Arrow Exploration Corp. (AIM: AXL): High flow and a new discovery at RCE-6. Larger volumes than expected at Oso Pardo
• The RCE-6 well encountered 16 feet of pay in a high quality upper C7 sand. The pump is turned-off and the well is flowing naturally at a gross rate of 834 bbl/d (417 bbl/d net). This initial rate is above our expectations of 700 bbl/d.• The RCE-6 well has also encountered 7 feet of high quality pay in the Ubaque (24% porosity). The zone was tested at a gross oil rate of up to 393 bbl/d (179 bbl/d net) of 13.3 deg API crude with no pressure decline. This is a new discovery and as such there are no booked reserves. The downhole pressure is consistent with the Ubaque at Carrizales Norte and the reservoir quality is the same. Further drilling will be required to estimate the areal extent of the discovery. The Carrizales Norte field is 2 km away.
• Oso Pardo-3 in the Middle Magdalena encountered multiple pay zones totaling 53 feet of net pay in high quality sands in the Umir formation, with an average porosity of 23%. The oil was encountered across the fault 120 feet below expectations. This potentially opens five new drilling locations on the lands already held by Arrow and could result in additional reserves and production. The well will now be put in production.
• The discovery in the Ubaque at RCE and additional volumes at Oso Pardo are expected to be accretive to our Core and ReNAV. Pending further details on the size of the additional reserves, we re-iterate our target price of £0.55 per share (~our ReNAV). This excludes any contribution from exploration success in 2024 or any contribution from the horizontal drilling program due to commence in Q124.
Continuous drilling programme
The RCE-7 well spud on 14 November and is targeting multiple zones including the Ubaque. The company will then drill the RCE-8 well. The rig will then return to Carrizales Norte to drill highly anticipated horizontal wells in the Ubaque in 1H24. A new prospect (Carrizales Noroeste) will also be drilled which, with success, could potentially add a material amount of resources.
Valuation and cashflow
Pending further details on the 2024 budget and production guidance, our ReNAV is unchanged at ~£0.55 per share. We currently forecast 4.9-5.0 mboe/d production in 2024 and 2025. Assuming US$85/bbl for Brent until YE25, we forecast that the company will hold~US$40 mm in net cash at YE24 and ~US$80 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.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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