RNS Number : 9777U
Arrow Exploration Corp.
29 November 2023
 

NOT FOR RELEASE, DISTRIBUTION, PUBLICATION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION.

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ARROW ANNOUNCES Q3 2023 INTERIM RESULTS

            

CALGARY, Nov 29, 2023 - Arrow Exploration Corp. (AIM: AXL; TSXV: AXL) ("Arrow" or the "Company"), the high-growth operator with a portfolio of assets across key Colombian hydrocarbon basins, announces the filing of its Interim Condensed (unaudited) Consolidated Financial Statements and Management's Discussion and Analysis ("MD&A") for the three and nine months ended September 30, 2023 which are available on SEDAR (www.sedar.com) and will also  be available shortly on Arrow's website at www.arrowexploration.ca.

 

Q3 2023 Highlights:

·    Recorded $13.9 million of total oil and natural gas revenue, net of royalties, almost double compared to the same period in 2022 (Q3 2022: $7.6 million).

·    Net income of $7.1 million and adjusted EBITDA(1) of $9.8 million, more than double compared to 2022 (Q3 2022: $2 million and $4.6 million, respectively).

·    Average corporate production up 68% to 2,518 boe/d (Q3 2022: 1,503 boe/d).

·    Realized corporate oil operating netbacks(1) of $52.67/bbl.   Q3 operating costs were slightly higher than Q2 due to higher start-up costs at the Carrizales Norte discovery.

·    Cash position of $12.8 million at the end of Q3 2023.

·    Generated positive operating cashflows of $6.5 million (Q3 2022: $5.2 million).

·    Successfully drilled the Carrizales Norte-2 (CN-2) and Carrizales Norte-3 (CN-3) wells at the Tapir block, resulting in additional production and reserves additions.

·    Significant increase in reserves from the Carrizales Norte discovery (CN), adding more than 3.92 MMbbls of 2P reserves.

(1)Non-IFRS measures - see "Non-IFRS Measures" section

 

Post Period End Highlights:

·    The Rio Cravo Este-6 well (RCE-6) has been drilled and is currently producing from the Carbonera C7 formation.

·    The Oso Pardo-3 well (OP-3) has been drilled and is currently undergoing production testing.

·    RCE-7 has reached target depth and is currently being tested.  Once on production, the drilling rig will move to RCE-8 which is expected to be on production before year end.

·    Oso Pardo-4 (OP-4) has been spud and is currently drilling.  It is expected to reach target depth this week.

·    In October and November 2023, the Company issued 40,338,307 common shares related to the exercise of warrants, raising cash proceeds of $4.5 million. At November 1, the Company held $18.5 million cash as a result of the warrant exercise and operating cash flow.  The Company has no further warrants outstanding.

·    The Supreme Court of Colombia ruled that royalties are tax deductible. Courts are considering other possible changes to tax regulations which could have positive outcomes for the oil and gas industry.

 

Outlook:

·    Arrow anticipates drilling two additional wells at Rio Cravo Este (RCE)  by year-end.

·    Arrow plans to drill another development well on the Oso Pardo Block in the Middle Magdalena Basin.

·    The preliminary development plan at CN consists of 21 wells, the majority focusing on the Ubaque formation, to fully exploit the thick reservoir. The reservoir pay zone is consistently thick (100 feet) across the fault bounded structure. C7 and Gacheta targeted wells will also be part of the overall development plan at CN.

·    In 2024 the Company plans to have a $40 million capital program including 15 wells.  The majority of drilling will be focused on the Carrizales Norte discovery and will include three horizontal wells.  Low risk step-out and exploration wells are also planned at the Mateguafa Attic and Baquiano prospects.  The 2024 capital program will be self-funded by a combination of cash flow from operations and cash reserves.

 

Marshall Abbott, CEO of Arrow Exploration Corp., commented:

 

"Arrow continues to grow, recording its strongest quarter to date. The 2023 drilling program, including the CN discovery,  added significant production and reserves to the Company and established a new core area. Additional low risk prospects have been identified using our recently acquired 3D seismic data. The Company plans to increase operational tempo in aggressively developing the Carrizale, Ubaque and C7 discoveries while simultaneously drilling low risk exploration wells along proven fault fairways. The Board remains confident in the Arrow team to execute on an aggressive exploitation campaign pursuing our opportunity rich portfolio and getting shareholder value to the next level."

 

FINANCIAL AND OPERATING HIGHLIGHTS

 

 

(in United States dollars, except as otherwise noted)

Three months ended September 30, 2023

Nine months ended September 30, 2023

Three months ended September 30, 2022

Total natural gas and crude oil revenues, net of royalties

 13,990,353

31,263,494

7,614,336

Funds flow from operations (1)

8,690,907

16,209,551

4,606,124

Funds flow from operations (1) per share -

 

 


    Basic($)

 0.04

0.07

0.02

    Diluted ($)

0.03

0.05

0.00

Net income

7,153,120

9,385,440

2,041,955

Net income per share -

 

 


   Basic ($)

0.03

0.04

0.01

   Diluted ($)

0.02

0.03

0.01

Adjusted EBITDA (1)

9,826,997

20,024,747

4,664,345

Weighted average shares outstanding -

 

 


   Basic

237,919,872

230,537,774

215,967,143

   Diluted

295,875,232

295,092,336

288,235,624

Common shares end of period

245,526,041

245,526,041

215,967,143

Capital expenditures

5,471,561

16,613,512

4,836,860

Cash and cash equivalents

12,891,190

12,891,190

11,376,702

Current Assets

18,652,504

18,652,504

16,870,695

Current liabilities

13,321,524

13,321,524

9,478,383

Adjusted working capital(1)

10,822,475

10,822,475

7,392,312

Long-term portion of restricted cash(2)

637,793

637,793

598,192

Total assets

62,755,250

62,755,250

46,979,258





Operating




Natural gas and crude oil production, before royalties




Natural gas (Mcf/d)

2,012

2,261

1,917

Natural gas liquids (bbl/d)

4

4

4

Crude oil (bbl/d)

2,178

1,730

1,179

Total (boe/d)

2,518

2,110

1,503

 

 

 


Operating netbacks ($/boe) (1)

 

 


Natural gas ($/Mcf)

$0.18

($0.11)

$0.88

Crude oil ($/bbl)

$60.62

$57.64

$73.69

Total ($/boe)

$52.67

$47.15

$56.75

(1)Non-IFRS measures - see "Non-IFRS Measures" section

(2)Long term restricted cash not included in working capital

Discussion of Operating Results

The Company increased its production from new wells at CN which allowed the Company to continue to improve its operating results and EBITDA.  There has been a decrease in the Company's natural gas production in Canada due to natural declines.

Average Production by Property

Average Production Boe/d

Q3

2023

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

Oso Pardo

93

130

138

115

104

112

Ombu (Capella)

-

-

80

238

215

97

Rio Cravo Este (Tapir)

1,443

1,592

1,004

832

860

366

Carrizales Norte (Tapir)

642

57

-

-

-

-

Total Colombia

2,178

1,779

1,222

1,185

1,179

575

Fir, Alberta

81

77

74

79

82

86

Pepper, Alberta

259

313

340

472

242

319

TOTAL (Boe/d)

2,518

2,169

1,635

1,736

1,503

980

 

For the three months ended September 30, 2023, the Company's average production was 2,518 boe/d, which consisted of crude oil production in Colombia of 2,178 bbl/d, natural gas production of 2,012 Mcf/d and minor amounts of natural gas liquids from the Company's Canadian properties. The Company's Q3 2023 total production was 68% higher than its total production for the same period in 2022.

