Arrow Exploration Corp. (AIM: AXL): FY24 drilling programme: high impact & low risk
• 3Q23 production was 2,518 boe/d, near our forecast of 2,674 boe/d.• Arrow held US$12.9 mm in cash at the end of September. This is ahead of our expectations of US$6.6 mm on lower capex and opex.
• Four new wells are expected to be on stream by YE23 including RCE 7, RCE-8 and two wells at Oso Pardo.
• Following interpretation of the recently shot 3D seismic at Tapir, Arrow plans to drill a total of 15 wells in 2024 including five exploration wells targeting 3 material and low risk exploration prospects and ten development wells (including at least 3 horizontal wells at Carrizales Norte). The total capex budget for 2024 will be around US$40 mm.
• We re-iterate our target price of £0.55 per share (~our ReNAV) that now includes contribution from the 2024 exploration programme, offsetting our decision to reduce the contribution to our valuation of the development of the area of Oso Pardo outside of Arrow’s current licence area given the delays to obtain the required licence expansion. Arrow continues to expect that the licence will be awarded but the focus of the 2024 programme will be the Tapir block.
Multiple material exploration prospects to be drilled in 2024
The FY24 exploration programme comprises one well at Carrizales Noroeste, one well at Baquiano (at the north of Carrizales Norte) and three wells at Mateguafa Attic where the recently shot 3D seismic has highlighted a larger than expected prospect. Each of these prospects could be of a size similar to Carrizales Norte (3.9 mmbbl net to Arrow). Mateguafa Attic and Baquiano are expected to be drilled in 1Q24 and 3Q24 respectively. The first horizontal well at Carrizales Norte that is expected to have an important impact on the development of the field is expected to spud in March.
Valuation and cashflow
Given the delays in obtaining the licence expansion at Oso Pardo, we have decided to take a more cautious view and have reduced our assumed chance of development from 25% to 10%. We have added to our valuation the risked value of Carrizales Noroeste, Mateguafa Attic and Baquiano. Our unrisked value for each asset is £0.11-0.16/sh. We have attributed a 25% chance of success to each prospect. Given the later production start-up at the new Oso Pardo wells, we have reduced our FY23 production forecasts from 2,590 boe/d to 2,310 boe/d. Our production forecasts of 4.9-5.0 mboe/d production in 2024 and 2025 are unchanged but we now assume US$40 mm capex in 2024 including exploration (vs US$25 mm previously without exploration). Assuming US$85/bbl for Brent until YE25, we forecast that the company will hold~US$20 mm in net cash at YE24 and ~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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