$92.56	$48.26	92%
Crude oil, net of transportation ($/bbl)	$104.66	$63.19	66%
Corporate average, net of transport ($/boe) (1)	$71.35	$52.78	35%

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

Operating Netbacks

The Company also continued to realize good operating netbacks, as summarized below.


	Three months ended June 30
	2022	2021
Natural Gas ($/Mcf)
Revenue, net of transportation expense	$5.45	$3.05
Royalties	(0.62)	(0.22)
Operating expenses	(2.65)	(2.09)
Natural Gas operating netback (1)	$2.18	$0.74
Crude oil ($/bbl)
Revenue, net of transportation expense	$104.66	$63.19
Royalties	(13.31)	(7.28)
Operating expenses	(11.31)	(28.60)
Crude Oil operating netback (1)	$80.04	$27.31
Corporate ($/boe)
Revenue, net of transportation expense	$71.35	$52.78
Royalties	(8.80)	(5.83)
Operating expenses	(13.38)	(24.58)
Corporate Operating netback (1)	$49.18	$22.37

(1) Non-IFRS measure

Arrow realized better operating netbacks quarter-over-quarter, increasing to $49.18/boe in the second quarter of 2022 from $20.16/boe in the first quarter of 2022. This increase is due to higher crude oil production and better netbacks from natural gas.

During Q2 2022, the Company incurred capital expenditures in connection with the drilling of the RCE-2 and RCS-1 wells. At the end of the quarter, Arrow had a positive working capital position of $5.6 million and a cash position of $7.4 million, which are expected to fund the Company's expenditure plan for the foreseeable future.

For further Information, contact:


Arrow Exploration
Marshall Abbott, CEO	+1 403 651 5995
Joe McFarlane, CFO	+1 403 818 1033

Brookline Public Relations, Inc. Shauna MacDonald	+1 403 538 5645

Canaccord Genuity (Nominated Advisor and Joint Broker)
Henry Fitzgerald-O'Connor James Asensio Gordon Hamilton	+44 (0)20 7523 8000
Auctus Advisors (Joint Broker)
Jonathan Wright (Corporate)	+44 (0)7711 627449
Rupert Holdsworth Hunt (Broking)
Camarco (Financial PR)
James Crothers	+44 (0)20 3781 8331
Rebecca Waterworth
Billy Clegg

About Arrow Exploration Corp.

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

Forward-looking Statements

This news release contains certain statements or disclosures relating to Arrow that are based on the expectations of its management as well as assumptions made by and information currently available to Arrow which may constitute forward-looking statements or information ("forward-looking statements") under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that Arrow anticipates or expects may, could or will occur in the future (in whole or in part) should be considered forward-looking statements. In some cases, forward-looking statements can be identified by the use of the words "continue", "expect", "opportunity", "plan", "potential" and "will" and similar expressions. The forward-looking statements contained in this news release reflect several material factors and expectations and assumptions of Arrow, including without limitation, Arrow's evaluation of the impacts of COVID-19, the potential of Arrow's Colombian and/or Canadian assets (or any of them individually), the prices of oil and/or natural gas, and Arrow's business plan to expand oil and gas production and achieve attractive potential operating margins. Arrow believes the expectations and assumptions reflected in the forward-looking statements are reasonable at this time, but no assurance can be given that these factors, expectations, and assumptions will prove to be correct.

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

Glossary

Bbl/d: Barrels per day

$/Bbl: Dollars per barrel

Mcf/d: Thousand cubic feet of gas per day

$/Mcf: Dollars per thousand cubic feet of gas

Boe/d: Barrels of oil equivalent per day

$/Boe: Dollars per barrel of oil equivalent

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.

MANAGEMENT's DISCUSSION AND ANALYSIS

THREE AND SIX MONTHS ended JUNE 30, 2022

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 26, 2022 and should be read in conjunction with Arrow's condensed consolidated financial statements (unaudited) and related notes for the three and six months ended June 30, 2022 and 2021. Additional information relating to Arrow is available under Arrow's profile on www.sedar.com, including Arrow's Audited Consolidated Financial Statements (the "Annual Financial Statements") for the year ended December 31, 2021 and 2020.

Advisories

Basis of Presentation

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

Advisory Regarding Forward‐Looking Statements

This MD&A contains certain statements or disclosures relating to Arrow that are based on the expectations of its management as well as assumptions made by and information currently available to Arrow which may constitute forward-looking statements or information ("forward-looking statements") under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that Arrow anticipates or expects may, could or will occur in the future (in whole or in part) should be considered forward-looking statements. In some cases, forward-looking statements can be identified by the use of the words "believe", "continue", "could", "expect", "likely", "may", "outlook", "plan", "potential", "will", "would" and similar expressions. In particular, but without limiting the foregoing, this MD&A contains forward-looking statements pertaining to the following: the COVID-19 pandemic and its impact; tax liability; capital management strategy; capital structure; credit facilities and other debt; performance by Canacol (as defined herein) and the Company in connection with the Note (as defined herein) and letters of credit; Arrow's costless collar structure; Arrow's interest in the OBC Pipeline (as defined herein) and the consequences thereof; 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 and duration of the COVID-19 pandemic; the financial impact of Arrow's costless collar structure; availability of skilled labour; timing and amount of capital expenditures; future exchange rates; commodity prices; the impact of increasing competition; general economic conditions; availability of drilling and related equipment; receipt of partner, regulatory and community approvals; royalty rates; 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 and duration of the COVID-19 pandemic; the impact of general economic conditions; volatility in commodity prices; industry conditions including changes in laws and regulations including adoption of new environmental laws and regulations, and changes in how they are interpreted and enforced; competition; lack of availability of qualified personnel; the results of exploration and development drilling and related activities; obtaining required approvals of regulatory authorities; counterparty risk; risks associated with negotiating with foreign governments as well as country risk associated with conducting international activities; commodity price volatility; fluctuations in foreign exchange or interest rates; environmental risks; changes in income tax laws or changes in tax laws and incentive programs; changes to pipeline capacity; ability to secure a credit facility; ability to access sufficient capital from internal and external sources; risk that Arrow's evaluation of its existing portfolio of development and exploration opportunities is not consistent with future results; that production may not necessarily be indicative of long term performance or of ultimate recovery; and certain other risks detailed from time to time in Arrow's public disclosure documents including, without limitation, those risks identified in Arrow's 2018 AIF, a copy of which is available on Arrow's SEDAR profile at www.sedar.com. Readers are cautioned that the foregoing list of factors is not exhaustive and are cautioned not to place undue reliance on these forward-looking statements.

Non‐IFRS Measures

Working capital is calculated as current assets minus current liabilities; funds from operations is calculated as cash flows from (used in) operating activities adjusted to exclude settlement of decommissioning obligations and 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 loss adjusted for interest, income taxes, depreciation, depletion, amortization and other similar non-recurring or non-cash charges; and net debt is defined as the principal amount of its outstanding debt, less working capital items.

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 loss and comprehensive loss per share.