 

Discussion of Financial Results

During Q3 2023 the Company continued to realize good oil prices, offset by lower gas prices, as summarized below:

 

 


Three months ended

September 30

             2023

                 2022

               Change

Benchmark Prices

 

 

 

AECO (C$/Mcf)

$2.64

$3.83

(31%)

Brent ($/bbl)

$92.59

$97.81

(5%)

West Texas Intermediate ($/bbl)

$77.35

$91.65

(16%)

Realized Prices

 



Natural gas, net of transportation ($/Mcf)

$1.95

$3.16

(38%)

Natural gas liquids ($/bbl)

$67.10

$82.69

(19%)

Crude oil, net of transportation ($/bbl)

$77.63

$90.90

(15%)

Corporate average, net of transport ($/boe)(1)

$68.80

$73.02

(6%)

   (1)Non-IFRS measure

 

Operating Netbacks

The Company also continued to realize strong oil operating netbacks, as summarized below:

 

Three months ended

September 30

Nine months ended

September 30

 

           2023

          2022

           2023

          2022

Natural Gas ($/Mcf)

 




Revenue, net of transportation expense

$1.95

$3.16

$2.01

$4.05

Royalties

($0.05)

($0.35)

($0.02)

($0.64)

Operating expenses

($1.72)

($1.93)

($2.10)

($2.24)

Natural Gas operating netback(1)

$0.18

$0.88

($0.11)

$1.18

Crude oil ($/bbl)

 




Revenue, net of transportation expense

$77.63

$90.90

$73.16

$91.00

Royalties

($9.45)

($10.97)

($9.02)

($10.61)

Operating expenses

($7.56)

($6.24)

($6.50)

($10.09)

Crude Oil operating netback(1)

$60.62

$73.69

$57.64

$70.30

Corporate ($/boe)

 




Revenue, net of transportation expense

$68.80

$73.02

$62.14

$61.75

Royalties

($8.21)

(8.72)

($7.40)

($7.59)

Operating expenses

($7.92)

(7.55)

($7.59)

($11.50)

Corporate Operating netback(1)

$52.67

$56.75

$47.15

$42.66

 (1)Non-IFRS measure

The operating netbacks of the Company remained healthy during 2023 due to several factors, principally the increase in production from its Colombian assets, even factoring in decreased crude oil prices.  This was offset by decreases in natural gas prices and operating expenses for natural gas.

During the first nine months of 2023, the Company incurred in $16 million of capital expenditures, primarily in connection with the drilling of the three RCE and CN wells, civil works completed in Rio Cravo and shooting 125 km2 of 3D seismic in the Tapir block to highlight existing leads and prospects for drilling. This acceleration in operational tempo is expected to continue during the remainder of 2023 and into 2024, funded by cash on hand and cashflow.

 

For further Information, contact:

Arrow Exploration


Marshall Abbott, CEO

+1 403 651 5995

Joe McFarlane, CFO

+1 403 818 1033



Brookline Public Relations, Inc.

Shauna MacDonald                                                   

 

+1 403 538 5645

 


Canaccord Genuity (Nominated Advisor and Joint Broker)


Henry Fitzgerald-O'Connor

James Asensio

Gordon Hamilton                         

+44 (0)20 7523 8000

 

Auctus Advisors (Joint Broker)

 

Jonathan Wright

+44 (0)7711 627449

Rupert Holdsworth Hunt


 

Camarco (Financial PR)


Andrew Turner

+44 (0)20 3781 8331

Rebecca Waterworth


Kirsty Duff

 


About Arrow Exploration Corp.

Arrow Exploration Corp. (operating in Colombia via a branch of its 100% owned subsidiary Carrao Energy S.A.) is a publicly traded company with a portfolio of premier Colombian oil assets that are underexploited, under-explored and offer high potential growth. The Company's business plan is to expand oil production from some of Colombia's most active basins, including the Llanos, Middle Magdalena Valley (MMV) and Putumayo Basin. The asset base is predominantly operated with high working interests, and the Brent-linked light oil pricing exposure combines with low royalties to yield attractive potential operating margins. By way of a private commercial contract with the recognized interest holder before Ecopetrol S.A., Arrow is entitled to receive 50% of the production from the Tapir block. The formal assignment to the Company is subject to Ecopetrol's consent.  Arrow's seasoned team is led by a hands-on executive team supported by an experienced board. Arrow is listed on the AIM market of the London Stock Exchange and on TSX Venture Exchange under the symbol "AXL".

 

Forward-looking Statements

This news release contains certain statements or disclosures relating to Arrow that are based on the expectations of its management as well as assumptions made by and information currently available to Arrow which may constitute forward-looking statements or information ("forward-looking statements") under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that Arrow anticipates or expects may, could or will occur in the future (in whole or in part) should be considered forward-looking statements. In some cases, forward-looking statements can be identified by the use of the words "continue", "expect", "opportunity", "plan", "potential" and "will" and similar expressions. The forward-looking statements contained in this news release reflect several material factors and expectations and assumptions of Arrow, including without limitation, Arrow's evaluation of the impacts of COVID-19, the potential of Arrow's Colombian and/or Canadian assets (or any of them individually), the prices of oil and/or natural gas, and Arrow's business plan to expand oil and gas production and achieve attractive potential operating margins. Arrow believes the expectations and assumptions reflected in the forward-looking statements are reasonable at this time, but no assurance can be given that these factors, expectations, and assumptions will prove to be correct.

The forward-looking statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The forward-looking statements contained in this news release are made as of the date hereof and the Company undertakes no obligations to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Glossary

Bbl/d or bop/d: Barrels per day

$/Bbl: Dollars per barrel

Mcf/d: Thousand cubic feet of gas per day

Mmcf/d: Million cubic feet of gas per day

$/Mcf: Dollars per thousand cubic feet of gas

Mboe: Thousands of barrels of oil equivalent

Boe/d: Barrels of oil equivalent per day

$/Boe: Dollars per barrel of oil equivalent

MMbbls: Million of barrels

 

BOE's may be misleading particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bblis based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Non?IFRS Measures

The Company uses non-IFRS measures to evaluate its performance which are measures not defined in IFRS. Working capital, funds flow from operations, realized prices, operating netback, adjusted EBITDA, and net debt as presented do not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. The Company considers these measures as key measures to demonstrate its ability to generate the cash flow necessary to fund future growth through capital investment, and to repay its debt, as the case may be. These measures should not be considered as an alternative to, or more meaningful than net income (loss) or cash provided by operating activities or net loss and comprehensive loss as determined in accordance with IFRS as an indicator of the Company's performance. The Company's determination of these measures may not be comparable to that reported by other companies.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arrow Exploration Corp.

 

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

IN UNITED STATES DOLLARS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

                                               

 



 

Notice of No Auditor Review of the Interim Condensed Consolidated Financial Statements

as at and for the three and nine months ended September 30, 2023

 

 

Under National Instrument 51-102, Part 4, subsection 4.3 (3)(a), if an auditor has not performed a review of the interim condensed consolidated financial statements, they must be accompanied by a notice indicating that an auditor has not reviewed the financial statements.

 

The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared by and are the responsibility of the Company's management.

 

The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity's auditor.


Arrow Exploration Corp.

Interim Condensed Consolidated Statements of Financial Position

In United States Dollars

(Unaudited)

 

As at

Notes

 

September 30, 2023


December 31, 2022

ASSETS

 

 

 

 


Current assets

 

 

 

 


Cash


$

12,891,190

$

13,060,968

Restricted cash and deposits

3

 

218,178


210,654

Trade and other receivables

4

 

2,797,577


2,568,290

Taxes receivable

5

 

1,735,143


801,177

Deposits and prepaid expenses

 

 

124,899


157,459

Inventory

 

 

885,517


705,677


 

 

18,652,504


17,504,225

Non-current assets

 

 

 



Deferred income taxes

 

 

1,933,639


872,286

Restricted cash and deposits

3

 

637,793


608,127

Exploration and evaluation

6

 

3,182,010


-

Property and equipment

7

 

38,349,304


34,205,610

Total Assets


$

62,755,250

$

53,190,248

 

 

 

 



LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 



Current Liabilities

 

 

 



Accounts payable and accrued liabilities


$

6,549,995

$

5,850,823

Lease obligation

9

 

103,718


41,434

Promissory note

8

 

-


1,899,294

Derivative liability

11

 

5,491,495


9,540,423

Income taxes

 

 

1,176,316


1,488,916

 

 

 

13,321,524


18,820,890

Non-current liabilities

 

 

 



Lease obligations

9

 

219,611


22,317

Other liabilities

 

 

588,393


80,484

Deferred income taxes

 

 

2,198,419


5,066,684

Decommissioning liability

10

 

3,759,347


3,303,301

Total liabilities

 

 

20,087,294


27,293,676

 

 

 

 



Shareholders' equity

 

 

 



Share capital

12

 

64,833,800

 

57,810,735

Contributed surplus

 

 

2,010,851


1,570,491

Deficit

 

 

(23,453,842)


(32,839,282)

Accumulated other comprehensive loss

 

 

(722,853)


(645,372)

Total shareholders' equity

 

 

42,667,956

 

25,896,572

Total liabilities and shareholders' equity


$

62,755,250

$

53,190,248

Commitments and contingencies (Note 13)

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

On behalf of the Board:

                                                               

  signed "Gage Jull"           Director                                                        signed "Ian Langley"            Director

Gage Jull                                                                                                 Ian Langley

 

 

 

Arrow Exploration Corp.

Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

In United States Dollars

(Unaudited)

 

 

 

 

For the three months ended

September 30

 

For the nine months ended

September 30

 

Notes

2023


2022

 

2023


2022


 

 

 


 

 



Revenue

 

 

 


 

 



Oil and natural gas

 

$        15,884,660

 

$        8,647,846

 

$       35,487,485


$   18,290,284

Royalties

 

(1,894,307)

 

(1,033,510)

 

(4,223,991)


(2,248,382)


 

13,990,353

 

7,614,336

 

31,263,494


16,041,902


 

 

 


 

 



Expenses

 

 

 


 

 



Operating

 

1,829,833

 

894,160

 

4,338,913


3,407,076

Administrative

 

1,924,089

 

2,322,291

 

6,790,964


4,880,605

Environmental

 

356,857

 

-

 

356,857


-

Share based payments

12

149,102

 

110,876

 

440,360


214,712

Financing costs:

 

 

 


 

 



Accretion

10

34,343

 

54,272

 

95,638


144,247

Interest

 

9,461

 

123,394

 

131,697


367,913

Other

 

89,281

 

41,075

 

238,135


285,104

Derivative loss (gain)

11

(1,191,385)

 

(543,659)

 

(109,613)


4,968,934

Foreign exchange gain

 

(28,003)

 

(234,068)

 

(109,959)


(229,526)

Depletion and depreciation

 

3,972,850

 

1,809,340

 

10,067,403


3,649,932

    Other expense (income)

 

(99,595)

 

(32,393)

 

(318,203)


(52,595)

    Transaction costs

 

180,175

 

-

 

180,175


-


 

7,227,008

 

4,545,288

 

22,102,367


17,636,402

 

 

 

 


 

 



Income (loss) before taxes

 

6,763,345

 

3,069,048

 

9,161,127


(1,594,500)

 

 

 

 


 

 



Income taxes (recovery)

 

 

 


 

 



Current

 

1,317,437

 

1,027,093

 

3,705,305


1,027,093

Deferred

 

(1,707,212)

 

-

 

(3,929,618)


-

 

 

(389,775)

 

1,027,093

 

(224,313)


1,027,093

 

 

 

 


 

 



Net income (loss) for the period

 

7,153,120

 

2,041,955

 

9,385,440


(2,621,593)


 

 

 


 

 



Other comprehensive income (loss)

 

 

 


 

 



Foreign exchange

 

34,103

 

173,067

 

(77,481)


253,645


 

 

 


 

 



Net income (loss) and comprehensive income (loss) for the period

 

 

$   7,187,223

 

 

$   2,215,022

 

 

$      9,307,959


 

$  (2,367,948)


 

 

 


 

 



Net income (loss) per share

 

 

 


 

 



- basic

 

$          0.03

 

$          0.01

 

$          0.04


$          (0.01)

- diluted

 

$          0.02

 

$          0.01

 

$          0.03


$          (0.01)


 

 

 


 

 




 

 

 


 

 



Weighted average shares outstanding

 

 

 


 

 



- basic

 

237,919,872

 

215,967,143

 

230,537,774


214,687,656

- diluted

 

295,875,232

 

288,235,624

 

295,092,336


276,272,070


 

 

 


 

 




 

 

 


 

 


 


 

 

 


 

 


 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.



 

Arrow Exploration Corp.

Interim Condensed Statements of Changes in Shareholders' Equity

In United States Dollars

(Unaudited)

 

 

 

 

 

 

 

 

Share Capital

 

 

 

 

 

Contributed Surplus

 

 

 

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 Deficit

 

 

 

 

 

 

Total Equity

 












Balance January 1, 2023

$

57,810,735

$

1,570,491

$

(645,372)

$

(32,839,282)

$

25,896,572












Issuances of common shares, net


7,023,065


-


-


-


7,023,065












Net income for the period


-


-


-


9,385,440


9,385,440












Othe comprehensive loss for the period


 

-


 

-


 

(77,481)


 

-


 

(77,481)












Share-based compensation


-


440,360


-


-


440,360












Balance September 30, 2023

$

64,833,800

$

2,010,851

$

(722,853)

$

(23,453,842)

$

42,667,956












 

 

 

 

 

 

 

 

 

Share Capital

 

 

 

 

 

Contributed Surplus

 

 

 

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 Deficit

 

 

 

 

 

 

Total Equity

 












Balance January 1, 2022

$

56,698,237

$

1,249,418

$

(803,736)

$

(33,185,806)

$

23,958,113












Subscription of common shares, net


603,147


-


-


-


603,147












Options settled in cash


-


(6,621)


-


-


(6,621)












Net loss for the period


-


-


-


(2,621,593)


(2,621,593)












Other comprehensive income for the period


 

-


 

-


 

253,645


 

-


 

253,645












Share based payments


-


214,712


-


-


214,712












Balance September 30, 2022

$

57,301,384

$

1,457,509

$

(550,091)

$

(35,807,399)

$

22,401,403












 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

 

 

 

 



Arrow Exploration Corp.

Interim Condensed Consolidated Statements of Cash Flows

In United States Dollars

(Unaudited)

 


For nine months ended September 30,

2023

2022

 

Cash flows provided by operating activities

 

 

 

Net income (loss)

$   9,385,440

$  (2,621,593)

 

Items not involving cash:

 


 

 Share based payment

440,360

214,712

 

 Deferred income tax

(3,929,618)

-

 

 Depletion and depreciation

10,067,403

3,649,932

 

 Interest on leases

12,237

7,932

 

 Interest on promissory note, net of forgiveness

119,460

359,981

 

 Accretion

95,638

144,247

 

 Foreign exchange gain

(224,264)

(133,342)

 

 (Gain) loss on derivative liability

(109,613)

4,968,934

 

 Environmental provision

356,857

-

 

Gain in long-term debt forgiveness

-

(7,798)

 

Changes in non?cash working capital balances:

 


 

Restricted cash

(37,190)

134,360

 

Trade and other receivables

(229,288)

(3,448,281)

 

Taxes receivable

(933,966)

(361,267)

 

Deposits and prepaid expenses

32,561

160,428

 

Inventory

(179,840)

(458,575)

 

Accounts payable and accrued liabilities

(654,363)

1,465,021

 

Income tax payable

(312,600)

1,027,093

 

 Settlement of decommissioning obligations

(4,349)

(77,180)

 

Cash provided by operating activities

13,894,865

5,024,604

 


 


 

Cash flows used in investing activities

 


 

Additions to exploration and evaluation assets

(3,182,010)

-

 

Additions to property and equipment

(13,431,502)

(5,562,525)

 

Changes in non-cash working capital

1,538,033

691,963

 

Cash flows used in investing activities

(15,075,479)

(4,870,562)

 


 


 

Cash flows provided by financing activities

 


 

Common shares issued

3,025,568

280,072

 

Payment of promissory note, principal and interests

(2,018,577)

(23,394)

 

Lease payments

(54,813)

(29,774)

 

Cash flows provided by financing activities

952,178

226,904

 


 


 

Effect of changes in the exchange rate on cash

58,658

117,248

 

(Decrease) increase in cash

(169,778)

498,194

 


 


 

Cash, beginning of period

13,060,968

10,878,508

 


 


 

Cash, end of period

12,891,190

11,376,702

 

 

 


 

Supplemental information

 


 

Interest paid

 $        415,026

  $                    -

 

Taxes paid

 $     1,119,208

  $                    -

 

 

 

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.


 

1.    Corporate Information

 

 

Arrow Exploration Corp. ("Arrow" or "the Company") is a public junior oil and gas company engaged in the acquisition, exploration and development of oil and gas properties in Colombia and in Western Canada. The Company's shares trade on the TSX Venture Exchange and the AIM Market of the London Stock Exchange plc under the symbol AXL. The head office of Arrow is located at 203, 2303 - 4th Street SW, Calgary, Alberta, Canada, T2S 2S7 and the registered office is located at 600, 815 - 8th Avenue SW, Calgary, Alberta, Canada, T2P 3P2.

 

 

2.    Basis of Presentation

 

 

Statement of compliance

These interim condensed consolidated financial statements (the "Financial Statements") have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting. These Financial Statements were authorized for issue by the board of directors of the Company on November 27, 2023. They do not contain all disclosures required by International Financial Reporting Standards ("IFRS") for annual financial statements and, accordingly, should be read in conjunction with the audited consolidated financial statements as at December 31, 2022.

