Arrow Exploration Corp. (AIM: AXL): Flow rate of high impact horizontal well above expectations
• The first CN Horizontal well (CNB HZ-1) from the Carrizales Norte B pad has been on production since 14 June at a rate of 3,150 bbl/d (~1.6 mbbl/d net) with less than 1% water cut while still recovering load fluid. The flow rate is currently constrained with the ESP operating on the minimum setting.• The flow rate is above expectations. While the stabilized production rate will be determined in the next few weeks, this initial flow rate represents 2x what we carry in our model for the well in 3Q24 (1.5 mbbl/d gross or 0.75 mbbl/d net).
• The flow rate is very important for Arrow’s growth story as horizontal drilling will form the basis of the development of the Carrizales Norte field.
• Arrow will now drill a water injector before three further horizontal wells at the Carrizales Norte B pad. This should have a material impact on production. Pending confirmation of the stabilized rate, we have not changed our forecasts with production reaching 5.6 mboe/d in 4Q24 (assuming 1.5 mbbl/d gross production per new horizontal well).
• The company holds ~US$12.1 mm in cash, which is line with our expectations. We re-iterate our target price to £0.65 per share.
Production and water handling
Overall current production is ~3.6 mboe/d, reflecting 250 boe/d shut-in in Canada due to low natural gas price, and 250 bbl/d shut in due to water handling restrictions at Carrizales Norte. Arrow is waiting for regulatory approval to use the CN-4 well as a water injector. The company will also drill a second injector well (CNB-2) at Carrizales Norte, at which point Arrow expects to have adequate water disposal volumes for the entire Carrizales Norte development.
Valuation and cashflow
With 250 boe/d of production in Canada being shut in (we assume until Septermber, we now assume ~3.8 mboe/d production in 2024 (3.9 mboe/d previously). Booking 4.35 mmbbl net reserves at Carrizales Noroeste and CN-8 (Carbonera) could add a further £0.11/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.
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