Arrow Exploration Corp.

National Storage Mechanism | Additional information

RNS Number : 8520H

29 November 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 RECORD THIRD QUARTER RESULTS, PROVIDES OPERATIONAL UPDATE AND ANNOUNCES ISSUANCE OF COMMON SHARES

CALGARY, November 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 September 30, 2022, which are available on SEDAR (www.sedar.com). All dollar figures are in U.S. dollars, except as otherwise noted.

Highlights:

· The Third Quarter has been the best quarter in the Company's history generating record cashflow from operations and a threefold increase in production from the date of the AIM Admission.

o EBITDA of $4,664,345 compared to $966,234 in Q3 2021.

o Average corporate production of 1,503 boe/d compared to Q3 2021 575 boe/d and Q2 2022 980 boe/d.

· Operating netbacks quarter-over-quarter, increased to $56.75/boe in the third quarter of 2022 from $49.18/boe in the second quarter of 2022 due to higher crude oil production and better netbacks from natural gas sales.

· Capital raised at the time of Admission to AIM has been deployed on a successful two well drilling campaign at Rio Cravo on the Tapir Block in Colombia, both of which were on production for most of the quarter.

· At the end of the quarter, positive working capital position of $7.4 million and a cash position of $11 million.

· Generation of positive cashflows in Q3 means that the Company is committing to a further drilling program.

· Subsequent to Q3 2022, the Company also completed two workovers to the RCE-1 and RCS-1 wells and has tied in the East Pepper well.

Outlook:

· The Company expects to commence drilling, around the end of 2022, the first of five additional wells - three wells at Rio Cravo and two wells at Carrizales Norte on the Tapir Block.

· The Company anticipates the robust CAPEX program will be funded from cash on hand and cashflow from operations.

· Robust operational tempo ensures that the Company is on track to achieve 3,000 bopd within 18 months of the AIM listing (H1 2023).

· Arrow continues to focus on shareholder value, improving its strong balance sheet, and free cash flow.

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

"We have initiated the largest capital program in the history of the Company. Arrow has successfully executed the two workovers with production improving daily. The plan to add further perforations to RCS‑1 provides additional and material production increase potential. The RCE infill drilling program will aid in achieving our 3,000 (net) bopd production target in H1 2023. The low risk Carrizales Norte project has significant production and reserve potential. In addition, the West Tapir seismic project is expected to add low risk exploration prospects, which have the potential to provide material production and reserves increases in the near term. The seismic project will highlight the reserves potential of the western section of the Tapir block. The Company's plans are to explore the east half of the Tapir block with a second seismic shoot in 2024. The Arrow Team continues to execute our strategy to increase shareholder value."

Operations Update

Canadian operations

· East Pepper tie-in

o The East Pepper well was put on production October 25, 2022, at 7 Mmcf/d (1,167 boe/d). As expected, initial production decline was steep and the well appears to have now stabilized and is producing in excess of 250 boe/d.

o The Company expects typical production declines of 2-3% per month going forward.

Colombian operations

· RCS-1 and RCE-1 Workovers:

o The workover of RCS-1 and RCE-1 is in progress and the wells are continuing to clean-up. Due to electrical storms in the area causing power outages, the clean-up of the wells is taking longer than expected.

o RCS-1, the first well to be worked over, is currently producing at 660 bop/d (gross), 330 bop/d (net) with daily decreases to water cut and corresponding increases in oil production. Prior to the workover, the well was producing 330 bop/d (gross).

o RCS-1 has shown a 330 bop/d (gross) increase since the recompletion procedure. The production gain results in payout of the workover cost in 17 days at current Brent prices.

o An upper unit in the Carbonara 7A was perforated and flowed 330 bop/d (gross) after stabilizing. Management believes a thin shale barrier bifurcates the C7A. It is apparent that a thin shale break prevents inflow from the C7A main sand, which has superior reservoir characteristics akin to RCE-2. Arrow now plans to perforate the C7A in RCS-1 as it is the highest reservoir in the pool. The Company expects that RCS-1 should have a comparable flow rate to RCE-2, where C7A is currently producing 1,025 bop/d (gross) / 512 bop/d (net) with a flat watercut.

o RCE-1, the second recompletion, is continuing to show a high water-cut as it cleans-up. Prior to the workover, the C7A was flowing at 110 bop/d (gross) with a very high watercut. The C7A Stringer was then perforated and is slowly recovering. Production continues to increase daily, currently at 90-110 bop/d (gross), and watercut continues to decrease daily as the well continues to clean up.

· RCE-3, RCE-4, and RCE-5 Infill Drilling:

o Operations remain on track for RCE-3 to spud in late December/early January 2023, and mobilization of the camp facilities is underway. Civil works on the pad are nearing completion. Subsequent to completion of RCE-3, both RCE-4 and RCE-5 will follow in sequence.

· Carrizales Norte

o After drilling RCE-3, RCE-4 and RCE-5, the same drilling rig will be moved to the Carrizales Norte field.

o Currently Arrow is building a road and pad for the Carrizales Norte field. The road and pads are expected to be completed in mid-February 2023.

o The spud of Carrizales 1 is anticipated to begin in the latter part of Q1 2023 with Carrizales 2 expected to spud immediately thereafter, followed by a contingent Carrizales 3.

· Tapir Seismic

o The Company has received all commensurate approvals to proceed with the 100 km2 seismic program.

o The Company is permitting and moving equipment and personnel to the program area on the west side of the Tapir field.

o The estimated cost of the seismic program is $5 million gross ($2.5 million net to Arrow) and is expected to provide multiple prospects beyond what has been identified on the coarse 2D seismic grid.

o Processing and interpretation of the seismic will take place over Q2 2023 with drilling plans to be pursued in Q4 2023.