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


(in United States dollars)	Three months ended June 30, 2022	Six months ended June 30, 2022	Three months ended June 30, 2021
Net income (loss)	768,318	(4,663,547)	(734,317)
Add/(subtract):
Share based payments	40,917	103,836	(278,254)
Financing costs:
Accretion on decommissioning obligations	45,644	89,975	32,906
Interest	123,741	244,519	115,883
Other	134,981	244,029	716
Depreciation and depletion	971,353	1,840,592	333,282
Derivative loss	724,758	5,512,593	-
Adjusted EBITDA (1)	2,809,713	3,371,998	(529,784)

Cash flows used in operating activities	(99,185)	(196,893)	(1,762,640)
Minus - Changes in non‑cash working capital balances:
Trade and other receivables	2,185,670	2,350,855	50,628
Restricted cash	157,481	157,481	(3,099)
Taxes receivable	(4,560)	303,003	143,500
Deposits and prepaid expenses	(81,506)	11,182	123,288
Inventory	150,459	228,776	182,695
Accounts payable and accrued liabilities	305,484	72,391	1,018,618
Funds flow from (used in) operations (1)	2,613,843	2,926,795	(247,010)

(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, 2022	Six months ended June 30, 2022	Three months ended June 30, 2021
Total natural gas and crude oil revenues, net of royalties	5,024,604	8,427,566	941,620

Funds flow from (used in) operations (1)	2,613,843	2,926,795	(247,010)
Funds flow from (used in) operations (1) per share -
Basic($)	0.01	0.01	(0.00)
Diluted ($)	0.00	0.00	(0.00)
Net income (loss)	768,318	(4,663,547)	(734,317)
Net income (loss) per share -
Basic ($)	0.00	(0.02)	(0.01)
Diluted ($)	0.00	(0.02)	(0.01)
Adjusted EBITDA (1)	2,809,713	3,371,998	(529,784)
Weighted average shares outstanding -
Basic ($)	214,367,388	213,979,850	68,674,602
Diluted ($)	288,231,900	270,189,255	68,674,602
Common shares end of period	214,667,143	214,667,143	68,674,602
Capital expenditures	2,777,611	3,503,276	(15,378)
Cash and cash equivalents	7,368,252	7,368,252	4,559,231
Current Assets	12,190,063	12,190,063	8,773,936
Current liabilities	6,596,035	6,596,035	5,632,719
Working capital (1)	5,594,028	5,594,028	3,141,217
Long-term portion of restricted cash (2)	867,047	867,047	503,257
Total assets	42,670,153	42,670,153	25,948,551

Operating

Natural gas and crude oil production, before royalties
Natural gas (Mcf/d)	2,398	3,329	373
Natural gas liquids (bbl/d)	5	6	4
Crude oil (bbl/d)	575	505	264
Total (boe/d)	980	1,066	331

Operating netbacks ($/boe) (1)
Natural gas ($/Mcf)	$2.18	$1.26	$0.74
Crude oil ($/bbl)	$80.04	$66.37	$27.31
Total ($/boe)	$49.18	$33.27	$22.37

(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, 2022 the Company held an interest in six oil blocks in Colombia and oil and natural gas leases in seven areas in Canada as follows:


		Gross Acres	Working Interest	Net Acres
COLOMBIA
Tapir	Operated	65,125	50%	32,563
Oso Pardo	Operated	672	100%	672
Ombu	Non-operated	56,482	10%	5,648
COR-39	Operated	95,111	100%	95,111
Los Picachos	Non-operated	52,772	37.5%	19,790
Macaya	Non-operated	195,255	37.5%	73,221
Total Colombia		465,417		227,005
CANADA
Ansell	Operated	640	100%	640
Fir	Non operated	7,680	32%	2,457
Penhold	Non-operated	480	13%	61
Pepper	Operated	23,643	100%	23,643
Wapiti	Non-operated	1,280	13%	160
Total Canada		33,723		26,961
TOTAL		499,140		253,966

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.

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 License 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.

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 Motney P&NG rights at Pepper. The 06-26 well (West Pepper) is a horizontal Upper Motney exploration well that produces natural gas into the Galloway gas plant where it is processed.

Three months ended June 30, 2022 Financial and Operational Highlights

· Arrow recorded $5,024,604 in revenues (net of royalties) on crude oil sales of 42,763 bbls, 458 bbls of natural gas liquids ("NGL's") and 222,642 Mcf of natural gas sales;

· Generated funds flow from operations of $2,613,843;

· Adjusted EBITDA was $2,809,713;

· The Company recorded a net income of $768,318;

· Drilled and completed the Rio Cravo Este -2 (RCE-2) and Rio Cravo Sur-1 (RCS-1) wells in the Tapir block, increasing oil production in Colombia

Results of Operations

The Company has significantly recovered its production and improved its operations despite the challenges from the Covid-19 pandemic, combined with improved pricing of energy commodities. During the three and six months ended June 30, 2022, the Company increased production at its Tapir block from the drilling of the RCE-2 and RCS-1 wells, offset by a decrease in production at the Ombu blocks, and consistent production in the Oso Pardo field. Also, the West Pepper Well decrease its production during the three months ended June 30, 2022 due to third party's temporary processing facility constraints.

Average Production by Property


Average Production Boe/d	Q2 2022	Q1 2022	Q4 2021	Q3 2021	Q2 2021
Oso Pardo	112	121	123	137	20
Ombu (Capella)	97	177	190	193	97
Rio Cravo Este (Tapir)	366	136	142	151	147
Total Colombia	575	434	455	481	264
Fir, Alberta	86	73	82	94	67
Pepper, Alberta	319	636	181	-	-
TOTAL (Boe/d)	980	1,144	719	575	331

For the three months ended June 30, 2022, the Company's average production was 980 boe/d (2021: 331 boe/d), which consisted of crude oil production in Colombia at 575 bbl/d (2021: 264 bbl/d), and natural gas production of 2,398 Mcf/d (2021: 373 Mcf/d) and minor amounts of natural gas liquids from the Company's Canadian properties.

Average Daily Natural Gas and Oil Production and Sales Volumes


	Three months ended June 30		Six months ended June 30
2022	2021	2022	2021
Natural Gas (Mcf/d)
Natural gas production	2,398	373	3,329	378
Natural gas sales	2,398	373	3,329	378
Realized Contractual Natural Gas Sales	2,398	373	3,329	378
Crude Oil (bbl/d)
Crude oil production	575	264	505	220
Inventory movements and other	(105)	(101)	(142)	(51)
Crude Oil Sales	470	163	364	169
Corporate
Natural gas production (boe/d)	400	63	555	63
Natural gas liquids(bbl/d)	5	4	6	4
Crude oil production (bbl/d)	575	264	505	220
Total production (boe/d)	980	331	1,066	287
Inventory movements and other (boe/d)	(105)	(101)	(142)	(51)
Total Corporate Sales (boe/d)	874	230	924	236

During the three months ended June 30, 2022 the majority of production was attributed to Colombia, where the Company has two operated properties: Oso Pardo and Rio Cravo Este, and one non-operated property, Ombu. Production has also increased in Canada where the Company has one operated (Pepper) and one non-operated (Fir) producing properties.

