Arrow Exploration Corp. (AIM: AXL): Reaching 2,635 bbl/d without Capella. High cash position
• The RCE-5 well flowed 680 bbl/d (340 bbl/d net to Arrow) of oil over the last 24 hours. The well is heavily choked (17/168) and is still unloading completion fluid (12% water cut). As witnessed at the other RCE wells, production is expected to increase as the well stabilizes.• Initial production at RCE-5 is above expectations and the well could add reserves.
• The RCE-4 and RCE-3 wells are now producing respectively 944 bbl/d and 852 bbl/d (487 bbl/d and 426 bbl/d net). Production at each well has increased since the last announcement in late March (RCE-4: 728 bbl/d, RCE-3: 822 bbl/d).
• Despite Capella continuing to be shut in, overall corporate production is now 2,635 bbl/d. Adjusting for Capella would have led to total production of 2,935 bbl/d, broadly in line with the company’s target of 3,000 bbl/d by the end of April.
• The rig is now being moved to Carrizales Norte where up to three wells will be drilled.
• Even excluding Capella and ahead of starting to drill the CN-1 well, the current production of 2,635 bbl/d is already very close to our forecast for 2Q23 (2,875 bbl/d) that includes contribution from the first Carrizales Norte well. With seven additional wells to be drilled by YE23 that could add a further 1,900 bbl/d to 3,300 bbl/d net production by YE23 (before decline and in a success case), we see potential upside to our forecasts.
• We re-iterate our target price of £0.45 per share (~our ReNAV).
High net cash
As at 1 April, Arrow’s cash balance was US$12.1 mm. This is ahead of our forecast of US$10.5 mm.
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 under our Brent price assumptions. This represents ~100% of the current market cap. At US$85/bbl for Brent from 2Q23 to YE24, we forecast YE23 net cash of US$19 mm increasing to US$55 mm at YE24 (85% of the current market cap). Our ReNAV of £0.45 per share represents >180% 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.
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