Arrow Exploration Corp. (AIM: AXL): Another horizontal well with high flow rate
• The fourth horizontal well at Carrizales Notre (CNB HZ-5) has been put on production at a gross oil rate of 2.7 mbbl/d (1.35 mbbl/d net to Arrow) with a water cut of 11%.• This flow rate compares favourably with CNB HZ-4 that was put on production at a gross oil rate of >2.5 mbbl/d (8% water cut).
• Overall gross oil production from the three other horizontal wells is ~5.62 mbbl/d (~2.8 mbbl/d net to Arrow) including 2.1 mbbl/d for CNB HZ-4, 1.9 mbbl/d for CNB HZ-3 and 1.6 mbbl/d for CNB HZ-1. This compares with our expectations of gross IP90 of 1.5 mbbl/d per well (4.5 mbbl/d for three wells). The water cut of CNB HZ-1 and HZ-3 is 48-52%. We are assuming water cut of 60-80% after six months. The water cut at CNB HZ-4 is now 11%.
• Overall current net production is now 5,835 boe/d. This represents an increase of ~0.8 mboe/d compared to a month ago. This is above our 3Q24 production forecasts of ~4.2 mboe/d with two further horizontal wells to be drilled plus one exploration well at Chorreron-1 (Baquiano-1) by YE24. We forecast net production of ~5.7 mboe/d in 4Q24.
• Our unrisked value for Chorreron (formerly Baquiano) is £0.05/sh. The publication of an updated reserves report for Carrizales Norte that could incorporate the impact of the horizontal drilling and increase Arrow’s 2P reserves is a key near term news item.
• Pending further visibility on the 2025 programme, we re-iterate our £0.70/sh target in line with our ReNAV. We currently assume a single rig to maintain production constant at ~5.7 mboe/d in 2025. We however note that Arrow is looking to accelerate its drilling programme in 2025 by adding a second rig. Additional drilling could have a positive impact on our forecasts and valuation.
Financials
Arrow held US$15 mm in cash on 1 September 2024, up US$3 mm compared to the cash position on 1 August.
Valuation and cashflow
We have trimmed our 2H25 Brent price assumptions from US$85/bbl to US$80/bbl. Our Core NAV based on the company’s 2P reserves is £0.32/sh. Booking 4.35 mmbbl net reserves at Carrizales Noroeste could add a further £0.25/sh to our Core NAV. Our unrisked NAV for the company based on the Tapir block is ~£0.75/sh. The 2025 drilling programme could include the drilling Mateguafa Oeste, Capullo and Mateguafa Attic. Our ReNAV currently includes only the risked value of Mateguafa Attic (£0.13/sh unrisked NAV). Capullo and Mateguafa Oeste are potentially larger (3.7 mmbbl and 6.1 mmbbl net prospective resources respectively) with unrisked NAVs of respectively £0.19 and £0.32/sh.
Front Range Resources is engaged in oil and natural gas exploration and production focusing on horizontal multi-stage frac development in Montney, Bluesky, Wilrich and Falher formations in the Deep Basin area of west central Alberta.
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
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