Natural Gas and Oil Revenues


	Three months ended June 30		Six months ended June 30
2022	2021	2022	2021
Natural Gas
Natural gas revenues	1,218,731	103,520	2,599,851	207,784
NGL revenues	42,528	21,993	86,145	39,702
Royalties	(138,491)	(9,500)	(436,155)	(22,331)
Revenues, net of royalties	1,122,768	116,013	2,249,841	225,155
Oil
Oil revenues	4,475,645	933,103	6,956,442	1,799,933
Royalties	(569,224)	(107,497)	(778,717)	(236,036)
Revenues, net of royalties	3,906,421	825,606	6,177,725	1,563,897
Corporate
Natural gas revenues	1,218,731	103,520	2,599,851	207,784
NGL revenues	42,528	21,993	86,145	39,702
Oil revenues	4,475,645	933,103	6,956,442	1,799,933
Total revenues	5,736,905	1,058,616	9,642,438	2,047,419
Royalties	(707,716)	(116,997)	(1,214,871)	(258,367)
Natural gas and crude oil revenues, net of royalties, as reported	5,029,189	941,619	8,427,566	1,789,052

Revenue for the three and six months ended June 30, 2022 was $5.0 and $8.4 million, respectively, net of royalties, which represents an increase of 371% and 434%, respectively, when compared to the same periods in 2021. This significant increase is mainly due to having all Colombian wells back in production, additional wells drilled and producing, and the additional natural gas production from the West Pepper well in Canada.

Average Benchmark and Realized Prices


	Three months ended June 30			Six months ended June 30
2022	2021	Change	2022	2021	Change
Benchmark Prices
AECO ($/Mcf)	$5.42	$2.48	119%	$4.55	$2.39	90%
Brent ($/bbl)	$111.98	$69.08	62%	$104.59	$65.23	60%
West Texas Intermediate ($/bbl)	$108.40	$66.19	64%	$101.45	$62.22	63%
Realized Prices
Natural gas, net of transportation ($/Mcf)	$5.45	$3.05	78%	$4.32	$3.04	42%
Natural gas liquids ($/bbl)	$92.56	$48.26	92%	$83.87	$48.86	72%
Crude oil, net of transportation ($/bbl)	$104.66	$63.19	66%	$91.12	$59.10	54%
Corporate average, net of transport ($/boe)(1)	$71.35	$52.78	35%	$54.23	$48.92	11%

The Company realized prices of $71.35 and $54.23 per boe during the three and six months ended June 30, 2022 (2021: $52.78 and $48.92 per boe). This increase is a reflection of improved oil and natural gas prices during 2022.

Operating Expenses


	Three months ended June 30		Six months ended June 30
2022	2021	2022	2021

Natural gas & NGL's	590,932	70,745	1,401,777	128,864
Crude oil	483,503	422,283	1,111,139	606,309
Total operating expenses	1,074,435	493,028	2,512,916	735,173
Natural gas ($/Mcf)	$2.65	$2.09	$2.33	$1.88
Crude oil ($/bbl)	$11.31	$28.60	$14.55	$19.91
Corporate ($/boe)(1)	$13.38	$24.58	$14.13	$17.56

(1)Non-IFRS measure

During the three and six months ended June 30, 2022, Arrow incurred operating expenses of $1,074,435 and $2,512,916, respectively, at an average cost of $13.38 and $14.13 per boe, respectively. Operating expenses per boe have improved due to increases in production of both crude oil and natural gas.

Operating Netbacks


	Three months ended June 30		Six months ended June 30
	2022	2021	2022	2021
Natural Gas ($/Mcf)
Revenue, net of transportation expense	$5.45	$3.05	$4.32	$3.04
Royalties	(0.62)	(0.22)	(0.72)	(0.27)
Operating expenses	(2.65)	(2.09)	(2.33)	(1.89)
Natural Gas operating netback(1)	$2.18	$0.74	$1.26	$0.88
Crude oil ($/bbl)
Revenue, net of transportation expense	$104.66	$63.19	$91.12	$59.10
Royalties	(13.31)	(7.28)	(10.20)	(7.75)
Operating expenses	(11.31)	(28.60)	(14.55)	(19.91)
Crude Oil operating netback(1)	$80.04	$27.31	$66.37	$31.44
Corporate ($/boe)
Revenue, net of transportation expense	$71.35	$52.78	$54.23	$48.92
Royalties	(8.80)	(5.83)	(6.83)	(6.17)
Operating expenses	(13.38)	(24.58)	(14.13)	(17.56)
Corporate Operating netback(1)	$49.18	$22.37	$33.27	$25.19

(1)Non-IFRS measure

General and Administrative Expenses (G&A)


	Three months ended June 30		Six months ended June 30
	2022	2021	2022	2021

General & administrative expenses	1,275,915	913,069	2,649,021	2,291,697
Less: G&A capitalized	-	-	-	-
G&A recovered from 3rd parties	(147,030)	-	(167,030)	-
Total operating overhead recovery	(147,030)	913,069	(167,030)	2,291,697
Total G&A	1,128,885	913,069	2,481,991	2,291,697
Cost per boe	$15.30	$45.52	$13.96	$54.75

For the three and six months ended June 30, 2022, G&A expenses, before recoveries totaled $1,275,915 and $2,649,021, respectively, which indicates stable G&A spending.

Share-based Payments Expense


	Three months ended June 30		Six months ended June 30
	2022	2021	2022	2021

Share-based Payments	40,917	(278,254)	103,836	(550,310)

Share-based payments expense for the three and six months ended June 30, 2022 totalled $40,917 and $103,836, respectively (201: shared-based payment income of $278,254 and $550,310, respectively). The share-based payments expense is the result of the progressive vesting of the options granted to the Company's employees and consultants, net of cancellations and forfeitures, according to the company's stock-based compensation plan.

Financing Costs


	Three months ended June 30		Six months ended June 30
	2021	2021	2021	2021

Financing expense paid or payable	258,723	116,599	488,549	424,150
Non-cash financing costs	45,644	32,906	89,975	64,969
Net financing costs	$304,367	149,505	$578,524	489,119

The finance expense paid or payable represents interest on the promissory note due to Canacol, as partial payment for the acquisition of Carrao which bears interest at 15% per annum. The decrease on this financing expense is due to a reduced outstanding balance outstanding in Canacol's promissory note. In addition, financing expense includes fees and interest associated with financing standby letters of credit on certain of the Company's Colombian blocks. The non-cash finance cost represents an increase in the present value of the decommissioning obligation for the current periods.

Loss on Derivative Liability


	Three months ended June 30		Six months ended June 30
	2022	2021	2022	2021

Loss on Derivative Liability	724,758	-	5,512,593	-

During the three and six months ended June 30, 2022, the Company recorded a loss in derivative liability of $724,758 and $5,512,593, respectively, related to the valuation of its outstanding warrants issued during its AIM listing and private placement completed in 2021. These warrants provide the right to holders to convert them into common shares at a fixed price set in a currency different to the Company's functional currency and, therefore, they are considered a liability and measured at fair value with changes recognized in the statements of operations and comprehensive loss.

Depletion and Depreciation


	Three months ended June 30		Six months ended June 30
	2021	2021	2021	2021

Depletion and depreciation	371,353	333,282	1,840,592	603,712

Depletion and depreciation expense in the three and six months ended June 30, 2022 totalled $371,353 and $1,840,592, respectively (2021: $333,282 and $603,712, respectively). The Company uses the unit of production method and proved plus probable reserves to calculate depletion expense and this increase is directly related to an increase in depletable values and production of crude and natural gas during Q2 2022 compared with 2021.

Other Income


	Three months ended June 30		Six months ended June 30
	2022	2021	2021	2021
Other expense (income)	(20,204)	46,341	(12,094)	(494,924)

The Company reported other income of $20,204 and $541,266 for the three and six months ended June 30, 2022, respectively (2021: $46,341 expense and $494,934 income, respectively). The 2021 amount was generated from the Company's ongoing negotiations of accounts payable and debts with vendors, both in Colombia and Canada, which have resulted in reductions of amounts actually paid in cash to settle its liabilities.

