Arrow Exploration Corp. (AIM: AXL): CN-2 flows at up to 1 mbbl/d. Focusing on developping the Ubaque at Carrizales Norte
• The Carrizales Norte-2 well (CN-2) encountered 60’ of net pay in the Ubaque formation.• The well has been put on production in the Ubaque with initial flow rates of 1,012 barrels of fluid per day. The water cut stabilized at 3% and the oil gravity is 13.6 API.
• The CN-2 well is currently producing 680 bbl/d gross (340 bbl/d net) as the company has set the ESP at the minimum optimum rate to maximize recovery factor. The build-up analysis indicates the well can produce at 1,400 bbl/d gross at a consistent producible rate.
• The net pay encountered in the Ubaque at CN-2, the oil quality and the achieved flow rate are consistent with the Ubaque at CN-1. The water cut is however much lower at CN-2 than at CN-1 (3% vs ~28%); which is a positive.
• The C7 sands were also tested but there was an immediate water breakthrough (the water cut reached 50%) that would require large water handling facilities. It is not clear where the water came from as the perforation were 15’ higher than at CN-1. It could be associated with a cementing issue.
• Over 30’ of pay was encountered at the Gacheta. That formation was not tested as it would have a required different completion equipment.
• Pending further visibility on an estimate on the reserves and resources at Carrizales Norte (particularly in the Ubaque that is expected to be very material to Arrow) expected after the CN-3 well, we re-iterate our target price of £0.50 per share (~our ReNAV).
Production growth
Including production from the CN-2 well, overall corporate production should be ~3 mboe/d. The Carrizales Norte-3 well has been spud. The rig will then move back to the RCE field to drill two dedicated Gacheta wells and the RCS 2 well targeting the C7 formation. The focus for the Carrizales Norte initial development will be the Ubaque formation where the rig will return to drill additional wells once the RCS-2 well is completed. Before taking into consideration natural decline and the future Ubaque wells, the four new upcoming wells could add 1,600 bbl/d net to Arrow, assuming 400 bbl/d per well (net to Arrow).
Valuation and cashflow
Our ReNAV is unchanged £0.53 per share. Assuming US$75/bbl for Brent until YE24, we continue to forecast that the company will hold >US$15 mm in net cash at YE23 and >US$50 mm at YE24.
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.
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