This robust operational tempo is expected to see the Company achieve 3,000 bop/d within 18 months of the AIM listing (H1 2023). Furthermore, the integrated seismic and geological data will provide significant running room for production growth on the Tapir Block.

Corporate Production

Corporate production in November 2022 to date ranges between 1,900 boe/d and 2,000 boe/d net. Total net production from the Rio Cravo field is 887 bop/d. Contribution from the workover program continues to increase Rio Cravo's production. The Pepper Field has been producing approximately 563 boe/d net, partially curtailed by the facility operator. The two Pepper wells, along with continuing and expected robust natural gas prices in North America, are expected to further enhance the value of the Pepper field. Arrow has 23,000 acres of contiguous Montney rights in the Pepper Area.

2022 THIRD QUARTER INTERIM RESULTS

FINANCIAL AND OPERATING HIGHLIGHTS


(in United States dollars, except as otherwise noted)	Three months ended September 30, 2022	Nine months ended September 30, 2022	Three months ended September 30, 2021
Total natural gas and crude oil revenues, net of royalties	7,614,336	16,041,902	1,684,609

Funds flow from operations (1)	4,606,124	7,532,918	875,621
Funds flow from operations (1) per share -
Basic($)	0.02	0.04	0.01
Diluted ($)	0.00	0.00	0.01
Net income (loss)	2,041,955	(2,621,593)	(21,781)
Net income (loss) per share -
Basic ($)	0.01	(0.01)	(0.00)
Diluted ($)	0.01	(0.01)	(0.00)
Adjusted EBITDA (1)	4,664,345	8,036,342	966,234
Weighted average shares outstanding -
Basic	215,967,143	214,687,656	68,674,602
Diluted	288,235,624	276,272,070	68,674,602
Common shares end of period	215,967,143	215,967,143	68,674,602
Capital expenditures	4,836,860	5,562,525	148,528
Cash and cash equivalents	11,376,702	11,376,702	5,465,981
Current Assets	16,870,695	16,870,695	8,644,830
Current liabilities	9,478,383	9,478,383	7,861,123
Working capital (1)	7,392,312	7,392,312	783,707
Long-term portion of restricted cash (2)	598,192	598,192	485,263
Total assets	46,979,258	46,979,258	25,362,323

Operating
Natural gas and crude oil production, before royalties
Natural gas (Mcf/d)	1,917	2,853	501
Natural gas liquids (bbl/d)	4	5	11
Crude oil (bbl/d)	1,179	730	481
Total (boe/d)	1,503	1,211	575

Operating netbacks ($/boe) (1)
Natural gas ($/Mcf)	$0.88	$1.18	$1.35
Crude oil ($/bbl)	$73.69	$70.30	$37.59
Total ($/boe)	$56.75	$42.66	$30.73

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

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

Discussion of Operating Results

The Company's third quarter 2022 average corporate production was 1,503 boe/d, a 53% increase when compared to Q2 2022 average production of 980 boe/d. This increase was largely attributable to the two new wells in the Rio Crave Este field (RCE-2 and RCS-1), which were in production for most of the quarter. Arrow's production on a quarterly basis is summarized below:


Average Production Boe/d	YTD 2022	Q3 2022	Q2 2022	Q1 2022	Q4 2021	Q3 2021
Oso Pardo	112	104	112	121	123	137
Ombu (Capella)	164	215	97	177	190	193
Rio Cravo Este (Tapir)	454	860	366	136	142	151
Total Colombia	730	1,179	575	434	455	481
Fir, Alberta	83	82	86	73	82	94
Pepper, Alberta	398	242	319	636	181	-
TOTAL (Boe/d)	1,211	1,503	980	1,144	719	575

For the three months ended September 30, 2022, the Company's average production mix consisted of crude oil and natural gas production in Colombia of 1,179 bbl/d (2021: 481 bbl/d) and 1,917 Mcf/d (2021: 501 Mcf/d), along with minor amounts of natural gas liquids, from Arrow's Canadian properties.

Discussion of Financial Results

During Q3 2022 the Company continued to realize strong oil and gas prices, as summarized below.


	Three months ended September 30
2022	2021	Change
Benchmark Prices
AECO ($/Mcf)	$3.83	$2.97	29%
Brent ($/bbl)	$97.81	$73.23	34%
West Texas Intermediate ($/bbl)	$91.65	$70.54	30%
Realized Prices
Natural gas, net of transportation ($/Mcf)	$3.16	$2.90	9%
Natural gas liquids ($/bbl)	$82.69	$56.03	48%
Crude oil, net of transportation ($/bbl)	$90.90	$63.87	42%
Corporate average, net of transport ($/boe)(1)	$73.02	$52.21	40%

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

Operating Netbacks

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


	Three months ended September 30
	2022	2021
Natural Gas ($/Mcf)
Revenue, net of transportation expense	$3.16	$2.90
Royalties	(0.35)	(0.37)
Operating expenses	(1.93)	(1.18)
Natural Gas operating netback(1)	$0.88	$1.35
Crude oil ($/bbl)
Revenue, net of transportation expense	$90.90	$63.87
Royalties	(10.97)	(5.91)
Operating expenses	(6.24)	(20.37)
Crude Oil operating netback(1)	$73.69	$37.59
Corporate ($/boe)
Revenue, net of transportation expense	$73.02	$52.21
Royalties	(8.72)	(4.94)
Operating expenses	(7.55)	(16.54)
Corporate Operating netback(1)	$56.75	$30.73

(1) Non-IFRS measure

Arrow realized better operating netbacks quarter-over-quarter, increasing to $56.75/boe in the third quarter of 2022 from $49.18/boe in the second quarter of 2022. This increase is due to higher crude oil production and better netbacks from natural gas.