 

These Financial Statements have been prepared on the historical cost basis, except for financial assets and liabilities recorded in accordance with IFRS 9. The Financial Statements have been prepared using the same accounting policies and methods as the consolidated financial statements for the year ended December 31, 2022, except for the adoption of new accounting standards effective January 1, 2023. In preparing these condensed consolidated financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements for the year ended December 31, 2022.

 

Adoption of New Accounting Standards

The Company adopted amendments published by IASB to IAS 8 Changes in Estimates vs Changes in Accounting Policies and to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements. These amendments were adopted by the Company from January 1, 2023 but they did not have a material impact on the Consolidated Financial Statements.

 

 

3.    Restricted Cash and deposits

 

 


 

September 30,

2023


December 31, 2022


 

 



Colombia (i)

$

255,986

$

248,462

Canada (ii)

 

599,985


570,319

Sub-total

 

855,971


818,781

  Long-term portion

 

(637,793)


(608,127)

  Current portion of restricted cash and deposits

$

218,178

$

210,654

 

(i)   Balance comprised of deposits held as collateral to guarantee abandonment expenditures in the Tapir and Santa Isabel blocks.

(ii)  Pursuant to Alberta government regulations, the Company was required to keep a $325,399 (CAD $439,966; 2022: $424,398) deposit for the Company's liability rating management ("LMR"), which is held by a bank with interest paid to the Company. The remaining $337,818 pertain to commercial deposits with customers, lease and other deposits held in Canada.

 

 

4.    Trade and other receivables

 

 


 

September 30,

2023


December 31, 2022


 

 



Trade receivables, net of advances

$

2,402,045

$

847,432

Other accounts receivable

 

395,532


1,720,858


$

2,797,577

$

2,568,290

 

As at December 31, 2022, other accounts receivable included a $1,070,825 receivable from a partner in the Tapir block and corresponds to reimbursable capital expenditures incurred on the Tapir block, which have been subsequently recovered.

 

 

5.    Taxes receivable

 

 


 

September 30,

2023


December 31, 2022


 

 



Value-added tax (VAT) credits recoverable

$

175,217

$

-

Income tax withholdings and advances, net

 

1,559,926


801,177


$

1,735,143

$

801,177

 

The VAT recoverable balance pertains to non-compensated value-added tax credits originated in Colombia as operational and capital expenditures are incurred. The Company is entitled to compensate or claim for the reimbursement of these VAT credits.

 

 

6.    Exploration and Evaluation

 

 


 

September 30,

2023


December 31, 2022


 

 



Balance, beginning of the period

$

-

$

6,964,506

Additions, net

 

3,182,010


-

Reclassification to Property and Equipment

 

-


(6,964,506)

Balance, end of the period

$

3,182,010

$

-

 

During 2023, the Company incurred in exploration and evaluation assets related to the acquisition and interpretation  of 135 square kilometers of 3D seismic data in the Tapir block to confirm or identify leads to additional prospective areas within such block.

 

 

 

 

 

 

 

 

 

 

7.    Property and Equipment

 

 

 

Cost

Oil and Gas Properties

Right of Use and Other Assets

 

Total

Balance, December 31, 2021

$ 32,160,917

$     183,485

$     32,344,402

Additions

7,663,062

50,671

7,713,733

Transfers from exploration and evaluation assets

6,964,506

-

6,964,506

Decommissioning adjustment

756,541

-

756,541

Balance, December 31, 2022

$ 47,545,026

$     234,156

$     47,779,182

Additions

13,446,292

310,061

13,756,353

Decommissioning adjustment

442,757

-

442,757

Balance, September 30, 2023

$ 61,434,075

$     544,217    

$     61,978,292

 

Accumulated depletion and depreciation and impairment

 

 

 

 

Balance, December 31, 2021

$ 16,692,145    

$   114,965

$     16,807,110

 

Depletion and depreciation

5,482,218

46,271

5,528,489

 

Reversals net of impairment loss

(9,020,654)

-

(9,020,654)

 

Balance, December 31, 2022

$ 13,153,709

$   161,236  

$     13,314,945

 

Depletion and depreciation

10,017,547

49,856

10,067,403

 

Balance, September 30, 2023

$ 23,171,256

$   211,092 

$     23,382,348

 

 

Foreign exchange




 

Balance December 31, 2021

$       318,617

     $   (3,457)     

$           315,160

Effects of movements in foreign

       exchange rates

 

(568,525)

 

(5,262)

 

(573,787)

Balance December 31, 2022

$    (249,908)     

     $   (8,719)     

$        (258,627)

Effects of movements in foreign

       exchange rates

 

12,771

 

(784)

 

11,987

Balance, September 30, 2023

$    (237,137)  

$   (9,503)  

$        (246,640)

 

Net Book Value




Balance December 31, 2022

$     34,141,409

$       64,201

$    34,205,610

Balance, September 30, 2023

$     38,025,682    

$     323,622     

$    38,349,304

 

Effective February 9, 2023, the Agencia Nacional de Hidrocarburos ("ANH") approved the suspension of the obligations and operations of the OMBU contract due to force majeure circumstances generated by the blockades and social unrest around the Capella field. The suspension was for an initial term of three months, but it has been extended for nine additional months. The Company, together with its partner and the ANH, is monitoring this suspension to define next steps.

 

During 2023, the Company entered in a new office and vehicles leases for its corporate offices for $302,930 and has been recognized as a right-of-use assets (see note 9).

 

 

 

8.      Promissory Note

 

 

The promissory note was issued to Canacol Energy Ltd. ("Canacol"), a related party to the Company, as partial consideration in the acquisition of Carrao Energy S.A. from Canacol. The promissory note bore interest at 15% per annum, and, on October 18, 2021, Arrow and Canacol entered into a Seventh Amended and Restated Promissory Note agreement. On June 30, 2023, the Company paid the remaining balance of $2,018,577, including interest, and no other obligation is pending with Canacol under the Promissory Note.

 

 

9.      Lease Obligations

 

 

A reconciliation of the discounted lease obligation is set forth below:

 

 


September 30,

2023

December 31, 2022

Obligation, beginning of the period

 


$         63,751

$         54,692

Additions

 


302,930

-

Changes in existing lease

 


-    

44,701

Lease payments

 


(54,813)

(39,697)

Interest

 


12,237

9,696

Effects of movements in foreign exchange rates

 


(776)

(5,641)

Obligation, end of the period

 


$       323,329

$         63,751

Current portion

 


         (103,718)

         (41,434)

Long-term portion

 


$       219,611

$         22,317

 

As at September 30, 2023, the Company has the following future lease obligations:

 

Less than one year

 


$          105,113

2 - 5 years

 


336,198

Total lease payments

 


441,311

Amounts representing interest over the term

 


(117,982)

Present value of the net obligation

 


$          323,329

 

 

10.    Decommissioning Liability

 

 

The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the decommissioning of oil and gas properties.

 

 

September 30,

2023


December 31, 2022

Obligation, beginning of the period

$      3,303,301


$      2,470,239

Change in estimated cash flows

554,238


756,541

Payments or settlements

(4,349)


(76,131)

Accretion expense

95,638


199,521

Disposals

(191,648)


-

Effects of movements in foreign exchange rates

2,167


(46,869)

 

Obligation, end of the period

 

$      3,759,347


 

$      3,303,301

 

The obligation was calculated using a risk-free discount rate range of 2.50% to 3.75% in Canada (2022: 2.50% to 3.75%) and between 3.55% and 4.13% in Colombia (2022: 3.55% and 4.13%) with an inflation rate of 3.0% and 3.5%, respectively (2022: 3.0% and 3.5%). The majority of costs are expected to occur between 2023 and 2033. The undiscounted amount of cash flows, required over the estimated reserve life of the underlying assets, to settle the obligation, adjusted for inflation, is estimated at $4,943,923 (2022: $4,480,074).

