Arrow Exploration Corp. (AIM: AXL): Tripling 2P reserves at Tapir
• The 2P reserves at Carrizales Norte (net to Arrow) have been estimated at 3.92 mmbbl with an 3P upside case of 6.62 mmbbl (1.82 mmbbl of 1P reserves).• The 2P reserves at Carrizales Norte are ~2x larger than at Rio Crave Este with overall net 2P reserves at Tapir increased to ~6 mmbbl.
• The 2P reserves of Carrizales Norte are also 2x the pre drill estimate (1.8 mmbbl), which is in line with our estimate (4 mmbbl).
• The Ubaque reservoir alone is estimated to hold ~3 mmbbl of 2P reserves (out of 3.92 mmbbl total 2P reserves at Carrizales Norte).
• The main differences between the 2P and 3P reserve estimates reflect (1) different assumptions for the amount of oil initially in place and (2) a second 5 year extension to the licence duration (to 2038). The recovery factor assumptions in the 2P and 3P cases are very similar.
• As we update our valuation with the new 2P reserves (which are very close to our estimates), we re-iterate our target price of £0.55 per share (~our ReNAV). This excludes any contribution from exploration success in 2024.
Reflections on NPV
The Carrizales Norte 2P reserves have an after tax NPV of US$66.6 mm with an upside case of US$113.7 mm for the 3P case based on US$77.5-79.00/bbl for Brent over 2024-2026. The NPV calculations reflect a development plan based on vertical wells. The company plans to develop the field with horizontal wells, which should have a positive impact on the NPVs. The after tax values have also been calculated without taking into account the tax shelter created by capital spending on projects that do not have reserve values associated with them, such as the Tapir 3D seismic project and annual G&A. Spending on these projects will provide tax shelter and result in a reduction of tax for future.
Valuation and cashflow
Our ReNAV is unchanged at £0.55 per share. Assuming US$85/bbl for Brent until YE24, we forecast that the company will hold~US$12 mm in net cash at YE23, >US$50 mm at YE24 and US$80 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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