LIQUIDITY AND CAPITAL RESOURCES

Capital Management

On October 2021, the Company raised approximately $12 million (C$15.0 million), through a placing and subscription for new common shares with new investors and executive management as part of the Company's shares admission to trade on the AIM Market of the London Stock Exchange plc. This fundraising consisted on placement and subscription of 140,949,565 new common shares, at an issue price of £0.0625 (C$0.106125) per new common share, and one warrant for every two new common shares, exercisable at £0.09 per new common share for 24 months from the AIM admission date (October 25, 2021). On November 24, 2021, the Company closed a private placement of C$395,375 for issuance of 3,765,476 new common shares and 1,999,938 warrants.

As at June 30, 2022, the Company's working capital is $5,594,028. During 2021 and 2022, the Company has been favorably impacted by the overall improvement in energy commodity prices, which has also impacted the Company's capacity to generate sufficient financial resources to sustain its operations. This has contributed to the Company's ability to complete financing transactions in 2021, in the form of fundraisings, from its existing and new investors and management is confident that additional resources would be available to the Company to close similar transactions. As at June 30, 2022 the Company's net debt was calculated as follows:


	June 30, 2022

Current assets	$	12,190,063
Less:
Accounts payable and accrued liabilities		3,000,160
Promissory Note - short term portion		3,557,792
Net debt (1)	$	5,632,111

(1)Non-IFRS measure

Working Capital

As at June 30, 2022 the Company's working capital was calculated as follows:


	June 30, 2022

Current assets:
Cash	$	7,368,252
Trade and other receivables		2,990,437
Taxes receivable		1,022,052
Other current assets		809,321
Less:
Accounts payable and accrued liabilities		3,000,160
Lease obligation		38,084
Promissory note - short term portion		3,557,792
Working capital(1)	$	5,594,027

(1)Non-IFRS measure

Debt Capital

The Company currently has $3.5 million in outstanding debt in the form of a promissory note payable to Canacol and a long-term debt of $31,040. On October 18, 2021, Arrow and Canacol entered into a Seventh Amended and Restated Promissory Note. The principal amendments are the following:

- The new principal amount of the promissory note is $6,026,166

- On or before October 31, 2021, the Company shall make a payment of C$ 3,900,000 plus all Canacol's expenses incurred in connection with this amendment and related matters, which has already occurred;

- On or before December 31, 2022, the Company shall make a payment equal to 50% of the total amount outstanding of interest and principal; and

- The remaining balance of principal and interest shall be paid no later than June 30, 2023

The total balance of this promissory note and its interest of $3,557,792 is presented as a current liability in the interim condensed consolidated statement of financial position as at June 30, 2022. This amendment also provided that, in the event that the Company made the payment due on October 31, 2021, Canacol agreed to forgive $658,654 for excess pipeline shipping costs, as a result of the settlement of the OBC pipeline dispute.

Letters of Credit

As at June 30, 2022, the Company had obligations under Letters of Credit ("LC's") outstanding totaling $5.3 million to guarantee work commitments on exploration blocks and other contractual commitments. Of the total, approximately $4 million has been guaranteed by Canacol. Under an agreement with Canacol, Canacol will continue to provide security for the LC's providing that Arrow uses all reasonable efforts to replace the LC's. In the event the Company fails to secure the renewal of the LC's underlying the Company's Agencia Nacional de Hidrocarburos ("ANH") guarantees, or any of them, the ANH could decide to cancel the underlying E&P contract for a particular block, as applicable. In this instance, the Company could risk losing its entire interest in the applicable block, including all capital expended to date, and could possibly also incur additional abandonment and reclamation costs if applied by the ANH.


Current Outstanding Letters of Credit

Contract	Beneficiary	Issuer	Type	Amount (US $)	Renewal Date
SANTA ISABEL	ANH	Carrao Energy	Abandonment	$563,894	April 14, 2023
ANH	Canacol and Carrao	Financial Capacity	$1,672,162	December 31, 2022
COR - 39	ANH	Canacol	Compliance	$2,400,000	December 31, 2022
OMBU	ANH	Carrao Energy	Financial Capacity	$436,300	April 14, 2023
Total				$5,072,356

Share Capital

As at June 30, 2022, the Company had 214,667,143 common shares, 71,572,206 warrants and 15,845,000 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, 2022:


	Less than 1 year		1-3 years		Thereafter		Total

Promissory Note	$	3,557,792	$	-		-	$	3,557,792
Long term debt		-		31,040		-		31,040
Exploration and production contracts		-		17,800,000		-		17,800,000
	$	3,557,792	$	17,831,040		-	$	21,388,832

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, 2022 of $17.8 million. The Company, in conjunction with its partners, have made applications to cancel $15.5 million ($5.79 million Arrow's share) in commitments on the Macaya and Los Picachos blocks. The remaining commitments are expected to be satisfied by means of seismic work, exploration drilling and farm-outs.

SUMMARY OF THREE MONTHS RESULTS


	2022		2021				2020
	Q2	Q1	Q4	Q3	Q2	Q1	Q4	Q3
Oil and natural gas sales, net of royalties	5,024,604	3,911,329	3,038,832	1,684,609	941,620	847,432	368,140	207,934
Net income (loss)	768,318	(5,431,865)	6,960,035	(21,782)	(734,317)	(510,405)	(7,953,001)	(1,390,746)
Income (loss) per share - basic diluted	0.00 0.00	(0.03) (0.02)	0.04 0.04	(0.00) (0.00)	(0.01) (0.01)	(0.01) (0.01)	(0.12) (0.12)	(0.02) (0.02)
Working capital (deficit)	5,594,027	7,657,938	8,006,074	783,707	3,141,217	(2,659,690)	(1,932,940)	(11,086,377)
Total assets	42,670,153	39,914,240	41,195,798	25,362,323	25,948,551	27,684,920	33,532,299	46,702,911
Net capital expenditures	2,777,611	725,665	1,991,163	148,528	(15,378)	97,330	89,198	146,584
Average daily production (boe/d)	980	1,144	712	575	331	242	140	105

Over the past quarters, the Company's oil and natural gas sales have fluctuated due to changes in production, movements in the Brent benchmark oil price and fluctuations in realized oil price differentials. The Company's production levels in Colombia have been variable, with increases driven by additional crude oil from the Tapir wells, partially offset by the sale of the Company's interest in the LLA-23 blocks and natural declines on mature blocks. Trends in the Company's net income (loss) are also impacted most significantly by commodity prices, increase in production, financing costs, income taxes, depletion, depreciation and impairment of oil and gas properties, gains and losses from risk management activities.