 

 

 

 

 

 

 

 

 

11.    Derivative liability

 

 

Derivative liability includes warrants issued and outstanding as follows:

 

 

September 30,

2023

December 31,

2022

Warrants

Number

Amounts

Number

Amounts

Balance beginning of the period

67,837,418

$       9,540,423

 72,474,706

$  4,692,303

   Exercised

(27,124,110)

(3,997,497)

(4,637,288)

(598,509)

   Fair value adjustment

-

(109,613)

-

5,974,674

   Foreign exchange

-

58,182

-

(528,045)

Balance end of the period

40,713,308

$ 5,491,495      

67,837,418

$       9,540,423

 

Each warrant is exercisable at £0.09 per new common share for 24 months from the issuance date and are measured at fair value quarterly using the Black-Scholes options pricing model. The fair value of warrants at September 30, 2023 and December 31, 2022 was estimated using the following assumptions:

       


September 30,

2023

December 31, 2022

Number outstanding re-valued warrants

40,713,308

67,837,418

Fair value of warrants outstanding

£0.1104

£0.1157

Risk free interest rate

4.82%

3.41%

Expected life

0.07 years

0.82 years

Expected volatility

133%

147%

 

The following table summarizes the warrants outstanding and exercisable at September 30, 2023:

Number of

warrants

 

Exercise price

 

Expiry date

40,219,260

£0.09

October 24, 2023

494,048

£0.09

November 22, 2023

40,713,308

 

 

 

 

12.  Share Capital

 

 

(a)   Authorized: Unlimited number of common shares without par value

 

(b)   Issued:

 

September 30, 2023

December 31, 2022

Common shares

Shares

Amounts

Shares

Amounts

Balance beginning of the year

218,401,931

57,810,735

213,389,643

56,698,237

   Issued from warrants exercised

27,124,110

7,023,065

4,637,288

1,094,574

   Issued from options exercised

-

-

375,000

17,924

Balance at end of the period

245,526,041

64,833,800

218,401,931

57,810,735

 

(c)   Stock options:

The Company has a stock option plan that provides for the issuance to its directors, officers, employees and consultants options to purchase a number of non-transferable common shares not exceeding 10% of the common shares that are outstanding. The exercise price is based on the closing price of the Company's common shares on the day prior to the day of the grant. A summary of the status and changes of the Company stock option plan is presented below:

 

 

 

September 30, 2023

December 31, 2022

Stock Options

Number of options

Weighted average

exercise Price

(CAD $)

Number of options

Weighted average

exercise price

(CAD $)

Beginning of period

20,590,000

$0.24

17,114,000

$0.18

Granted

1,650,000

$0.33

10,028,332

$0.27

Expired/Forfeited

(1,375,000)

$0.46

(2,794,000)

$0.12

Exercised

-

-

(3,758,332)

$0.11

End of period

20,865,000

$0.24

20,590,000

$0.24

Exercisable, end of period

5,403,331

$0.26

3,395,000

$0.42

 

Date of Grant

Number Outstanding

Exercise Price

(CAD $)

Weighted

Average Remaining Contractual Life

Date of

Expiry

Number

Exercisable

September 30, 2023

October 22, 2018

750,000

$1.15


Oct. 22, 2028

750,000

May 3, 2019

270,000

$0.31


May 3, 2029

270,000

March 20, 2020

1,200,000

$0.05


Mar. 20, 2030

1,200,000

April 13, 2020

2,000,000

$0.05


April 13, 2030

2,000,000

December 13, 2021

5,966,668

$0.13


June 13, 2024 and 2025

-

June 9, 2022

2,300,000

$0.28


Dec. 9, 2023, 2024 and 2025

766,665

September 7, 2022

1,250,000

$0.26


Mar. 7, 2024, 2025 and 2026

416,666

December 21, 2022

5,478,332

$0.28


June 21, 2024, 2025 and 2026

-

January 23, 2023

650,000

$0.32


July 23, 2024, 2025 and 2026

-

September 21, 2023

1,000,000

$0.33


Mar. 21, 2025, 2026 and 2027

-

Total

20,865,000

$0.23

2.44 years

 

5,403,331

 

The Company recognized $149,102 and $440,360 as share-based compensation expense for the three and nine months ended September 30, 2023 (2022: $110,876 and $214,712), with a corresponding effect in the contributed surplus account.

 

 

13.    Commitments and Contingencies

 

 

Exploration and Production Contracts

The Company has entered into a number of exploration contracts in Colombia which require the Company to fulfill work program commitments and issue financial guarantees related thereto. In aggregate, the Company has outstanding exploration commitments of $17.8 million as at September 30, 2023. The Company have made applications to cancel its commitments on the COR-39, Macaya and Los Picachos blocks.

 

Block

 

1-3 years

Thereafter

Total

COR-39


-

12,000,000

-

12,000,000

Los Picachos


-

1,970,000

-

1,970,000

Macaya


-

3,830,000

-

3,830,000

Total

 

-

 

 

17,800,000

-

17,800,000

 

Contingencies

 

From time to time, the Company may be involved in litigation or has claims sought against it in the normal course of business operations.  Management of the Company is not currently aware of any claims or actions that would materially affect the Company's reported financial position or results from operations. Under the terms of certain agreements and the Company's by-laws the Company indemnifies individuals who have acted at the Company's request to be a director and/or officer of the Company, to the extent permitted by law, against any and all damages, liabilities, costs, charges or expenses suffered by or incurred by the individuals as a result of their service.

Letters of Credit

At September 30, 2023, the Company had obligations under Letters of Credit ("LC's") outstanding totaling $2.8 million to guarantee work commitments on exploration blocks and other contractual commitments. In the event the Company fails to secure the renewal of the letters of credit underlying the ANH guarantees, or any of them, the ANH could decide to cancel the underlying exploration and production contract for a particular block, as applicable.

 Current Outstanding Letters of Credit







Contract

Beneficiary

Issuer

Type

Amount

(US $)

Renewal Date

SANTA ISABEL

ANH

Carrao Energy

Abandonment

$563,894

April 14, 2024

ANH

Carrao Energy

Financial Capacity

$1,672,162

December 31, 2023

CORE - 39

ANH

Carrao Energy

Compliance

$100,000

December 31, 2023

OMBU

ANH

Carrao Energy

Financial Capacity

$436,300

April 14, 2024

Total

 



$2,772,356

 

 

 

14.    Risk Management

 

 

The Company holds various forms of financial instruments. The nature of these instruments and the Company's operations expose the Company to commodity price, credit and foreign exchange risks. The Company manages its exposure to these risks by operating in a manner that minimizes its exposure to the extent practical.

 

(a)    Commodity price risk

Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in commodity prices.  Lower commodity prices can also impact the Company's ability to raise capital.  Commodity prices for crude oil are impacted by world economic events that dictate the levels of supply and demand.  From time to time the Company may attempt to mitigate commodity price risk through the use of financial derivatives. There were no derivative contracts during 2023 and 2022.

 

(b)    Credit Risk

Credit risk reflects the risk of loss if counterparties do not fulfill their contractual obligations. The majority of the Company's account receivable balances relate to petroleum and natural gas sales and balances receivables with partners in areas operated by the Company.  The Company's policy is to enter into agreements with customers that are well established and well financed entities in the oil and gas industry such that the level of risk is mitigated.

 

In Colombia, a significant portion of the sales is with a producing company under an existing sale/offtake agreement with prepayment provisions and priced using the Brent benchmark. The Company's trade account receivables primarily relate to sales of crude oil and natural gas, which are normally collected within 25 days (in Canada) and up to 15 days in advance (in Colombia) of the month of production.  Other accounts receivable mainly relate to balances owed by the Company's partner in one of its blocks, and are mainly recoverable through join billings. The Company has historically not experienced any collection issues with its customers and partners.

 

(c)    Market Risk

Market risk is comprised of two components: foreign currency exchange risk and interest rate risk.

i)      Foreign Currency Exchange Risk

The Company operates on an international basis and therefore foreign exchange risk exposures arise from transactions denominated in currencies other than the United States dollar. The Company is exposed to foreign currency fluctuations as it holds cash and incurs expenditures in exploration and evaluation and administrative costs in foreign currencies. The Company incurs expenditures in Canadian dollars, United States dollars and the Colombian peso and is exposed to fluctuations in exchange rates in these currencies. There are no exchange rate contracts in place.

ii)       Interest Rate Risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is not currently exposed to interest rate risk as it borrows funds at a fixed coupon rate of 15% on the promissory notes.

 

(d)    Liquidity Risk

Liquidity risk includes the risk that, as a result of the Company's operational liquidity requirements:

·      The Company will not have sufficient funds to settle a transaction on the due date;

·      The Company will be forced to sell financial assets at a value less than market value; or

·      The Company may be unable to settle or recover a financial asset.

 

The Company's approach to managing its liquidity risk is to ensure, within reasonable means, sufficient liquidity to meet its liabilities when due, under both normal and unusual conditions, without incurring unacceptable losses or jeopardizing the Company's business objectives. The Company prepares annual capital expenditure budgets which are monitored regularly and updated as considered necessary.  Petroleum and natural gas production is monitored daily to provide current cash flow estimates and the Company utilizes authorizations for expenditures on projects to manage capital expenditures. Any funding shortfall may be met in a number of ways, including, but not limited to, the issuance of new debt or equity instruments, further expenditure reductions and/or the introduction of joint venture partners.

