Arrow Exploration Corp. (AIM: AXL): On track for a very busy 2023
• Arrow is about to embark on a 10 well drilling programme that could add between 2,800 and 4,800 boe/d net production (before decline and in a success case) to the existing constrained production base of ~1,800 boe/d.• Over January, production was ~1,800 boe/d with short term outages due to weather at Ombu and Pepper. This compares with production rate of 1,900-2,000 in November which included an initial high contribution at East Pepper (that has since declined, as expected).
• The drilling programme will commence with the RCE-3 well within the next five days. This will be followed by RCE-4 and RCE-5. Each well should take ~22 days to drill and bring into production. Each of these wells is expected to add 300-500 bbl/d production net to Arrow.
• Arrow will then drill three wells at Carrizales Norte. Each well could add 300-500 bbl/d net to Arrow. There is potential upside to these rates given that the Carrizales Norte wells are expected to deliver higher rates than the RCE wells.
• Arrow is planning to drill two additional wells into the Gacheta Sandstone reservoir in the fault bounded RCE structure in 4Q23. RCE 2 tested rates exceeding 350 bbl/d net to Arrow from the Gacheta Sandstone. Dedicated Gacheta wells would likely spud in Q4 2023 after the three Carrizales Norte wells have been completed.
• Two wells will be drilled at Oso Pardo, each expected to initially add 300-500 bbl/d net to Arrow.
• We re-iterate our target price of £0.45 per share (~our ReNAV).
Balance sheet and capex
At YE22, Arrow held ~US$13 mm, in line with previous indications. The FY23 capex programme has been set at US$32 mm (in line). We forecast ~3.4 mboe/d production in 2023 with 4Q23 production of 4.3 mboe/d. We forecast operating cash flow of >US$35 mm in 2023.
Valuation and cashflow
We forecast that the company will hold ~US$25 mm in net cash at YE23 and ~US$60 mm at YE24. This represents ~90% of the current share price. Our ReNAV of £0.44 per share represents >140% 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.
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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