OUTSTANDING SHARE DATA

At August 26, 2022, the Company had the following securities issued and outstanding:


	Number		Exercise Price		Expiry Date

Common shares		216,175,741		n/a		n/a
Warrants		70,063,607		GBP 0.09		Oct. and Nov, 2023
Stock options		1,050,000		CAD$ 1.15		October 22, 2028
Stock options		345,000		CAD$ 0.31		May 3, 2029
Stock options		1,200,000		CAD$ 0.05		March 20, 2030
Stock options		2,000,000		CAD$ 0.05		April 13, 2030
Stock options		2,983,332		GBP 0.07625		June 13, 2023
Stock options		2,983,332		GBP 0.07625		June 13, 2024
Stock options		2,983,336		GBP 0.07625		June 13, 2025
Stock options	766,665		CAD$ 0.28		December 9, 2023
Stock options	766,667		CAD$ 0.28		December 9, 2023
Stock options	766,668		CAD$ 0.28		December 9, 2023

OUTLOOK

The first six months of 2022 saw the Company deploy the capital it raised at the time of its Admission to AIM on a successful two well drilling campaign at Rio Cravo on the Tapir Block. The better than forecasted results from this drilling campaign and the subsequent generation of positive cashflows in Q3 means Arrow is pleased to be committing to a further drilling programme. In Q4 2022, the Company expects to drill up to three further wells at Rio Cravo and plans a two well program on the Carrizales Norte Structure on the Tapir Block. A letter of intent has been signed with a drilling contractor to execute the planned five well program on the Colombian Tapir Block. Along with workovers to other existing wells, the Company will seek to tie in the East Pepper well in Q4 2022, confirming Arrow remains on target to increase production to 3,000 boe/d within 18 months of AIM Admission. The Company is able to support the planned 2023 CAPEX program with current cash and cashflow from operations. Arrow continues to focus on growth and improving its balance sheet and free cash flow.

On January 30, 2020, the World Health Organization declared the Coronavirus disease (COVID-19) outbreak a Public Health Emergency of International Concern and, on March 10, 2020, declared it to be a pandemic. Actions taken around the world to mitigate the spread of COVID-19, combined with OPEC's initial plan to increase global supply resulted in significant weakness and volatility in commodity prices in early 2020. Commodity prices began to recover in late 2020 and continued that recovery in 2021 and 2022. Although it is impossible to reliably estimate the continuous impact of COVID-19, and OPEC's policies and the volatile commodities market, both are anticipated to have material effects on the Company's 2022 financial results relative to 2021.

CRITICAL ACCOUNTING ESTIMATES

A summary of the Company's significant accounting policies is contained in Note 3 of the audited consolidated financial statements as at and for the years ended December 31, 2021 and 2020. These accounting policies are subject to estimates and key judgements about future events, many of which are beyond Arrow's control.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the Company's significant accounting policies is included in of the audited consolidated financial statements as at and for the years ended December 31, 2021 and 2020. 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, 2021 for a description of the financial, business and other risk factors affecting the Company which are available on SEDAR at www.sedar.com

Arrow Exploration Corp.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ended JUNE 30, 2022 AND 2021

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, 2022

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

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

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

Arrow Exploration Corp.

Interim Condensed Consolidated Statements of Financial Position

In United States Dollars

(Unaudited)


As at	Notes		June 30, 2022		December 31, 2021
##### ASSETS
##### Current assets
Cash		$	7,368,252	$	10,878,508
Trade and other receivables	4		2,990,437		639,582
Taxes receivable	5		1,022,052		719,049
Deposits and prepaid expenses			333,481		322,300
Inventory			475,841		247,063
			12,190,063		12,806,502
Non-current assets
Deferred income taxes			4,839,785		4,839,785
Restricted cash	3		867,047		732,553
Exploration and evaluation	6		6,964,506		6,964,506
Property and equipment	7		17,808,752		15,852,452
Total Assets		$	42,670,153	$	41,195,798

##### LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued liabilities		$	3,000,160	$	3,120,777
Lease obligation	9		38,084		20,258
Promissory note	8		3,557,792		1,659,393
			6,596,036		4,800,428
Non-current liabilities
Long-term debt			31,040		31,552
Lease obligation	9		45,773		34,434
Other liabilities	10		177,500		177,500
Deferred income taxes			3,371,935		3,371,936
Decommissioning liability	11		2,799,579		2,470,239
Promissory note	8		-		1,659,393
Derivative liability	12		9,941,498		4,692,203
Total liabilities			22,963,361		17,237,685

Shareholders' equity
#### Share capital	#### 13		#### 56,932,670		#### 56,698,237
Contributed surplus			1,346,633		1,249,418
Deficit			(37,849,353)		(33,185,806)
Accumulated other comprehensive loss			(723,158)		(803,736)
Total shareholders' equity			19,706,792		23,958,113
Total liabilities and shareholders' equity		$	42,670,153	$	41,195,798

Commitments and contingencies (Note 14)

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

On behalf of the Board:

signed "Gage Jull" Director signed "Maria Charash" Director

Gage Jull Maria Charash

Arrow Exploration Corp.

Interim Condensed Consolidated Statements of Operations and Comprehensive Loss

In United States Dollars

(Unaudited)


		For the three months ended June 30		For the six months ended June 30
	Notes	2022	2021	2022	2021

Revenue
Oil and natural gas		$ 5,731,109	$ 1,058,616	$ 9,642,438	$ 2,047,419
Royalties		(706,505)	(116,997)	(1,214,872)	(258,367)
		5,024,604	941,619	8,427,566	1,789,052

Expenses
Operating		1,074,435	493,028	2,512,916	735,173
Administrative		1,128,885	913,069	2,481,991	2,291,697
Listing costs		44,958	-	76,323	-
Share based payments	14	40,917	(278,254)	103,836	(550,311)
Financing costs:
Accretion	13	45,644	32,906	89,975	64,969
Interest		123,741	115,883	244,519	377,687
Other		134,981	716	244,029	46,463
Derivative loss (gain)		724,758	-	5,512,593	-
Foreign exchange loss		(21,292)	18,965	4,543	(40,692)
Depletion and depreciation		971,353	333,282	1,840,592	603,712
Other expense (income)		(12,094)	46,341	(20,204)	(494,924)
		4,256,286	1,675,936	13,091,113	3,033,774

Income (loss) before taxes		768,318	(734,317)	(4,663,547)	(1,244,722)

Income taxes (recovery)
Current		-	-	-	-
Deferred		-	-	-	-
		-	-	-	-

Net income (loss) for the period		768,318	(734,317)	(4,663,547)	(1,244,722)

Other comprehensive income (loss)
Foreign exchange		35,925	277,028	80,578	263,557

Net income (loss) and comprehensive income (loss) for the period		$ 804,243	$ (457,289)	$ (4,582,969)	$ (981,165)

Net income (loss) per share
- basic		$ 0.00	$ (0.01)	$ (0.02)	$ (0.02)
- diluted		$ 0.00	$ (0.01)	$ (0.02)	$ (0.02)


Weighted average shares outstanding
- basic		214,367,388	68,674,602	213,979,850	68,674,602
- diluted		288,231,900	68,674,602	270,189,255	68,674,602

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

Arrow Exploration Corp.

Interim Condensed Statements of Changes in Shareholders' Equity

In United States Dollars

(Unaudited)


		Share Capital		Contributed Surplus		Accumulated other comprehensive loss		Deficit		Total Equity

Balance January 1, 2022	$	56,698,237	$	1,249,418	$	(803,736)	$	(33,185,806)	$	23,958,113

Subscription of common shares, net		234,433		-		-		-		234,433

Options settled in cash		-		(6,622)		-		-		(6,622)

Net loss for the period		-		-		-		(4,663,547)		(4,663,547)

Comprehensive income for the period		-		-		80,578		-		80,578

Share based payments		-		103,837		-		-		103,837

Balance June 30, 2022	$	56,932,670	$	1,346,633	$	(723,158)	$	(37,849,353)	$	19,706,792


		Share Capital		Contributed Surplus		Accumulated other comprehensive loss		Deficit		Total Equity

Balance January 1, 2021	$	50,740,292	$	1,521,845	$	(589,478)	$	(38,879,338)	$	12,793,321

Net loss for the period		-		-		-		(1,244,722)		(1,244,722)

Comprehensive income for the period		-		-		263,557		-		263,557

Share based payments		-		(550,311)		-		-		(550,311)

Balance June 30, 2021	$	50,740,292	$	971,534	$	(325,921)	$	(40,124,060)	$	11,261,845

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

Arrow Exploration Corp.