During 2022, the Company incurred $5.6 million of capital expenditures, primarily 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 $7.4 million and a cash position of $11 million, which are expected to fund the Company's expenditure plan for the foreseeable future.

Subsequent to September 30, 2022, the Company completed workovers in its Rio Cravo Este-1 and Rio Cravo Sur-1 wells to increase production on the Tapir Block. The Company has also tied in its East Pepper Montney well in Canada. Civil works are currently underway to start drilling three more wells in Rio Cravo. The Company has started to move equipment to start shooting 100 km2 of seismic in the Tapir block to highlight existing leads and prospects for drilling initiating in Q4 2023. This acceleration in operational tempo will be active throughout the balance of 2022 and 2023, funded by cash on hand and cashflow.

With this significant improvement in the Company's financial performance, the Company has approved additional compensation to its non-executives' directors for $210,000 in aggregate which has been paid in Q4 2022.

Colombia Tax Reform

Early in November, Colombia's congress approved some articles of a tax reform bill that is expected to raise an additional US$4 billion annually for the next four years, in part through increased taxes on oil and coal. Once in effect, the new changes seek to fund social projects. At this time, the final bill has been completed by the Colombian congress and now awaits approval by the President to be enacted.

There are two main components of the changes that will impact Arrow:

1. Royalties are not going to be tax deductible for income tax purposes.

2. Corporate tax rate will increase contingent on historic prices of oil.

There will be no impact on Arrow in 2022 as these new tax laws will be effectively enacted on January 1, 2023. Arrow's investment has created tax pools currently available in Colombia that, together with future capital projects, will provide shelter for corporate income taxes. Currently, Arrow is expecting to invest approximately US$23 million (net) in 2023 on capital projects in Colombia. The impact of the new tax laws on 2023 tax payable is currently under review by management.

At this time, Arrow is not considering any changes to the Q1 and Q2 2023 capital program. All future projects' economics are being evaluated in the light of these changes to the Colombian tax regime.

Overall, when Brent oil prices are low, royalties and taxes will remain low and the tax reforms will have little effect on Arrow's bottom line. When Brent oil prices are high and the Company has high netbacks and net income, the tax liability is expected to increase.

ISSUANCE OF COMMON SHARES AND TOTAL VOTING RIGHTS

Further to its announcement on 7 November 2022 regarding the application to AIM for a total block admission of 40,000,000 new common shares in the Company ("Common Shares") (the "Block Admission"), the Company provides below a monthly update to its total voting rights as a result of the exercise of instruments subject to the Block Admission during November 2022.

As at 28 November 2022, the Company had 217,901,931 Common Shares in issue. This figure may be used as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to, their interest in the share capital of the Company under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

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)
Georgia Edmonds	+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 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

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.

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").

Arrow Exploration Corp.

MANAGEMENT's DISCUSSION AND ANALYSIS

Three and nine months ended September 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 November 28, 2022 and should be read in conjunction with Arrow's condensed consolidated financial statements (unaudited) and related notes for the three and nine months ended September 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 September 30, 2022	Nine months ended September 30, 2022	Three months ended September 30, 2021
Net income (loss)	2,041,955	(2,621,593)	(21,781)
Add/(subtract):
Share based payments	110,876	214,712	224,204
Financing costs:
Accretion on decommissioning obligations	54,272	144,247	33,678
Interest	123,394	367,913	173,807
Other	41,075	285,104	76,111
Depreciation and depletion	1,809,340	3,649,932	507,412
Derivative loss	(543,659)	4,968,934	-
Income taxes, current and deferred	1,027,093	1,027,093	(27,197)
Adjusted EBITDA (1)	4,664,345	8,036,342	966,234

Cash flows provided by operating activities	5,221,497	5,024,604	1,115,071
Minus - Changes in non‑cash working capital balances:
Trade and other receivables	1,097,426	3,448,281	(1,078,909)
Restricted cash	(291,841)	(134,360)	(6,376)
Taxes receivable	58,264	361,267	(119,154)
Deposits and prepaid expenses	(171,610)	(160,428)	(3,732)
Inventory	229,799	458,575	172,316
Accounts payable and accrued liabilities	(1,537,411)	(1,465,021)	796,405
Funds flow from operations (1)	4,606,124	7,532,918	875,621

(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 September 30, 2022	Nine months ended September 30, 2022	Three months ended September 30, 2021
Total natural gas and crude oil revenues, net of royalties	7,614,336	16,041,902	1,684,609

Funds flow from operations (1)	4,606,124	7,532,918	875,621
Funds flow from operations (1) per share -
Basic($)	0.02	0.04	0.01
Diluted ($)	0.00	0.00	0.01
Net income (loss)	2,041,955	(2,621,593)	(21,781)
Net income (loss) per share -
Basic ($)	0.01	(0.01)	(0.00)
Diluted ($)	0.01	(0.01)	(0.00)
Adjusted EBITDA (1)	4,664,345	8,036,342	966,234
Weighted average shares outstanding -
Basic	215,967,143	214,687,656	68,674,602
Diluted	288,235,624	276,272,070	68,674,602
Common shares end of period	215,967,143	215,967,143	68,674,602
Capital expenditures	4,836,860	5,562,525	148,528
Cash and cash equivalents	11,376,702	11,376,702	5,465,981
Current Assets	16,870,695	16,870,695	8,644,830
Current liabilities	9,478,383	9,478,383	7,861,123
Working capital (1)	7,392,312	7,392,312	783,707
Long-term portion of restricted cash (2)	598,192	598,192	485,263
Total assets	46,979,258	46,979,258	25,362,323

Operating

Natural gas and crude oil production, before royalties
Natural gas (Mcf/d)	1,917	2,853	501
Natural gas liquids (bbl/d)	4	5	11
Crude oil (bbl/d)	1,179	730	481
Total (boe/d)	1,503	1,211	575

Operating netbacks ($/boe) (1)
Natural gas ($/Mcf)	$0.88	$1.18	$1.35
Crude oil ($/bbl)	$73.69	$70.30	$37.59
Total ($/boe)	$56.75	$42.66	$30.73

(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	Operated1	65,125	50%	32,563
Oso Pardo	Operated	672	100%	672
Ombu	Non-operated	56,482	10%	5,648
COR-39	Operated	95,111	100%	95,111
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.