 

(e)     Capital Management

The Company's objective is to maintain a capital base sufficient to provide flexibility in the future development of the business and maintain investor, creditor and market confidence.  The Company manages its capital structure and makes adjustments in response to changes in economic conditions and the risk characteristics of the underlying assets. The Company considers its capital structure to include share capital, bank debt (when available), promissory notes and working capital, defined as current assets less current liabilities.  In order to maintain or adjust the capital structure, from time to time the Company may issue common shares or other securities, sell assets or adjust its capital spending to manage current and projected debt levels. The Company monitors leverage and adjusts its capital structure based on its net debt level.  Net debt is defined as the principal amount of its outstanding debt, less working capital items.  In order to facilitate the management of its net debt, the Company prepares annual budgets, which are updated as necessary depending on varying factors including current and forecast crude oil prices, changes in capital structure, execution of the Company's business plan and general industry conditions.  The annual budget is approved by the Board of Directors and updates are prepared and reviewed as required. The Company's capital includes the following:

 


September 30,

2023

December 31,

2022

Working capital (deficit)

$          5,330,980

$        (1,316,665)

Derivative liability

5,491,495

9,540,423


 $        10,822,475

 $        8,223,758

 

 

15.    Segmented Information

 

 

The Company has two reportable operating segments: Colombia and Canada. The Company, through its operating segments, is engaged primarily in oil exploration, development and production, and the acquisition of oil and gas properties. The Canada segment is also considered the corporate segment. The following tables show information regarding the Company's segments for the three and nine months ended and as at September 30:

 

 

 

 

 

Three months ended September 30, 2023

 

Colombia


Canada

 

Total

 

 

 





Revenue:







Oil Sales

$

       15,496,501

$

                          -  

$

        15,496,501

Natural gas and liquid sales


                         -  


              388,159


              388,159

Royalties


 (1,885,968)


 (8,339)


(1,894,307)

Expenses


 (6,339,173)


(887,835)


(7,227,008)

Income tax recovery


389,775


-


389,775

Net income (loss)

$

7,661,135

$

(508,015)

$

7,153,120

 

 

 


 

 

 

Nine months ended September 30, 2023

 

Colombia


Canada

 

Total

 

 

 





Revenue:







Oil Sales

$

       34,177,223

$

                          -  

$

        34,177,223

Natural gas and liquid sales


                         -  


           1,310,262


1,310,262

Royalties


 (4,214,621)


 (9,370)


 (4,223,991)

Expenses


 (14,799,562)


 (7,302,805)


 (22,102,367)

Income tax recovery


224,313


-


224,313

Net income (loss)

$

15,387,353

$

(6,001,913)

$

9,385,440

 

 

 

As at September 30, 2023

 

Colombia

 

Canada

 

Total

 

 

 

 

 

 

 

Current assets

$

17,392,681

$

1,259,823

$

 18,652,504

Non-current:

 

 

 

 

 

 

Deferred income taxes


1,933,639


                          -  


1,933,639

Restricted cash


37,808


599,985


637,793

Exploration and evaluation


3,182,010


                          -  


3,182,010

Property, plant and equipment


34,003,518


4,345,786


38,349,304

Total Assets

$

56,549,656

$

6,205,594

$

62,755,250

 







Current liabilities

$

7,137,935

$

6,183,589

$

13,321,524

Non-current liabilities:







Deferred income taxes


2,198,419


                          -  


2,198,419

Other liabilities


588,393


                          -  


588,393

Lease obligation


-  


219,611


219,611

Decommissioning liability


3,202,198


557,149


3,759,347

Total liabilities

$

13,126,945

$

6,960,349

$

20,087,294

 

 

 

Three months ended September 30, 2022


Colombia


Canada


Total

Revenue:







Oil Sales

$

8,056,780

$

-

$

8,056,780

Natural gas and liquid sales


-


591,066


591,066

Royalties


(972,243)


(61,267)


(1,033,510)

Expenses


(2,435,749)


(2,109,539)


(4,545,288)

Income tax


(1,027,093)


-


(1,027,093)

Net income (loss)

$

3,621,695

$

(1,579,740)

$

(2,041,955)








Nine months ended September 30, 2022


Colombia


Canada


Total

Revenue:







Oil Sales

$

15,013,222

$

-

$

15,013,222

Natural gas and liquid sales


-


3,277,062


3,277,062

Royalties


(1,750,960)


(497,422)


(2,248,382)

Expenses


(5,593,170)


(12,043,232)


(17,636,402)

Income tax


(1,027,093)


-


(1,027,093)

Net income (loss)

$

6,641,999

$

(9,263,592)

$

(2,621,593)

 

 

As at September 30, 2022


Colombia


Canada


Total

Current assets

$

12,900,256

$

3,970,439

$

16,870,695

Non-current:







Deferred income taxes


4,839,785


-


4,839,785

Restricted cash


37,808


560,384


598,192

Exploration and evaluation


6,964,506


-


6,964,506

Property and equipment


12,378,156


5,327,924


17,706,080

Total Assets

$

37,120,511

$

9,858,747

$

46,979,258








Current liabilities

$

4,622,600

$

4,855,783

$

9,478,383

Non-current liabilities:







Other liabilities


177,500


-


177,500

Deferred income taxes


3,371,935


-


3,371,935

Lease obligation


-


32,676


32,676

Decommissioning liability


2,296,091


535,310


2,831,401

Derivative liability


-


8,685,960


8,685,960

Total liabilities

$

10,468,126

$

14,109,729

$

24,577,855

 

 

16.    Subsequent events

 

 

On November 17, 2023, the ANH confirmed the termination by mutual agreement of the Macaya block exploration and production contract. This contract included minimum work commitments for $3,830,000 for the Company, which have been waived by the ANH according to the terms of termination.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arrow Exploration Corp.

 

MANAGEMENT's DISCUSSION AND ANALYSIS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023

 

 

 

 

 

 

 


 

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") as provided by the management of Arrow Exploration Corp. ("Arrow" or the "Company"), is dated as of November 27, 2023 and should be read in conjunction with Arrow's interim condensed (unaudited) consolidated financial statements and related notes as at and for the three and nine months ended September 30, 2023 and 2022. Additional information relating to Arrow, including its annual consolidated financial statements and related notes for the years ended December 31, 2022 and 2021 (the "Annual Financial Statements"), is available under Arrow's profile on www.sedar.com.

Advisories

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), and all amounts herein are expressed in United States dollars, unless otherwise noted, and all tabular amounts are expressed in United States dollars, unless otherwise noted.  Additional information for the Company may be found on SEDAR at www.sedar.com

Advisory Regarding Forward?Looking Statements

This MD&A contains certain statements or disclosures relating to Arrow that are based on the expectations of its management as well as assumptions made by and information currently available to Arrow which may constitute forward-looking statements or information ("forward-looking statements") under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that Arrow anticipates or expects may, could or will occur in the future (in whole or in part) should be considered forward-looking statements. In some cases, forward-looking statements can be identified by the use of the words "believe", "continue", "could", "expect", "likely", "may", "outlook", "plan", "potential", "will", "would" and similar expressions. In particular, but without limiting the foregoing, this MD&A contains forward-looking statements pertaining to the following: the COVID-19 pandemic and its impact; tax liability; capital management strategy; capital structure; credit facilities and other debt; performance by Canacol (as defined herein) and the Company in connection with the Note (as defined herein) and letters of credit; Arrow's costless collar structure;; cost reduction initiatives; potential drilling on the Tapir block; capital requirements; expenditures associated with asset retirement obligations; future drilling activity and the development of the Rio Cravo Este structure on the Tapir Block. Statements relating to "reserves" and "resources" are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future.

The forward-looking statements contained in this MD&A reflect several material factors and expectations and assumptions of Arrow including, without limitation: current and anticipated commodity prices and royalty regimes; the impact of the COVID-19 pandemic; the financial impact of Arrow's costless collar structure; availability of skilled labour; timing and amount of capital expenditures; future exchange rates; commodity prices; the impact of increasing competition; general economic conditions; availability of drilling and related equipment; receipt of partner, regulatory and community approvals; royalty rates; changes in income tax laws or changes in tax laws and incentive programs; future operating costs; effects of regulation by governmental agencies; uninterrupted access to areas of Arrow's operations and infrastructure; recoverability of reserves; future production rates; timing of drilling and completion of wells; pipeline capacity; that Arrow will have sufficient cash flow, debt or equity sources or other financial resources required to fund its capital and operating expenditures and requirements as needed; that Arrow's conduct and results of operations will be consistent with its expectations; that Arrow will have the ability to develop its oil and gas properties in the manner currently contemplated; current or, where applicable, proposed industry conditions, laws and regulations will continue in effect or as anticipated; that the estimates of Arrow's reserves and production volumes and the assumptions related thereto (including commodity prices and development costs) are accurate in all material respects; that Arrow will be able to obtain contract extensions or fulfil the contractual obligations required to retain its rights to explore, develop and exploit any of its undeveloped properties; and other matters.