Interim Condensed Consolidated Statements of Cash Flows

In United States Dollars

(Unaudited)



For six months ended June 30,		2022	2021

	Cash flows used in operating activities
	Net loss	$ (4,663,547)	$ (1,244,722)
	Items not involving cash:
	Share based payment	103,836	(550,311)
	Depletion and depreciation	1,840,592	603,712
	Interest on leases	5,946	3,440
	Interest on promissory note, net of forgiveness	238,573	318,099
	Accretion	89,975	64,969
	Foreign exchange loss (gain)	(111,604)	186,696
	Loss on derivative liability	5,512,593	-
	Settlement of decommissioning obligations	(89,569)	-
	Changes in non‑cash working capital balances:
	Restricted cash	(157,481)	256,113
	Trade and other receivables	(2,350,855)	410,909
	Taxes receivable	(303,003)	(78,537)
	Deposits and prepaid expenses	(11,182)	(135,047)
	Inventory	(228,776)	(182,695)
	Accounts payable and accrued liabilities	(72,391)	(4,351,550)
	Cash used in operating activities	(196,893)	(4,698,924)

	Cash flows provided by (used in) investing activities
	Additions to property and equipment	(3,503,276)	(81,952)
	Changes in non-cash working capital	(48,227)	(2,136,379)
	Cash flows provided by (used in) investing activities	(3,551,503)	(2,218,331)

	Cash flows used in financing activities
	Common shares issued	118,260	-
	Lease payments	(19,544)	(12,047)
	Cash flows used in financing activities	98,716	(12,047)

	Effect of changes in the exchange rate on cash	139,424	15,329

	Decrease in cash	(3,510,256)	(6,913,973)

	Cash, beginning of period	10,878,508	11,473,204

	#### Cash, end of period	7,368,252	4,559,231


	Supplemental information
	Interest paid	$ -	$ -
	Taxes paid	$ -	$ -

The accompanying notes are an integral part of these 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 550, 333 - 11th Ave SW, Calgary, Alberta, Canada, T2R 1L9 and the registered office is located at 1600, 421 - 7th Avenue SW, Calgary, Alberta, Canada, T2P 4K9.

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 authorised for issue by the board of directors of the Company on August 26, 2022. 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, 2021.

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, 2021. 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, 2021.

3. Restricted Cash


		June 30, 2022		December 31, 2021

Colombia (i)	$	195,289	$	53,726
Canada (ii)		671,758		678,827
	$	867,047	$	732,553

(i) Restricted cash is comprised of a deposit held as collateral to guarantee abandonment expenditures related to wells in the Tapir and Oso Pardo blocks.

(ii) Pursuant to Alberta government regulations, the Company was required to keep a $324,501 (CAD $418,171; 2021: $415,557) deposit with respect to the Company's liability rating management ("LMR"). The deposit is held by a Canadian chartered bank with interest paid to the Company on a monthly basis based on the bank's deposit rate. The remaining $347,257 pertain to commercial deposits with customers, lease and other deposits held in Canada.

4. Trade and other receivables


		June 30, 2022		December 31, 2021

Trade receivables, net of advances	$	1,735,605	$	252,141
Other accounts receivable		1,254,832		387,441
	$	2,990,437	$	639,582

5. Taxes receivable


		June 30, 2022		December 31, 2021

Value-added tax (VAT) credits recoverable	$	227,989	$	105,827
Income tax withholdings and advances, net		794,063		613,222
	$	1,022,052	$	719,049

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

6. Exploration and Evaluation


		June 30, 2022		December 31, 2021

Balance, beginning of the period	$	6,964,506	$	6,961,667
Additions, net		-		2,839
Balance, end of the period	$	6,964,506	$	6,964,506

7. Property and Equipment


Cost	Oil and Gas Properties	Right of Use and Other Assets	Total
Balance, December 31, 2020	$ 30,436,344	$ 182,105	$ 30,618,449
Additions	1,734,746	1,380	1,736,126
Decommissioning adjustment	(10,173)	-	(10,173)
Balance, December 31, 2021	$ 32,160,917	$ 183,485	$ 32,344,402
Additions	3,835,617	50,046	3,885,663
Balance, June 30, 2022	$ 35,996,534	$ 233,531	$ 36,230,065


Accumulated depletion and depreciation and impairment		Oil and Gas Properties			Right of Use and Other Assets			Total
Balance, December 31, 2020		$ 20,718,742		$ 83,207			$ 20,801,949
Depletion and depreciation		1,591,179		31,758			1,622,937
Reversal of impairment losses of oil and gas properties		(5,617,776)		-			(5,617,776)
Balance, December 31, 2021		$ 16,692,145		$ 114,965			$ 16,807,110
Depletion and depreciation		1,819,500		21,092			1,840,592
Balance, June 30, 2022		$ 18,511,645		$ 136,057			$ 18,647,702
Foreign exchange
Balance December 31, 2020	$ 339,364		$ (4,166)			$ 335,198
Effects of movements in foreign exchange rates	(20,747)		709			(20,038)
Balance December 31, 2021	$ 318,617		$ (3,457)			$ 315,160
Effects of movements in foreign exchange rates	(87,509)		(1,262)			(88,771)
Balance June 30, 2022	$ 231,108		$ (4,719)			$ 226,389


Net Book Value
Balance December 31, 2021	$ 15,787,389	$ 65,063	$ 15,852,452
Balance June 30, 2022	$ 17,715,997	$ 92,755	$ 17,808,752

As at June 30, 2022, the Company reviewed its cash-generating units ("CGU") for property and equipment and determined that there were no indicators of impairment present. As at December 31, 2021, the Company reviewed its cash-generating units ("CGU") for property and equipment and determined that there were indicators of impairment reversal previously recognized in its Tapir block in Colombia and its Canadian assets mostly driven by the recovery in energy commodity prices. The company prepared estimates of both the value in use and fair value less costs of disposal of its CGUs of its CGUs and determined that recoverable amounts exceeded their carrying value and, therefore, an impairment loss reversal of $5,617,776 is included in the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2021. The following table outlines forecast benchmark prices and exchange rates used in the Company's impairment test as at December 31, 2021:


	Exchange rate	Brent	AECO Spot Gas
Year	$US / $Cdn	US$/Bbl	C$/MMBtu
2022	0.80	74.50	3.71
2023	0.80	72.00	3.28
2024	0.80	69.50	2.99
2025	0.80	71.00	3.10
2026 Thereafter (inflation %)	0.80	72.00 2.0%/yr	3.13 2.0%/yr

The recoverable amounts were 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, 2021. 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 17.5% discount rate, which took into account risks specific to the Colombian CGUs and inherent in the oil and gas business, and 15% discount rate for its Canadian CGU, and provided the following recoverable values:


CGU	Recoverable Amount	Impairment Reversal
Canada	5,036,655	1,435,201
Tapir	9,147,575	4,182,575
		5,617,776

8. Promissory Note

The promissory note was issued to Canacol Energy Ltd. ("Canacol") as partial consideration in the acquisition of Carrao Energy S.A. from Canacol. The promissory note bears interest at 15% per annum, was initially due on January 28, 2019 and has been subsequently amended and extended. On October 18, 2021, Arrow and Canacol entered into a Seventh Amended and Restated Promissory Note agreement. The principal amendments are the following:

- The new principal amount of the promissory note is $6,026,166

- On or before December 31, 2022, the Company shall make a payment equal to 50% of the total amount outstanding of interest and principal; and

- The remaining balance of principal and interest shall be paid no later than June 30, 2023

The total balance of this promissory note and its interest of $3,557,792 is presented as a current liability in the interim condensed consolidated statement of financial position as at June 30, 2022. The Company has granted a general security interest to Canacol for the obligations under the Promissory Note.