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

Middle Magdalena Valley ("MMV") Basin

Oso Pardo Field

The Oso Pardo Field is located in the Santa Isabel Block in the MMV Basin. It is a 100% owned property operated by the Company. The Oso Pardo field is located within a Production Licence covering 672 acres. Three wells have been drilled to date within the 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 September 30, 2022 Financial and Operational Highlights

· Arrow recorded $7,614,336 in revenues (net of royalties) on crude oil sales of 88,630 bbls, 407 bbls of natural gas liquids ("NGL's") and 176,318 Mcf of natural gas sales;

· Generated funds flow from operations of $4,606,124;

· Adjusted EBITDA was $4,664,345;

· The Company recorded a net income of $2,041,955;

Results of Operations

The Company has increased its production, combined with improved pricing of energy commodities. During the three and nine months ended September 30, 2022, the Company increased production at its Tapir block, from the drilling of the RCE-2 and RCS-1 wells, and its Ombu block, with consistent production in the Oso Pardo field. Also, the West Pepper well decreased its production during the three months ended September 30, 2022 due to third party's temporary processing facility constraints and natural declines. Subsequent to September 2022, the processing facilities constraints at West Pepper have been progressively resolved.

Average Production by Property


Average Production Boe/d	YTD 2022	Q3 2022	Q2 2022	Q1 2022	Q4 2021	Q3 2021
Oso Pardo	112	104	112	121	123	137
Ombu (Capella)	164	215	97	177	190	193
Rio Cravo Este (Tapir)	454	860	366	136	142	151
Total Colombia	730	1,179	575	434	455	481
Fir, Alberta	83	82	86	73	82	94
Pepper, Alberta	398	242	319	636	181	-
TOTAL (Boe/d)	1,211	1,503	980	1,144	719	575

For the three months ended September 30, 2022, the Company's average production was 1,503 boe/d (2021: 575 boe/d), which consisted of crude oil production in Colombia at 1,179 bbl/d (2021: 481 bbl/d), and natural gas production of 1,917 Mcf/d (2021: 501 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 September 30		Nine months ended September 30
2022	2021	2022	2021
Natural Gas (Mcf/d)
Natural gas production	1,917	501	2,853	419
Natural gas sales	1,917	501	2,853	419
Realized Contractual Natural Gas Sales	1,917	501	2,853	419
Crude Oil (bbl/d)
Crude oil production	1,179	481	730	308
Inventory movements and other	(216)	(195)	(264)	(100)
Crude Oil Sales	963	286	466	208
Corporate
Natural gas production (boe/d)	320	83	475	70
Natural gas liquids(bbl/d)	4	11	5	6
Crude oil production (bbl/d)	1,179	481	730	308
Total production (boe/d)	1,503	575	1,210	384
Inventory movements and other (boe/d)	(216)	(195)	(264)	(100)
Total Corporate Sales (boe/d)	1,287	380	946	284

During the three months ended September 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 September 30		Nine months ended September 30
2021	2021	2021	2021
Natural Gas
Natural gas revenues	557,445	133,413	3,157,296	341,197
NGL revenues	33,621	48,661	119,766	88,363
Royalties	(61,267)	(20,655)	(497,422)	(42,986)
Revenues, net of royalties	529,799	161,419	2,779,640	386,574
Oil
Oil revenues	8,056,780	1,678,526	15,013,222	3,478,459
Royalties	(972,243)	(155,336)	(1,750,960)	(391,372)
Revenues, net of royalties	7,084,537	1,523,191	13,262,262	3,087,087
Corporate
Natural gas revenues	557,445	133,413	3,157,296	341,197
NGL revenues	33,621	48,661	119,766	88,363
Oil revenues	8,056,780	1,678,526	15,013,222	3,478,459
Total revenues	8,647,846	1,860,600	18,290,284	3,908,019
Royalties	(1,033,510)	(175,991)	(2,248,382)	(434,358)
Natural gas and crude oil revenues, net of royalties	7,614,336	1,684,609	16,041,902	3,473,661

Revenue for the three and nine months ended September 30, 2022 was $7.6 and $16 million, respectively, net of royalties, which represents an increase of 362% and 352%, respectively, when compared to the same periods in 2021. This significant increase is mainly due to having two additional wells drilled and producing in Colombia, and the additional natural gas production from the West Pepper well in Canada.

Average Benchmark and Realized Prices


	Three months ended September 30			Nine months ended September 30
2022	2021	Change	2022	2021	Change
Benchmark Prices
AECO ($/Mcf)	$3.83	$2.97	29%	$4.31	$2.59	66%
Brent ($/bbl)	$97.81	$73.23	34%	$102.33	$67.97	51%
West Texas Intermediate ($/bbl)	$91.65	$70.54	30%	$98.15	$65.05	51%
Realized Prices
Natural gas, net of transportation ($/Mcf)	$3.16	$2.90	9%	$4.05	$2.98	36%
Natural gas liquids ($/bbl)	$82.69	$56.03	48%	$83.54	$52.56	59%
Crude oil, net of transportation ($/bbl)	$90.90	$63.87	42%	$91.00	$61.31	48%
Corporate average, net of transport ($/boe)(1)	$73.02	$52.21	40%	$61.75	$50.43	22%

The Company realized prices of $73.02 and $61.75 per boe during the three and nine months ended September 30, 2022 (2021: $52.21 and $50.43 per boe). This increase is a reflection of improved oil and natural gas prices during 2022.

