Arrow Exploration Corp. (AIM: AXL): Further reserves addition at Carrizales Norte
• FY23 production was in line with our expectations and the YE23 cash balance of US$12 mm had been reported previously.• The highlight of the announcement is the discovery by the CN-8 well of multiple hydrocarbon-bearing intervals. 14 feet of net oil pay were encountered in the Carbonera in an area that was not considered prospective. The pay zone is a clean sandstone exhibiting consistent 25% porosity and high resistivities. The well has been put in production at a gross rate of 330 bbl/d (165 bbl/d net to Arrow). The result supports the stratigraphic play thesis and is expected to add a material amount of reserves. Pending further details, we have already added 1 mmbbl net resources to our valuation.
• The CN-7 development well has also encountered multiple hydrocarbon-bearing intervals. The well has been completed in the Carbonera with ~19 feet of net oil pay. The pay zone is a clean sandstone exhibiting consistent 28% porosity and high resistivities. The well has been put on production and is currently producing at 320 bbl/d gross (160 bbl/d net).
• Overall Arrow has drilled five new production wells in 1Q24 .
• Arrow is now considering publishing a mid year reserves report including the recent discoveries at CN-5 (Ubaque) and CN-8 (Carbonera). We currently estimate the overall net reserves addition at ~4.3 mmbbl. As we incorporate the CN-8 discovery, we have increased our target price to £0.65 per share.
Drilling programme update
Arrow is now moving the drilling rig to the Carrizales Norte B (CNB) pad where the first horizontal well is expected to be spud in May and on production in June. Arrow then plans to drill up to three or four additional horizontal wells at the CNB pad. Following work at the CNB pad, Arrow plans to move the drilling rig to the Baquiano pad to drill the first exploration well at Baquiano. With success, two additional Baquiano wells are planned to be drilled.
Valuation and cashflow
We have adjusted our drilling sequence for 2024 and incorporated the recent well results. We have now four horizontal wells in 2024. We assume no production increase at Oso Pardo and a later ramp-up at Baquiano. We now forecast ~3.9 mboe/d production in 2024 increasing to 5.6 mboe/d in 2025. Booking 4.35 mmbbl net reserves at Carrizales Noroeste and CN-8 (Carbonera) could add a further £0.11/sh. We now assume a probability of development of 60% for these new potential resources. Baquiano has an unrisked NAV of £0.05/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.
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