Arrow Exploration Corp. (AIM: AXL): Successful appraisal drilling expected to boost reserves
• The CN-5 well encountered 45 feet of Ubaque pay to base of sand with 25% porosity and 5 Darcy permeability. The well targeted the Carrizales Noroeste prospect, west of the Carrizales Norte known pool boundary.• The boundary fault was not encountered in the Ubaque, which suggests that the Ubaque at Carrizales Norte and Carrizales Noroeste consists of a continuous larger pool that extends to the West.
• CN-5 confirms that there is a stratigraphic component to the trapping mechanism in the Ubaque which implies greater recoverable reserves. Arrow plans to complete the well for production over the coming weeks.
• The CN-5 well was very important as Carrizales Noroeste was estimated to hold 6.7 mmbbl gross prospective resources (3.35 mmbbl net to Arrow) with an unrisked NAV of £0.16 per share that will be partially be derisked by the results of the well. In addition, because the Ubaque is continuous across Carrizales Norte and Carrizales Noroeste, the number of wells required to develop the entire area could be lower.
• The CN-4 well encountered 29 feet of true vertical depth net oil pay in the Ubaque with 26% porosity and 5 Darcy permeability. In a 12 hour of production period, the water cut averaged 7%, and the well produced 758 bbl/d of 13 deg API oil (379 bbl/d net). The well has been put on production at a rate of 478 bbl/d (239 bbl/d net). This is in line with our assumptions of individual well production of 500 bbl/d (250 bbl/d net).
• The CN-4 well was targeting an area containing part of the 3P reserves and a portion of the associated reserves could be converted from the 3P to the 2P category.
• Arrow held US$13 mm in cash as at F15 February. This above our expectations.
• As we increase our chance of development of Carrizales Noroeste from 25% to 50%, we are increasing our target price from £0.55/sh to £0.60/sh.
Next steps
The CN-6 well will spud once CN-5 is on production and will target the C7 Carbonara in a structurally high location. Arrow expects the first CN horizontal well will spud in 2Q24. Other important wells will target Matteguafa Attic (£0.11/sh unrisked) and Baquiano (£0.04/sh unrisked).
Valuation and cashflow
We have increased our ReNAV from £0.55/sh to £0.59/sh. Booking 3.35 mmbbl net reserves at Carrizales Noroeste could add a further £0.08/sh. Assuming US$85/bbl for Brent until YE25, we forecast that the company will hold >US$60 mm at YE25.
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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