Operating Expenses


	Three months ended September 30		Nine months ended September 30
2022	2021	2022	2021
Natural gas & NGL's	341,156	54,227	1,742,933	183,091
Crude oil	553,004	535,341	1,664,143	1,141,649
Total operating expenses	894,160	589,568	3,407,076	1,324,740
Natural gas ($/Mcf)	$1.93	$1.18	$2.24	$1.60
Crude oil ($/bbl)	$6.24	$20.37	$10.09	$20.12
Corporate ($/boe)(1)	$7.55	$16.54	$11.50	$17.09

(1)Non-IFRS measure

During the three and nine months ended September 30, 2022, Arrow incurred operating expenses of $894,160 and $3,407,076, respectively, at an average cost of $7.55 and $11.50 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 September 30		Nine months ended September 30
	2022	2021	2022	2021
Natural Gas ($/Mcf)
Revenue, net of transportation expense	$3.16	$2.90	$4.05	$2.98
Royalties	(0.35)	(0.37)	(0.63)	(0.31)
Operating expenses	(1.93)	(1.18)	(2.24)	(1.60)
Natural Gas operating netback(1)	$0.88	$1.35	$1.18	$1.07
Crude oil ($/bbl)
Revenue, net of transportation expense	$90.90	$63.87	$91.00	$61.31
Royalties	(10.97)	(5.91)	(10.61)	(6.90)
Operating expenses	(6.24)	(20.37)	(10.09)	(20.12)
Crude Oil operating netback(1)	$73.69	$37.59	$70.30	$34.29
Corporate ($/boe)
Revenue, net of transportation expense	$73.02	$52.21	$61.75	$50.43
Royalties	(8.72)	(4.94)	(7.59)	(5.61)
Operating expenses	(7.55)	(16.54)	(11.50)	(17.09)
Corporate Operating netback(1)	$56.75	$30.73	$42.66	$27.73

(1)Non-IFRS measure

General and Administrative Expenses (G&A)


	Three months ended September 30		Nine months ended September 30
	2022	2021	2022	2021
General & administrative expenses	2,490,114	839,947	5,139,135	3,131,644
Less: G&A capitalized	-	-	-	-
G&A recovered from 3rd parties	(222,735)	-	(389,765)	-
Total operating overhead recovery	(222,735)	-	(389,765)	-
Total G&A	2,267,379	$839,947	4,749,370	$3,131,644
G&A per boe	$30.74	$23.57	$16.03	$40.41

For the three and nine months ended September 30, 2022, G&A expenses before recoveries totaled $2,490,114 and $5,139,135, respectively. This increase is mainly due to increased salaries and performance bonuses paid to personnel and legal fees during Q3.

Share-based Payments Expense


	Three months ended September 30		Nine months ended September 30
	2022	2021	2022	2021

Share-based Payments	110,876	224,204	214,712	(326,106)

Share-based payments expense for the three and nine months ended September 30, 2022 totalled $110,876 and $214,712, respectively (2021: $224,204 and income of $326,106). 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 September 30		Nine months ended September 30
	2022	2021	2022	2021

Financing expense paid or payable	164,469	249,918	653,017	674,068
Non-cash financing costs	54,272	33,678	144,247	98,647
Net financing costs	218,741	283,596	797,264	772,715

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 September 30		Nine months ended September 30
	2022	2021	2022	2021

(Gain) loss on Derivative Liability	(543,659)	-	4,968,934	-

During the three and nine months ended September 30, 2022, the Company recorded a (gain) loss in derivative liability of ($543,659) and $4,968,934, respectively, related to the valuation of its outstanding warrants issued during its AIM listing and private placement completed in 2021. These warrants provide the right to holders to convert them into common shares at a fixed price set in a currency different to the Company's functional currency and, therefore, they are considered a liability and measured at fair value with changes recognized in the statements of operations and comprehensive loss.

Depletion and Depreciation


	Three months ended September 30		Nine months ended September 30
	2022	2021	2022	2021

Depletion and depreciation	1,809,340	507,412	3,649,932	1,111,124

Depletion and depreciation expense in the three and nine months ended September 30, 2022 totalled $1,809,340 and $3,649,932, respectively (2021: $507,412 and $1,111,124). 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 Q3 2022 compared with 2021.

Other Income


	Three months ended September 30		Nine months ended September 30
	2022	2021	2022	2021
Other expense (income)	(32,392)	(767,215)	(52,595)	(1,262,139)

The Company reported other income of $32,392 and $52,596 for the three and nine months ended September 30, 2022, respectively (2021: $767,215 and $1,262,139). The 2021 amount was generated from the Company's 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 September 30, 2022, the Company's working capital is $7,392,312. 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 September 30, 2022 the Company's net debt was calculated as follows:


	September 30, 2022

Current assets	$	16,870,695
Less:
Accounts payable and accrued liabilities		5,277,761
Promissory Note		3,676,882
Net debt (1)	$	7,916,052

(1)Non-IFRS measure

Working Capital

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


	September 30, 2022

Current assets:
Cash	$	11,376,702
Trade and other receivables		4,087,863
Taxes receivable		538,620
Other current assets		867,510
Less:
Accounts payable and accrued liabilities		5,277,759
Income tax payable		485,398
Lease obligation		38,344
Promissory note - short term portion		3,676,882
Working capital(1)	$	7,392,312

(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 September 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 September 30, 2022, the Company had 214,687,656 common shares, 70,063,607 warrants and 18,095,000 stock options outstanding.