Arrow believes the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct. The forward-looking statements included in this MD&A are not guarantees of future performance and should not be unduly relied upon.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements including, without limitation: the impact of the COVID-19 pandemic; the impact of general economic conditions; volatility in commodity prices; industry conditions including changes in laws and regulations including adoption of new environmental laws and regulations, and changes in how they are interpreted and enforced; competition; lack of availability of qualified personnel; the results of exploration and development drilling and related activities; obtaining required approvals of regulatory authorities; counterparty risk; risks associated with negotiating with foreign governments as well as country risk associated with conducting international activities; commodity price volatility; fluctuations in foreign exchange or interest rates; environmental risks; changes in income tax laws or changes in tax laws and incentive programs; changes to pipeline capacity; ability to secure a credit facility; ability to access sufficient capital from internal and external sources; risk that Arrow's evaluation of its existing portfolio of development and exploration opportunities is not consistent with future results; that production may not necessarily be indicative of long term performance or of ultimate recovery; and certain other risks detailed from time to time in Arrow's public disclosure documents including, without limitation, those risks identified in Arrow's 2018 AIF, a copy of which is available on Arrow's SEDAR profile at www.sedar.com. Readers are cautioned that the foregoing list of factors is not exhaustive and are cautioned not to place undue reliance on these forward-looking statements. 

Non?IFRS Measures

The Company uses non-IFRS measures to evaluate its performance which are measures not defined in IFRS. Working capital, funds flow from operations, realized prices, operating netback, adjusted EBITDA, and net debt as presented do not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. The Company considers these measures as key measures to demonstrate its ability to generate the cash flow necessary to fund future growth through capital investment, and to repay its debt, as the case may be. These measures should not be considered as an alternative to, or more meaningful than net income or cash provided by (used in) operating activities or net income and comprehensive income as determined in accordance with IFRS as an indicator of the Company's performance. The Company's determination of these measures may not be comparable to that reported by other companies.

Adjusted working capital is calculated as current assets minus current liabilities, excluding non-cash liabilities; funds from operations is calculated as cash flows from (used in) operating activities adjusted to exclude changes in non-cash working capital balances; realized price is calculated by dividing gross revenue by gross production, by product, in the applicable period; operating netback is calculated as total natural gas and crude revenues minus royalties, transportation costs and operating expenditures; adjusted EBITDA is calculated as net income adjusted for interest, income taxes, depreciation, depletion, amortization and other similar non-recurring or non-cash charges; and net debt (net cash) is defined as the principal amount of its outstanding debt, less working capital items excluding non-cash liabilities. 

The Company also presents funds from operations per share, whereby per share amounts are calculated using weighted- average shares outstanding consistent with the calculation of net income per share.

A reconciliation of the non-IFRS measures is included as follows:

 

 

(in United States dollars)

Three months ended September 30, 2023

Nine months ended September 30, 2023

Three months ended September 30, 2022

Net income (loss)

7,153,120

9,385,440

2,041,955

Add/(subtract):

 

 


   Share based payments

149,102

 440,360

110,876

   Financing costs:

 



      Accretion on decommissioning obligations

34,343

95,638

54,272

      Interest

                      9,461

131,697

123,394

      Other

89,281

238,135

41,075

   Depreciation and depletion

3,972,850

10,067,403

1,809,340

   Derivative gain

 (1,191,385)

 (109,613)

 (543,659)

   Income tax (recovery) expense, current and deferred

 (389,775)

 (224,313)

1,027,093

Adjusted EBITDA (1)

9,826,997

20,024,747

4,664,345


 



Cash flows provided by operating activities

6,523,732

13,894,865

5,221,497

Minus - Changes in non?cash working capital balances:

 

 


Trade and other receivables

697,291

229,288

1,097,426

Restricted cash

 (65,890)

37,190

 (291,841)

Taxes receivable

765,277

933,966

58,264

Deposits and prepaid expenses

 (68,109)

 (32,561)

 (171,610)

Inventory

                      9,026

179,840

229,799

Accounts payable and accrued liabilities

1,192,261

654,363

 (1,537,411)

Income tax payable

 (362,681)

312,600

-

Funds flow from operations (1)

8,690,907

16,209,551

4,606,124

 (1)Non-IFRS measures

 

The term barrel of oil equivalent ("boe") is used in this MD&A.  Boe may be misleading, particularly if used in isolation.  A boe conversion ratio of 6 thousand cubic feet ("Mcf") of natural gas to one barrel of oil ("bbl") is used in the MD&A. This conversion ratio of 6:1 is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

FINANCIAL AND OPERATING HIGHLIGHTS

 

 

(in United States dollars, except as otherwise noted)

Three months ended September 30, 2023

Nine months ended September 30, 2023

Three months ended September 30, 2022

Total natural gas and crude oil revenues, net of royalties

             13,990,353

             31,263,494

               7,614,336


 

 


Funds flow from operations (1)

               8,690,907

             16,209,551

               4,606,124

Funds flow from operations (1) per share -

 

 


    Basic($)

                        0.04

                        0.07

                        0.02

    Diluted ($)

                        0.03

                        0.05

                        0.00

Net income

               7,153,120

               9,385,440

               2,041,955

Net income per share -

 

 


   Basic ($)

                        0.03

                        0.04

                        0.01

   Diluted ($)

                        0.02

                        0.03

                        0.01

Adjusted EBITDA (1)

               9,826,997

             20,024,747

               4,664,345

Weighted average shares outstanding -

 

 


   Basic

237,919,872

230,537,774

215,967,143

   Diluted

295,875,232

295,092,336

288,235,624

Common shares end of period

245,526,041

245,526,041

215,967,143

Capital expenditures

               5,471,561

             16,613,512

               4,836,860

Cash and cash equivalents

             12,891,190

             12,891,190

             11,376,702

Current Assets

             18,652,504

             18,652,504

             16,870,695

Current liabilities

             13,321,524

             13,321,524

               9,478,383

Adjusted working capital(1)

             10,822,475

             10,822,475

               7,392,312

Long-term portion of restricted cash(2)

                  637,793

                  637,793

                  598,192

Total assets

             62,755,250

             62,755,250

             46,979,258





Operating








Natural gas and crude oil production, before royalties




Natural gas (Mcf/d)

2,012

2,261

1,917

Natural gas liquids (bbl/d)

4

4

4

Crude oil (bbl/d)

2,178

1,730

1,179

Total (boe/d)

2,518

2,110

1,503

 

 

 


Operating netbacks ($/boe) (1)

 

 


Natural gas ($/Mcf)

$0.18

($0.11)

$0.88

Crude oil ($/bbl)

$60.62

$57.64

$73.69

Total ($/boe)

$52.67

$47.15

$56.75

(1)Non-IFRS measures - see "Non-IFRS Measures" section within this MD&A

(2)Long term restricted cash not included in working capital

The Company

Arrow is a junior oil and gas company engaged in the acquisition, exploration and development of oil and gas properties in Colombia and Western Canada. The Company's shares trade on the TSX Venture Exchange and the London AIM exchange under the symbol AXL.

The Company and Arrow Exploration Ltd. entered into an arrangement agreement dated June 1, 2018, as amended, whereby the parties completed a business combination pursuant to a plan of arrangement under the Business Corporations Act (Alberta) ("ABCA") on September 28, 2018. Arrow Exploration Ltd. and Front Range's then wholly-owned subsidiary, 2118295 Alberta Ltd., were amalgamated to form Arrow Holdings Ltd., a wholly-owned subsidiary of the Company (the "Arrangement"). On May 31, 2018, Arrow Exploration Ltd. entered in a share purchase agreement, as amended, with Canacol Energy Ltd. ("Canacol"), to acquire Canacol's Colombian oil properties held by its wholly-owned subsidiary Carrao Energy S.A. ("Carrao"). On September 27, 2018, Arrow Exploration Ltd. closed the agreement with Canacol.

