Arrow Exploration Corp. (AIM: AXL): Key horizontal wells outperforms expectations
• Arrow has now drilled 3 horizontal wells in Carrizales Norte. The flow rates of the wells are exceeding our expectations.• The first CN horizontal well (CNB HZ-1) is being restricted to a current oil flow rate of 2,090 bbl/d with approximately 41% water cut. The average oil production for the first 60 days of production was 2,375 bbl/d. This compares with our expectations of IP90 of 1.5 mbbl/d.
• The second CN Horizontal well (CNB HZ-3) is being restricted to a current gross flow rate of 1,920 bbl/d gross with approximately 31% water cut. The average production for the first 30 days of production was 2,212 bbl/d gross.
• The third CN horizontal well (CNB HZ-4) is now on production at a current oil flow rate exceeding 2,500 bbl/d gross and production is continuing to increase. Currently the well has an 8% water cut while still recovering load fluid. Management's expectations are that the CNB HZ-4 well will reach IP production rates similar to the Company's first two horizontal wells.
• Overall current net production is now 5 mboe/d. This is above our production forecasts of ~4.2 mboe/d in 3Q24 with three further back-to-back horizontal wells to be drilled. Our production forecast of ~5.7 mboe/d in 4Q24 might be too conservative.
• The success of the horizontal drilling programme unlocks the upside and Arrow is becoming an M&A target. Key near term newsflow includes the drilling of the Chorreron-1 exploration well (formerly known as Baquiano-1) and the publication of an updated reserve report for Carrizales Norte that could incorporate the impact of the horizontal drilling and increase Arrow’s 2P reserves.
• We have increased our target price from £0.65 to £0.70 per share in line with our ReNAV that reflects the drilling results at CN.
Financials
2Q24 production was 2,546 boe/d and incorporates only ~10 days of production from the first horizontal well. Arrow held ~US$12 mm in cash on 1 August 2024. This represents an increase of US$1 mm compared to the cash position on 1 July.
Valuation and cashflow
Our Core NAV based on the company’s 2P reserves is £0.35 per share. Booking 4.35 mmbbl net reserves at Carrizales Noroeste could add a further £0.25/sh to our Core NAV. In 2025, the company plans to continue activity on the Tapir block and drill multiple exploration wells including Mateguafa Oeste, Capullo, and Mateguafa Attic. Our unrisked NAV for the company based on the Tapir block is ~£0.80/sh.
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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