CONTRACTUAL OBLIGATIONS

The following table provides a summary of the Company's cash requirements to meet its financial liabilities and contractual obligations existing at September 30, 2022:


	Less than 1 year		1-3 years		Thereafter		Total

Promissory Note	$	3,676,882	$	-		-	$	3,676,882
Long term debt		-		31,040		-		31,040
Exploration and production contracts		-		17,800,000		-		17,800,000
	$	3,676,882	$	17,831,040		-	$	21,507,922

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
	Q3	Q2	Q1	Q4	Q3	Q2	Q1	Q4
Oil and natural gas sales, net of royalties	7,614,336	5,024,604	3,911,329	3,038,832	1,684,609	941,620	847,432	368,140
Net income (loss)	2,041,955	768,318	(5,431,865)	6,960,035	(21,782)	(734,317)	(510,405)	(7,953,001)
Income (loss) per share - basic diluted	0.02 0.00	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)
Working capital (deficit)	7,392,310	5,594,027	7,657,938	8,006,074	783,707	3,141,217	(2,659,690)	(1,932,940)
Total assets	46,979,259	42,670,153	39,914,240	41,195,798	25,362,323	25,948,551	27,684,920	33,532,299
Net capital expenditures	4,836,860	2,777,611	725,665	1,991,163	148,528	(15,378)	97,330	89,198
Average daily production (boe/d)	1,503	980	1,144	712	575	331	242	140

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 November 28, 2022, the Company had the following securities issued and outstanding:


	Number		Exercise Price		Expiry Date

Common shares		217,901,931		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, 2024
Stock options	766,668		CAD$ 0.28		December 9, 2025
Stock options	749,999		CAD $0.26		March 7, 2024
Stock options	749,999		CAD $0.26		March 7, 2025
Stock options	750,002		CAD $0.26		March 7, 2026

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. Accordingly, in Q4 2022, in addition to undertaking the workover of two wells at Rio Cravo, the Company expects to start drilling up to three further wells at Rio Cravo and plans a two well program on the Carrizales Norte Structure on the Tapir Block. The Company has tied 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.

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 nine months ended September 30, 2022 AND 2021

IN UNITED STATES DOLLARS

(UNAUDITED)

Logo, company name Description automatically generated

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

as at and for the three and nine months ended September 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		September 30, 2022		December 31, 2021
##### ASSETS
##### Current assets
Cash		$	11,376,702	$	10,878,508
Trade and other receivables	4		4,087,863		639,582
Taxes receivable	5		538,620		719,049
Deposits and prepaid expenses			161,872		322,300
Inventory			705,638		247,063
			16,870,695		12,806,502
Non-current assets
Deferred income taxes			4,839,785		4,839,785
Restricted cash	3		598,192		732,553
Exploration and evaluation	6		6,964,506		6,964,506
Property and equipment	7		17,706,080		15,852,452
Total Assets		$	46,979,258	$	41,195,798

##### LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued liabilities		$	5,277,759	$	3,120,777
Income tax payable			485,398		-
Lease obligation	9		38,344		20,258
Promissory note	8		3,676,882		1,659,393
			9,478,383		4,800,428
Non-current liabilities
Long-term debt			-		31,552
Lease obligation	9		32,676		34,434
Other liabilities	10		177,500		177,500
Deferred income taxes			3,371,935		3,371,936
Decommissioning liability	11		2,831,401		2,470,239
Promissory note	8		-		1,659,393
Derivative liability	12		8,685,960		4,692,203
Total liabilities			24,577,855		17,237,685

Shareholders' equity
#### Share capital	#### 13		#### 57,301,384		#### 56,698,237
Contributed surplus			1,457,509		1,249,418
Deficit			(35,807,399)		(33,185,806)
Accumulated other comprehensive loss			(550,091)		(803,736)
Total shareholders' equity			22,401,403		23,958,113
Total liabilities and shareholders' equity		$	46,979,258	$	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 Income (Loss)

In United States Dollars

(Unaudited)


		For the three months ended September 30		For the nine months ended September 30
	Notes	2022	2021	2022	2021

Revenue
Oil and natural gas		$ 8,647,846	$ 1,860,600	$ 18,290,284	$ 3,908,019
Royalties		(1,033,510)	(175,991)	(2,248,382)	(434,358)
		7,614,336	1,684,609	16,041,902	3,473,661

Expenses
Operating		894,160	589,568	3,407,076	1,324,740
Administrative		2,267,379	839,947	4,749,370	3,131,644
Listing costs		54,912	-	131,235	-
Share based payments	14	110,876	224,204	214,712	(326,106)
Financing costs:
Accretion	13	54,272	33,678	144,247	98,647
Interest		123,394	173,807	367,913	551,494
Other		41,075	76,111	285,104	122,574
Derivative loss (gain)		(543,659)	56,076	4,968,934	15,383
Foreign exchange loss		(234,068)	507,412	(229,526)	1,111,124
Depletion and depreciation		1,809,340	-	3,649,932	-
Other expense (income)		(32,393)	(767,215)	(52,595)	(1,262,139)
		4,545,288	1,733,588	17,636,402	4,767,361

Income (loss) before taxes		3,069,048	(48,979)	(1,594,500)	(1,293,700)

Income taxes (recovery)
Current		1,027,093	(27,197)	1,027,093	(27,197)
Deferred		-	-	-	-
		1,027,093	(27,197)	1,027,093	(27,197)

Net income (loss) for the period		2,041,955	(21,782)	(2,621,593)	(1,266,503)

