Arrow Exploration Corp. (AIM: AXL): Positive drilling results at RCE-3
• RCE-3, the first well of the FY23 10 well drilling programme, has encountered 58 feet of net oil pay across seven hydrocarbon bearing intervals.• This includes 19 feet in the Carbonera C7 (three intervals) and 39 feet in the Lower Gacheta (four intervals). The initial focus is expected to be the C7 zone (as it was for the RCE-2 and RCS-1 wells) that is expected to be put on stream in early March. It could add 300 500 bbl/d net production to Arrow.
• The total 58 feet of net pay compares with 55 feet in the RCS-1 well and 80 feet in the RCE-2 well. Importantly, ~500 bbl/d net production comes from 16 feet in the C7 at RCE-2 while the C7A and C7B produces ~350 bbl/d (net) at RCS-1 from a total 38 feet of net pay. The main sand in the C7A and C7B at RCCS-1 was not perforated.
• The results of the RCE-3 well are also expected to add 2P reserves as a new zone was discovered in the Gacheta. The well also confirmed the continuity of the sands.
• The FY23 drilling programme could add between 2,800 and 4,800 boe/d net production (before decline and in a success case) to the existing production base of ~1,800 boe/d (excluding the short term negative impact of the blockades at Ombu).
• The RCE-4 well will spud in March and will be followed by RCE-5. Arrow will then drill three wells at Carrizales Norte.
• We re-iterate our target price of £0.45 per share (~our ReNAV).
Temporary blockade at minor field in Colombia
The Capella field (Ombu) has been shut in since 7 February. Protesters are looking for paved roads (a government responsibility) and more jobs for the community. As illustrated by the blockade that affected Frontera Energy’s production, this is expected to be resolved quickly. Arrow’s share of the Capella field production is approximately 280 bbl/d which is above what we anticipated (160 bbl/d) as a steam flood programme has been implemented to boost production. As a result of the higher the expected production , we have left our production forecast for the field during 1Q23 unchanged at 160 bbl/d, with the strong production offsetting the shut down.
Valuation and cashflow
We continue to forecast that the company will hold ~US$25 mm in net cash at YE23 and ~US$60 mm at YE24. This represents ~80% of the current share price. Our ReNAV of £0.45 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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