Arrow Exploration Corp. (AIM: AXL): High impact exploration drilling in 2H25
• 2Q25 production averaged 3,768 boe/d, impacted by water handling constraints and steeper-than-anticipated early declines at newly drilled wells.• Current WI production stands at ~4,200 boe/d, down from the July peak of 4,600–4,800 boe/d, which reflected initial flush output from AB-HZ5 and AB-HZ4. While first-month decline rates are steep, Arrow has observed that post-month-one declines are minimal. For example, recent horizontal wells have delivered initial rates exceeding 1,000 bbl/d, declining to ~350 bbl/d by day 30, with stable output thereafter.
• Two additional wells are scheduled to come online in September—one at Alberta Llanos and one at Carrizales Norte—supporting a 3Q25 production forecast of ~4.2 mboe/d.
• The upcoming drilling programme will target the Mateguafa Oeste prospect, which holds ~6 mmboe of net prospective resources and carries an unrisked NAV of £0.25 per share. In the event of success, Arrow plans to re-mobilize its second rig (currently being released) to drill four horizontal wells, which would materially enhance YE25 production. If the results are inconclusive, the company will pivot to Mateguafa Attic, using its current rig to drill three low-risk vertical wells targeting the C7 interval.
• We have revised our 2025 production forecast to ~4.2 mbbl/d, reflecting a more conservative IP30 assumption and a development scenario based on Mateguafa Attic rather than Mateguafa Oeste. We also incorporate higher transportation costs and a quality discount for Tapir volumes. Our new target price of £0.50 per share has been set close to our new ReNAV.
Financials
Arrow held ~US$13 mm in cash at the end of June (in line with expectations). 2Q25 opex totaled US$6.6 million, including US$1.7 million in non-recurring costs related to water handling issues, which have since been resolved. Transportation costs and quality discounts in Colombia have increased materially, rising from ~US$7/bbl to ~US$13/bbl, reflecting a larger proportion of heavier crude produced from Tapir. The FY25 capital programme remains unchanged at US$50 mm. While ~US$26 mm capex has been incurred in 1H25, ~US$6.6mm is included within the payables at the end of 1H25.
Valuation and forecasts
We have reduced our production forecasts for 2025 and 2026 by ~500-600 bbl/d. A success at Mateguafa Oeste would materially increase this forecast. Our Core NAV and ReNAV now stand at £0.23 and £0.48 per share, respectively. We forecast that the company net cash will be higher than its market cap by ~YE28.
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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