Other comprehensive income (loss)
Foreign exchange		173,067	(196,464)	253,645	67,093

Net income (loss) and comprehensive income (loss) for the period		$ 2,215,022	$ (218,246)	$ (2,367,948)	$ (1,199,410)

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


Weighted average shares outstanding
- basic		215,967,143	68,674,602	214,687,656	68,674,602
- diluted		288,235,624	68,674,602	276,272,070	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		603,147		-		-		-		603,147

Options settled in cash		-		(6,621)		-		-		(6,621)

Net loss for the period		-		-		-		(2,621,593)		(2,621,593)

Comprehensive income for the period		-		-		253,645		-		253,645

Share based payments		-		214,712		-		-		214,712

Balance September 30, 2022	$	57,301,384	$	1,457,509	$	(550,091)	$	(35,807,399)	$	22,401,403


		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		-		-		-		(1,266,503)		(1,266,503)

Comprehensive income for the period		-		-		67,093		-		67,093

Share based payments		-		(326,107)		-		-		(326,107)

Balance September 30, 2021	$	50,740,292	$	1,195,738	$	(522,385)	$	(40,145,841)	$	11,267,804

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

Arrow Exploration Corp.

Interim Condensed Consolidated Statements of Cash Flows

In United States Dollars

(Unaudited)



For nine months ended September 30,		2022	2021

	Cash flows provided by (used in) operating activities
	Net loss	$ (2,621,593)	$ (1,266,503)
	Items not involving cash:
	Share based payment	214,712	(326,106)
	Depletion and depreciation	3,649,932	1,111,124
	Interest on leases	7,932	5,051
	Interest on promissory note, net of forgiveness	359,981	546,442
	Accretion	144,247	98,647
	Foreign exchange (gain) loss	(133,342)	88,848
	Loss on derivative liability	4,968,934	-
	Income tax expense	1,027,093	-
	Settlement of decommissioning obligations	(77,180)	-
	Gain in long-term debt forgiveness	(7,798)	-
	Changes in non‑cash working capital balances:
	Restricted cash	134,360	262,489
	Trade and other receivables	(3,448,281)	1,489,818
	Taxes receivable	(361,267)	40,618
	Deposits and prepaid expenses	160,428	(131,315)
	Inventory	(458,575)	(355,011)
	Accounts payable and accrued liabilities	1,465,021	(5,147,955)
	Cash provided by (used in) operating activities	5,024,604	(3,583,853)

	Cash flows used in investing activities
	Additions to property and equipment	(5,562,525)	(230,480)
	Changes in non-cash working capital	691,963	(2,173,682)
	Cash flows used in investing activities	(4,870,562)	(2,404,162)

	Cash flows provided by (used in) financing activities
	Common shares issued	280,072	-
	Payment of long-term debt	(23,394)	-
	Lease payments	(29,774)	(18,290)
	Cash flows provided by (used in) financing activities	226,904	(18,290)

	Effect of changes in the exchange rate on cash	117,248	(918)
	Increase (decrease) in cash	498,194	(6,007,223)

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

	#### Cash, end of period	11,376,702	5,465,981


	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 November 28, 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


		September 30, 2022		December 31, 2021

Colombia (i)	$	37,808	$	53,726
Canada (ii)		560,384		678,827
	$	598,192	$	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 $306,852 (CAD $420,576; 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 $253,533 pertain to commercial deposits with customers, lease and other deposits held in Canada.

4. Trade and other receivables


		September 30, 2022		December 31, 2021

Trade receivables, net of advances	$	2,456,551	$	252,141
Other accounts receivable		1,631,312		387,441
	$	4,087,863	$	639,582

5. Taxes receivable


		September 30, 2022		December 31, 2021

Value-added tax (VAT) credits recoverable	$	32,350	$	105,827
Income tax withholdings and advances, net		506,270		613,222
	$	538,620	$	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


		September 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	5,887,608	50,671	5,938,279
Balance, September 30, 2022	$ 38,048,525	$ 234,156	$ 38,282,681


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		3,616,023		33,909			3,649,932
Balance, September 30, 2022		$ 20,308,168		$ 148,874			$ 20,457,042
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	(428,640)		(6,079)			(434,719)
Balance September 30, 2022	$ (110,023)		$ (9,536)			$ (119,559)


Net Book Value
Balance December 31, 2021	$ 15,787,389	$ 65,063	$ 15,852,452
Balance September 30, 2022	$ 17,630,334	$ 75,746	$ 17,706,080

As at September 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 $3,676,882 is presented as a current liability in the interim condensed consolidated statement of financial position as at September 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	(29,774)	(24,535)
Interest	7,932	6,506
Effects of movements in foreign exchange rates	(6,531)	498
Obligation, end of the period	$ 71,020	$ 54,692

Current portion	$ 38,344	$ 20,258
Long-term portion	32,676	34,434
	$ 71,020	$ 54,692

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


Less than one year			$ 43,781
2 - 5 years			34,053
Total lease payments			77,834
Amounts representing interest over the term			(6,814)
Present value of the net obligation			71,020

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.


