Arrow Exploration Corp. (AIM: AXL): Gearing-up for acquisitions?
• 1Q25 production was 4,085 boe/d with no horizontal wells drilled in the period. RCE is more mature than CN and while no drilling has taken place at RCE, the decline rate between 4Q24 and 1Q25 was only ~5%.• 1Q25 Production was constrained by increased water production preventing the company increasing the speed of the pumps at some of its producing wells. The increased amount of produced water increased opex.
• In order to address the increased water production, remove the oil production bottleneck at some wells and reduce opex, Arrow is working towards the conversion of CN 5 into a water disposal well. The AB 2 injector well should be in operation in late 2Q25 and CN 5 in 3Q25.
• Production is expected to increase in 2Q25. During the quarter, Arrow has brought CN 11, CN HZ9 and CNHZ10 (two horizontal wells) on production. The AB HZ4 horizontal well is also expected to start production in June. A second rig that will mobilize to the RCE field will drill up to four development wells and will then mobilize to the Carrizales Norte pad for further development drilling. The first RCE well is expected to spud in early June.
• We re-iterate our target price of £0.70 per share.
US$20 mm pre-payment facility
Arrow held US$24 mm in cash on 01 May and the FY25 drilling programme is funded by operating cashflow. The company has entered into a two-year crude prepayment agreement with an integrated energy major to market its oil production in Colombia. The agreement provides access to US$20 mm in funding in year one falling to US$15 mm in year two if not drawn. Given Arrow’s strong cash position, we believe that this additional funding could allow Arrow to make acquisition without diluting shareholders. The interest rate is SOFR + 4% for the first US$10 mm and SOFR + 5% for amounts exceeding US$10 mm.
Valuation and forecasts
We have trimmed our production forecast for 2025 by ~150 bbl/d. We forecast ~4.4 mboe/d in 2Q25. Our Core NAV and ReNAV stand at £0.39 per share and £0.69 per share, respectively. Excluding exploration capex beyond 2025, we forecast the company net cash will be equal to the current market cap ~YE27.
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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