Arrow Exploration Corp. (AIM: AXL): Good 4Q22 results. First Carrizales Norte well about to spud
• 4Q22 production was 1,736 boe/d with cash of US$13 mm at YE22. This is broadly in line with expectations.• Production at the new wells on the Rio Cravo Este field continues to ramp-up slowly to prevent early water breakthrough.
• The company continues to expect to drill at least 10 wells in 2023 (of which three have been already drilled). Arrow is currently moving its drilling rig to the Carrizales Norte field where the first well will spud shortly. Two further wells will be drilled on the field. At least two Gacheta wells will then be drilled on the Rio Cravo Este field. Two wells at Oso Pardo will also be drilled. The total FY23 capex of US$32 mm is in line with previous guidance.
• The 130 square kilometre 3D seismic at West Tapir has now been completed. This is one of the larger 3D surveys undertaken in the last few years in the Llanos Basin. The results of the campaign are expected to provide drilling running room for the next one to two years.
• Arrow had previously reported its reserves at YE22.
• We continue to forecast YE23 production at ~5 mboe/d.
• We re-iterate our target price of £0.45 per share (~our ReNAV).
More details on the YE22 accounts
4Q22 opex were only US$8.08/boe, well below 4Q21 opex (US$17.48/boe). This highlights the low cost nature of Arrow’s assets. Impairment losses of ~US$9 mm were reversed, mostly due to higher commodity prices having a positive impact on the value of the reserves at Capella.
Valuation and cashflow
We forecast that the company will hold >US$20 mm in net cash at YE23 and ~US$60 mm at YE24 under our Brent price assumptions. This represents ~100% of the current market cap. At US$80/bbl for Brent from 2Q23 to YE24, we forecast YE23 net cash of US$16 mm increasing to US$53 mm at YE24 (~80% of the current market cap). Our ReNAV of £0.46 per share represents >150% upside to the current share price.
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.
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