9. Lease Obligations

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


	2022	2021
Obligation, beginning of the period	$ 54,692	$ 70,842
Changes in existing lease	44,701	1,381
Lease payments	(19,544)	(24,535)
Interest	5,946	6,506
Effects of movements in foreign exchange rates	(1,938)	498
Obligation, end of the period	$ 83,857	$ 54,692

Current portion	$ 38,084	$ 20,258
Long-term portion	45,773	34,434
	$ 83,857	$ 54,692

As at June 30, 2022, the Company has the following future commitments associated with its office lease obligations:


Less than one year			$ 44,841
2 - 5 years			48,290
Total lease payments			93,132
Amounts representing interest over the term			(9,275)
Present value of the net obligation			83,857

During 2022, the Company renegotiated its remaining lease agreement to add space to its leased corporate space and its related future lease obligation. As a result, the Company increased its right-of-use assets and its lease obligation in $44,701.

10. Other Liabilities

The other liabilities of the Company relate to an environmental fee in Colombia that is levied on capital projects. The fee is calculated as 1% of the project cost. The program is administered by the Colombian National Authority of Environmental Licences ("ANLA") and is levied on projects that utilize surface water or deep water wells that may have an impact on the environment. The funds are generally used in the affected communities for purposes of land purchases, biomechanical works (e.g. containment walls in rivers), reforestation, research projects and others. At December 31, 2021 the Company had provided for $177,500 (December 31, 2020 - $177,500) for the environmental fee.

11. 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, 2022	December 31, 2021
Obligation, beginning of the period	$ 2,470,239	$ 2,584,907
Change in estimated cash flows	-	(10,173)
Additions	338,319	-
Payments or settlements	(89,569)	(237,826)
Accretion expenses	89,976	132,807
Effects of movements in foreign exchange rates	(9,387)	524
Obligation, end of the period	$ 2,799,579	$ 2,470,239

The obligation was calculated using a risk-free discount rate range of 1.00% to 2.00% in Canada (2021: 1.00% to 2.00%) and 8.46% in Colombia (2021: 8.46%) with an inflation rate of 2.0% and 4.5%, respectively (2021: 2.0% and 4.5%). It is expected that the majority of costs are expected to occur between 2022 and 2033. The undiscounted amount of cash flows, required over the estimated reserve life of the underlying assets, to settle the obligation, adjusted for inflation, is estimated at $4,754,579 (2021: $4,222,717).

12. Derivative liability

Derivative liability includes warrants issued and outstanding as follows:


	June 30, 2022		December 31, 2021
Warrants	Number	Amounts	Number	Amounts
Balance beginning of the period	72,474,706	$ 4,692,303	-	$ -
Issued in AIM financing (Note 15)	-	-	70,474,768	5,124,985
Issues in private placement (Note 15)	-	-	1,999,938	149,543
Exercised	(902,500)	(112,969)
Fair value adjustment	-	5,362,264	-	(582,225)
Balance end of the period	71,572,206	$ 9,941,599	72,474,706	$ 4,692,303

Each warrant is exercisable at £0.09 per new common share for 24 months from the issuance date and are measured at fair value quarterly using the Black-Scholes options pricing model. The fair value of warrants at June 30, 2022 and December 31, 2021 was estimated using the following assumptions:


	June 30, 2022	December 31, 2021
Number outstanding re-valued warrants	71,572,206	72,474,706
Fair value of warrants outstanding	£0.115	£0.048
Risk free interest rate	1.63%	0.50%
Expected life	1.32 years	1.82 years
Expected volatility	154%	160%

The following table summarizes the warrants outstanding and exercisable at June 30, 2022:


Number of warrants	Exercise price	Expiry date
70,234,768	£0.09	October 25, 2023
1,337,438	£0.09	November 23, 2023
71,572,206

13. Share Capital

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

(b) Issued:


	June 30, 2022		December 31, 2021
Common shares	Shares	Amounts	Shares	Amounts
Balance beginning of the period	213,389,643	$ 56,698,237	68,674,602	$ 50,740,292
Issued in AIM financing (i)	-	-	140,949,565	12,086,423
Issued in private placement (ii)	-	-	3,765,476	308,501
Allocated to warrants (Note 14)	-	-	-	(5,274,528)
Share-issue costs (iii)	-	-	-	(1,162,451)
Issued from warrants exercised	902,500	216,508	-	-
Issued from options exercised	375,000	19,725	-	-
Balance at end of the period	214,667,143	$ 56,932,670	213,389,643	$ 56,698,237

(i) On October 2021, the Company raised approximately $12 million (C$15.0 million), through a placing and subscription for new common shares with new investors, Canacol Energy Ltd. (Canacol), and executive management (the Fundraising) as part of the Company's shares admission to trade on the AIM Market of the London Stock Exchange plc. The Fundraising consisted on placement and subscription of 140,949,565 new common shares at an issue price of £0.0625 (C$0.106125) per new common share. The Company's executive management invested approximately C$ 1.41 million and Canacol participated in the subscription to hold 19.9% of the enlarged share capital. Investors received one warrant for every two new common shares, exercisable at £0.09 per new common share for 24 months from the AIM admission date (October 25, 2021).

(ii) On November 24, 2021, the Company announced that it has closed a private placement of C$395,375 for issuance of 3,765,476 new common shares and 1,999,938 warrants (see Note 12).

(iii) During 2021, the Company recognized share issue costs for $1,162,451 and listing costs of $583,972 associated with the financings completed in 2021 as per above.

(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 status of the Company stock option plan as at December 31, 2021 and 2020 and changes during the respective periods ended on those dates is presented below:


	June 30, 2022		December 31, 2021
Stock Options	Number of options	Weighted average exercise Price (CAD $)	Number of options	Weighted average exercise price (CAD $)
Beginning of period	17,114,000	$0.18	6,859,000	$0.40
Granted	2,300,000	$0.28	11,400,000	$0.13
Exercised in shares	(375,000)	$0.05	-	-
Exercised in cash	(400,000)	$0.05	-	-
Expired/Forfeited	(2,794,000)	$0.12	(1,145,000)	$1.04
End of period	15,845,000	$0.18	17,114,000	$0.18
Exercisable, end of period	3,395,000	$0.42	2,969,669	$0.46


Date of Grant	Number Outstanding	Exercise Price (CAD $)	Weighted Average Remaining Contractual Life	Date of Expiry	Number Exercisable June 30, 2021
October 22, 2018	1,050,000	$1.15	6.32 years	Oct. 22, 2028	1,050,000
May 3, 2019	345,000	$0.31	6.85 years	May 3, 2029	345,000
March 20, 2020	1,200,000	$0.05	7.73 years	March 20, 2030	800,000
April 13, 2020	2,000,000	$0.05	7.79 years	April 13, 2030	1,200,000
December 13, 2021	2,983,332	$0.13	0.96 years	June 13, 2023	-
December 13, 2021	2,983,332	$0.13	1.96 years	June 13, 2024	-
December 13, 2021	2,983,336	$0.13	2.96 years	June 13, 2025	-
June 9, 2022	766,665	$0.28	1.45 years	December 9, 2023	-
June 9, 2022	766,667	$0.28	2.45 years	December 9, 2024	-
June 9, 2022	766,668	$0.28	3.45 years	December 9, 2025	-
Total	15,845,000	$0.18	3.85 years		3,395,000

During 2022, the Company recognized an expense of $103,836 (2021 - income of $272,056) as share based payments expense, with a corresponding decrease in the contributed surplus account.

