Arrow Exploration Corp. (AIM: AXL): Continued high flow rate at 1st Hz well. Very good result at 2nd well. High overall production
• The first CN Horizontal well (CNB HZ-1) is currently flowing at a rate of 2.22 mbbl/d (oil) with an IP30 rate of 2.65 mbbl/d (1.32 mbbl/d net).• The well is performing better than expected. We forecast IP90 rate of only 1.5 mbbl/d. The well has paid back in less than a month. The water cut after >1 month is 34%. Assuming the water cut after six months of production doubles to 60-80% would imply ~1.1 mbbl/d of oil production by then (assuming the pump speed is unchanged). Given that the pump settings are likely to be increased, the oil flow rate is also likely to be higher.
• The second CN Horizontal well (CNB HZ-3) has been put in production and is currently flowing at a constrained oil rate of 3,038 bbl/d (1.5 mbbl/d net to Arrow) with a water cut of less than 6.5% while still recovering load fluid. This is very close to the initial production achieved at CNB HZ-1 (3.15 mbbl/d). This is again a very good result.
• Current net production stands at ~4,560 boe/d, reflecting the continued restrictions associated with water handling. This is above our production forecasts of ~4 mboe/d in 3Q24 with two further back-to-back horizontal wells to be drilled.
• The CN-4 water disposal well is on production. The CNB-2 water disposal well has been completed and is awaiting stimulation work and regulatory approval.
• The company held ~US$11 mm in cash on 1 July. The success of the horizontal drilling programme unlocks the upside. Average production could be >5.6 mboe/d in 4Q24 and the company could become an M&A target. We re-iterate our target price of £0.65 per share in line with our ReNAV.
Upcoming drilling
Arrow will now drill 2-4 further horizontal wells at Carrizales Norte by YE24. This will be followed by the Baquiano-1 exploration well (£0.05 per share unrisked NAV). Arrow will then return to the CNB pad for two additional horizontal wells. A new reserves report is expected to be published later in 2024.
Valuation and cashflow
Our Core NAV based on the company’s 2P reserves is £0.34 per share. 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 ~£0.80/sh. Assuming US$85/bbl for Brent until YE25, we forecast that the company will hold >US$60 mm at YE25.
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.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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