	September 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	(77,180)	(237,826)
Accretion expenses	144,247	132,807
Effects of movements in foreign exchange rates	(44,224)	524
Obligation, end of the period	$ 2,831,401	$ 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:


	September 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	(2,411,098)	(319,871)
Fair value adjustment	-	4,313,628	-	(582,225)
Balance end of the period	70,063,608	$ 8,686,060	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 September 30, 2022 and December 31, 2021 was estimated using the following assumptions:


	September 30, 2022	December 31, 2021
Number outstanding re-valued warrants	70,063,608	72,474,706
Fair value of warrants outstanding	£0.1125	£0.048
Risk free interest rate	3.78%	0.50%
Expected life	1.07 years	1.82 years
Expected volatility	150%	160%

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


Number of warrants	Exercise price	Expiry date
68,934,769	£0.09	October 25, 2023
1,128,839	£0.09	November 23, 2023
70,063,608

13. Share Capital

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

(b) Issued:


	September 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	2,411,098	585,222	-	-
Issued from options exercised	375,000	17,925	-	-
Balance at end of the period	216,175,741	$ 57,301,384	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:


	September 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	4,550,000	$0.27	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	18,095,000	$0.21	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 September 30, 2021
October 22, 2018	1,050,000	$1.15	6.07 years	Oct. 22, 2028	1,050,000
May 3, 2019	345,000	$0.31	6.59 years	May 3, 2029	345,000
March 20, 2020	1,200,000	$0.05	7.47 years	March 20, 2030	800,000
April 13, 2020	2,000,000	$0.05	7.54 years	April 13, 2030	1,200,000
December 13, 2021	2,983,332	$0.13	0.70 years	June 13, 2023	-
December 13, 2021	2,983,332	$0.13	1.70 years	June 13, 2024	-
December 13, 2021	2,983,336	$0.13	2.70 years	June 13, 2025	-
June 9, 2022	766,665	$0.28	1.19 years	December 9, 2023	-
June 9, 2022	766,667	$0.28	2.19 years	December 9, 2024	-
June 9, 2022	766,668	$0.28	3.19 years	December 9, 2025	-
September 7, 2022	749,999	$0.26	1.44 years	March 7, 2024	-
September 7, 2022	749,999	$0.26	2.44 years	March 7, 2025	-
September 7, 2022	750,002	$0.26	3.44 years	March 7, 2026	-
Total	18,095,000	$0.27	3.23 years		3,395,000

During 2022, the Company recognized an expense of $214,712 (2021 - income of $326,106) 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 September 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 September 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 September 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:


	September 30, 2022	December 31, 2021
Working capital	$ 7,392,312	$ 8,006,074
Non-Current portion of promissory note	-	(1,659,393)
	7,392,312	$ 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 and nine months ended, and as at, September 30:


Three months ended September 30, 2022		Colombia			Canada		Total
Revenue:
Oil Sales	$	8,056,780		$	-	$	8,056,780
Natural gas and liquid sales		-			591,066		591,066
Royalties		(972,243)			(61,267)		(1,033,510)
Expenses		(2,435,749)			(2,109,539)		(4,545,288)
Income tax		(1,027,093)			-		(1,027,093)
Net income (loss)	$	3,621,695		$	(1,579,740)	$	(2,041,955)



Nine months ended September 30, 2022		Colombia			Canada		Total
Revenue:
Oil Sales	$	15,013,222		$	-	$	15,013,222
Natural gas and liquid sales		-			3,277,062		3,277,062
Royalties		(1,750,960)			(497,422)		(2,248,382)
Expenses		(5,593,170)			(12,043,232)		(17,636,402)
Income tax		(1,027,093)			-		(1,027,093)
Net income (loss)	$	6,641,999		$	(9,263,592)	$	(2,621,593)
As at September 30, 2022			Colombia		Canada			Total
Current assets		$	12,900,256	$	3,970,439	$		16,870,695
Non-current:
Deferred income taxes			4,839,785		-			4,839,785
Restricted cash			37,808		560,384			598,192
Exploration and evaluation			6,964,506		-			6,964,506
Property and equipment			12,378,156		5,327,924			17,706,080
Total Assets		$	37,120,511	$	9,858,747	$		46,979,258

Current liabilities		$	4,622,600	$	4,855,783	$		9,478,383
Non-current liabilities:
Other liabilities			177,500		-			177,500
Deferred income taxes			3,371,935		-			3,371,935
Lease obligation			-		32,676			32,676
Decommissioning liability			2,296,091		535,310			2,831,401
Derivative liability			-		8,685,960			8,685,960
Total liabilities		$	10,468,126	$	14,109,729	$		24,577,855



Three months ended September 30, 2021		Colombia			Canada		Total

Revenue:
Oil Sales	$	1,678,526		$	-	$	1,678,526
Natural gas and liquid sales					182,074		182,074
Royalties		155,336			20,655		175,991
Expenses		636,806			1,096,782		1,733,588
Income taxes (recovery)		(27,197)			-		(27,197)
Net income (loss)	$	913,581		$	(935,363)	$	(21,782)

Nine months ended September 30, 2021		Colombia			Canada		Total

Revenue:
Oil Sales	$	3,478,459		$	-	$	3,478,459
Natural gas and liquid sales		-			429,560		429,560
Royalties		391,372			42,986		434,358
Expenses		2,371,656			2,395,705		4,767,361
Income taxes (recovery)		(27,197)			-		(27,197)
Net income (loss)	$	742,628		$	(2,009,131)	$	(1,266,503)
As at September 30, 2021			Colombia		Canada			Total
Current assets		$	5,055,424	$	3,589,406	$		8,644,830
Non-current:
Restricted cash			53,726		431,537			485,263
Exploration and evaluation			6,961,667		-			6,961,667
Property and equipment			6,224,873		3,045,690			9,270,563
Total Assets		$	18,295,690	$	7,066,633	$		25,362,323


Current liabilities		$	3,023,180	$	4,837,943	$		7,861,123
Non-current liabilities:
Other liabilities			177,500		-			177,500
Lease obligation			-		39,493			39,493
Decommissioning liability			2,174,968		508,180			2,683,148
Long-term debt			-		31,396			31,396
Promissory note			-		3,301,860			3,301,860
Total liabilities		$	5,375,648	$	8,718,872	$		14,094,519

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