14. 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, 2022 of $17.8 million. The Company, in conjunction with its partners, have made applications to cancel $15.5 million ($5.8 million Arrow's share as per table below) in commitments on the Macaya and Los Picachos blocks. The remaining commitments are expected to be satisfied by means of seismic work, exploration drilling and farm-outs. Presented below are the Company's exploration and production contractual commitments at June 30, 2022:


Block	Less than 1 year	1-3 years	Thereafter	Total
COR-39	-	12,000,000	-	12,000,000
Los Picachos	-	1,970,000	-	1,970,000
Macaya	-	3,830,000	-	3,830,000
Total	-	17,800,000	-	17,800,000

Contingencies

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

Letters of Credit

At June 30, 2022, the Company had obligations under Letters of Credit ("LC's") outstanding totaling $5.3 million to guarantee work commitments on exploration blocks and other contractual commitments. Of the total, approximately $4.1 million has been guaranteed by Canacol. Under an agreement, Canacol will continue to provide security for Arrow's Letters of Credit providing that Arrow uses all reasonable efforts to replace the LC's. In the event the Company fails to secure the renewal of the letters of credit underlying the ANH guarantees, or any of them, the ANH could decide to cancel the underlying exploration and production contract for a particular block, as applicable. In this instance, the Company could risk losing its entire interest in the applicable block, including all capital expended to date and could possibly also incur additional abandonment and reclamation costs if applied by the ANH.


Current Outstanding Letters of Credit

Contract	Beneficiary	Issuer	Type	Amount (US $)	Renewal Date
SANTA ISABEL	ANH	Carrao Energy	Abandonment	$563,894	April 14, 2023
ANH	Canacol and Carrao	Financial Capacity	$1,672,162	December 31, 2022
COR - 39	ANH	Canacol	Compliance	$2,400,000	December 31, 2022
OMBU	ANH	Carrao Energy	Financial Capacity	$436,300	April 14, 2023
Total				$5,072,356

15. Financial Instruments

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

(a) Commodity price risk

Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in commodity prices. Lower commodity prices can also impact the Company's ability to raise capital. Commodity prices for crude oil are impacted by world economic events that dictate the levels of supply and demand. From time to time the Company may attempt to mitigate commodity price risk through the use of financial derivatives. Currently, the Company does not have any commodity price contract in place.

(b) Credit Risk

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

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

i) Foreign Currency Exchange Risk

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

ii) Interest Rate Risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is not currently exposed to interest rate risk as it borrows funds at a fixed coupon rate of 15% on the promissory notes.

(d) Liquidity Risk

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

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

· The Company will be forced to sell financial assets at a value 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. In order to maintain or adjust the capital structure, from time to time the Company may issue common shares or other securities, sell assets or adjust its capital spending to manage current and projected debt levels. The Company monitors leverage and adjusts its capital structure based on its net debt level. Net debt is defined as the principal amount of its outstanding debt, less working capital items. In order to facilitate the management of its net debt, the Company prepares annual budgets, which are updated as necessary depending on varying factors including current and forecast crude oil prices, changes in capital structure, execution of the Company's business plan and general industry conditions. The annual budget is approved by the Board of Directors and updates are prepared and reviewed as required.

The Company's capital includes the following:


	June 30, 2022	December 31, 2021
Working capital, before promissory note	$ 5,594,027	$ 8,006,074
Non-Current portion of promissory note	-	(1,659,393)
	$ 5,594,027	$ 6,346,681

16. 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 Canadian segment is also considered the corporate segment. The following tables show information regarding the Company's segments for the three months ended and as at June 30:


Three months ended June 30, 2022		Colombia		Canada		Total

Revenue:
Oil Sales	$	4,475,645	$	-	$	4,475,645
Natural gas and liquid sales				1,255,464		1,255,464
Royalties		(569,224)		(137,281)		(706,505)
Expenses		(1,541,018)		(2,715,267)		(4,256,286)
Net loss	$	2,365,403	$	(1,597,084)	$	768,318

Six months ended June 30, 2022		Colombia		Canada		Total

Revenue:
Oil Sales	$	6,956,442	$	-	$	6,956,442
Natural gas and liquid sales		-		2,685,996		2,685,996
Royalties		(778,717)		(436,155)		(1,214,872)
Expenses		3,157,421		9,933,692		(13,091,113)
Net income (loss)	$	3,020,304	$	(7,683,851)	$	(4,663,547)



As at June 30, 2022		Colombia		Canada		Total
Current assets	$	6,491,047	$	5,699,016	$	12,190,063
Non-current:
Deferred income taxes		4,839,785		-		4,839,785
Restricted cash		195,289		671,758		867,047
Exploration and evaluation		6,964,506		-		6,964,506
Property and equipment		12,530,568		5,278,184		17,808,752
Total Assets	$	31,021,195	$	11,648,958	$	42,670,153

Current liabilities	$	2,196,394	$	4,399,641	$	6,596,035
Non-current liabilities:
Other liabilities		177,500		-		177,500
Deferred income taxes		3,371,935		-		3,371,935
Lease obligation		-		45,773		45,773
Decommissioning liability		2,244,675		554,904		2,799,579
Long-term debt		-		31,040		31,040
Derivative liability		-		9,941,499		9,941,499
Total liabilities	$	7,990,505	$	14,972,857	$	22,963,362


Three months ended June 30, 2021		Colombia			Canada		Total

Revenue:
Oil Sales	$	933,103		$	-	$	933,103
Natural gas and liquid sales					125,513		125,513
Royalties		107,497			9,500		116,997
Expenses		1,196,850			479,086		1,675,936
Net loss	$	(371,244)		$	(363,073)	$	(734,317)

Six months ended June 30, 2021		Colombia			Canada		Total

Revenue:
Oil Sales	$	1,799,933		$	-	$	1,701,009
Natural gas and liquid sales		-			247,486		247,486
Royalties		236,036			22,331		258,367
Expenses		1,734,851			1,298,923		3,033,774
Net loss	$	(170,954)		$	(1,073,768)	$	(1,244,722)

As at June 30, 2021			Colombia		Canada			Total
Current assets		$	4,797,199	$	3,976,737	$		8,773,936
Non-current:
Restricted cash			53,726		443,155			496,881
Exploration and evaluation			6,961,667		-			6,961,667
Property and equipment			6,568,383		3,147,684			9,716,067
Total Assets		$	18,380,975	$	7,567,576	$		25,948,551

Current liabilities		$	4,064,824	$	1,567,895	$		5,632,719
Non-current liabilities:
Other liabilities			177,500		-			177,500
Lease obligation			-		45,461			45,461
Decommissioning liability			2,142,865		520,757			2,663,622
Long-term debt			-		32,272			32,272
Promissory note			-		6,135,132			6,135,132
Total liabilities		$	6,385,189	$	8,301,517	$		14,686,706

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