On May 31, 2018, Arrow Exploration Ltd., entered into a purchase and sale agreement to acquire a 50% beneficial interest in a contract entered into with Ecopetrol S.A. pertaining to the exploration and production of hydrocarbons in the Tapir block from Samaria Exploration & Production S.A. ("Samaria"). On September 27, 2018, Arrow Exploration Ltd. closed the agreement with Samaria. As at June 30, 2023 the Company held an interest in six oil blocks in Colombia and oil and natural gas leases in seven areas in Canada as follows:

 

 

 

Gross Acres

Working Interest

Net Acres

COLOMBIA





Tapir

Operated1

65,125

50%

32,563

Oso Pardo

Operated

672

100%

672

Ombu

Non-operated

56,482

10%

5,648

COR-39

Operated

95,111

100%

95,111

Los Picachos

Non-operated

52,772

37.5%

19,790

Macaya

Non-operated

195,255

37.5%

73,221

Total Colombia

 

465,417

 

227,005

CANADA





Ansell

Operated

640

100%

640

Fir

Non operated

7,680

32%

2,457

Penhold

Non-operated

480

13%

61

Pepper

Operated

23,680

100%

23,680

Wapiti

Non-operated

1,280

13%

160

Total Canada

 

33,760

 

26,998

TOTAL

 

499,177

 

254,003

The Company's primary producing assets are located in Colombia in the Tapir, Oso Pardo and Ombu blocks, with natural gas production in Canada at Fir and Pepper, Alberta.

Llanos Basin

Within the Llanos Basin, the Company is engaged in the exploration, development and production of oil within the Tapir block. In the Llanos Basin most oil accumulations are associated with three-way dip closure against NNE-SSW trending normal faults and can have pay within multiple reservoirs. The Tapir block contain large areas not yet covered by 3D seismic, and in Management's opinion offer substantial exploration upside. 

1The Company's interest in the Tapir block is held through a private contract with Petrolco, who holds a 50% participating interest in, and is the named operator of, the Tapir contract with Ecopetrol. The formal assignment to the Company is subject to Ecopetrol's consent. The Company is the de facto operator pursuant to certain agreements with Petrolco (details of which are set out in Paragraph 16.13 of the Company's AIM Admission Document dated October 20, 2021).

Middle Magdalena Valley ("MMV") Basin

Oso Pardo Field

The Oso Pardo Field is located in the Santa Isabel Block in the MMV Basin.  It is a 100% owned property operated by the Company.  The Oso Pardo field is located within a Production Licence covering 672 acres. Three wells have been drilled to date within the licensed area.

Ombu E&P Contract - Capella Conventional Heavy Oil Discovery

The Caguan Basin covers an area of approximately 60,000 km2 and lies between the Putumayo and Llanos Basins. The primary reservoir target is the Upper Eocene aged Mirador formation. The Capella structure is a large, elongated northeast-southwest fault-related anticline, with approximately 17,500 acres in closure at the Mirador level. The field is located approximately 250 km away from the nearest offloading station at Neiva, where production from Capella is trucked.

The Capella No. 1 discovery well was drilled in July 2008 and was followed by a series of development wells. The Company earned a 10% working interest in the Ombu E&P Contract by paying 100% of all activities associated with the drilling, completion, and testing of the Capella No. 1 well. The Capella field is currently suspended and temporarily shut in.

Fir, Alberta

The Company has an average non-operated 32% WI in 12 gross (3.84 net) sections of oil and natural gas rights and 17 gross (4.5 net) producing natural gas wells at Fir. The wells produce raw natural gas into the Cecilia natural gas plant where it is processed.

Pepper, Alberta

The Company holds a 100% operated WI in 37 sections of Montney P&NG rights on its Pepper asset in West Central Alberta. The 6-26-53-23W5M Montney gas well (West Pepper) is tied into the Galloway gas plant for processing. The 3-21-52-22W5M Montney gas well (East Pepper) is currently tied into the Sundance gas plant for processing. The majority of lands have tenure extending into 2025.

Three Months Ended September 30, 2023 Financial and Operational Highlights

·      Arrow recorded $13,990,353 in revenues, net of royalties, on crude oil sales of 199,617 bbls, 399 bbls of natural gas liquids ("NGL's") and 185,128 Mcf of natural gas sales;

·      Funds flow from operations of $8,690,907;

·      Net income of $7,153,120 and adjusted EBITDA was $9,826,997;

·      Completed drilling of the Carrizales Norte-2 (CN-2) and Carrizales Norte-3 (CN-3) wells

Results of Operations

The Company increased its production from new wells at Rio Cravo Este (RCE-3, RCE-4 and RCE-5) and CN-1. These have allowed the Company to continue to improve its operating results and EBITDA.  There has also been a decrease in the Company's natural gas production in Canada due to natural declines.

 

Average Production by Property

Average Production Boe/d

Q3 2023

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

Oso Pardo

93

130

138

115

104

112

Ombu (Capella)

-

-

80

238

215

97

Rio Cravo Este (Tapir)

1,443

1,592

1,004

832

860

366

Carrizales Norte (Tapir)

642

57

-

-

-

-

Total Colombia

2,178

1,779

1,222

1,185

1,179

575

Fir, Alberta

81

77

74

79

82

86

Pepper, Alberta

259

313

340

472

242

319

TOTAL (Boe/d)

2,518

2,169

1,635

1,736

1,503

980

For the three months ended September 30, 2023, the Company's average production was 2,518 boe/d, which consisted of crude oil production in Colombia at 2,178 bbl/d, natural gas production of 2,012 Mcf/d and minor amounts of natural gas liquids from the Company's Canadian properties. The Company's Q3 2023 total production was 68% higher than its total production for the same period in 2022.

Average Daily Natural Gas and Oil Production and Sales Volumes

 

 

Three months ended

September 30

Nine months ended

September 30

2023

2022

2023

2022

 

Natural Gas (Mcf/d)

 


 


 

Natural gas production

2,012

1,917

2,261

2,853

 

Natural gas sales

2,012

 1,917

2,261

2,853

 

Realized Contractual Natural Gas Sales

2,012

1,917

2,261

2,853

 

Crude Oil (bbl/d)





 

Crude oil production

2,178

1,179

1,730

730

 

Inventory movements and other

 (8)

 (216)

 (19)

 (264)

 

Crude Oil Sales

2,170

963

1,711

466

 

Corporate





 

Natural gas production (boe/d)

336

319

376

475

 

Natural gas liquids(bbl/d)

4

4

4

5

 

Crude oil production (bbl/d)

2,178

 1,179

1,730

730

 

Total production (boe/d)

2,518

1,503

2,110

1,211

 

Inventory movements and other (boe/d)

 (8)

 (216)

 (19)

 (264)

 

Total Corporate Sales (boe/d)

2,510

1,287

2,091

946

 

During the three and nine months ended September 30, 2023 the majority of production was attributed to Colombia, where most of Company's blocks were producing. In Canada, the Company has two operated and two non-operated properties located in the province of Alberta at Fir, Pepper, Harley and Wapiti.

Natural Gas and Oil Revenues


Three months ended

September 30

Nine months ended

September 30

2023

2022

2023

2022

 

Natural Gas





 

Natural gas revenues

361,381

557,445

1,242,889

3,157,295

 

NGL revenues

26,778

33,621

 67,373

119,766

 

Royalties

 (8,339)

 (61,267)

 (9,370)

 (497,422)

 

Revenues, net of royalties

379,820

529,799

1,300,892

2,779,640

 

Oil





 

Oil revenues

15,496,501

8,056,780

34,177,223

15,013,222

 

Royalties

 (1,885,968)

 (972,243)

 (4,214,621)

 (1,750,960)

 

Revenues, net of royalties

13,610,533

7,084,537

29,962,602

13,262,262

 

Corporate





 

Natural gas revenues

361,381

557,445

 1,242,889

3,157,295

 

NGL revenues

26,778

33,621

67,373

119,766

 

Oil revenues

15,496,501

8,056,780

34,177,223

 15,013,222

 

Total revenues

15,884,660

8,647,846

35,487,485

18,290,284

 

Royalties

 (1,894,307)

 (1,033,510)

 (4,223,991)

 (2,248,382)

 

Natural gas and crude oil revenues, net of royalties

13,990,353

7,614,336

31,263,494

16,041,902

 

Natural gas and crude oil revenues, net of royalties, for the three and nine months ended September 30, 2023 was $13,990,353 (2022: $7,614,336) and $31,263,494 (2022: $16,041,902), respectively, which represents an increase of 95%. This significant increase is mainly due to increased oil production in Colombia, offset by decrease in oil prices and revenue in Canada.

Average Benchmark and Realized Prices 


Three months ended

September 30

Nine months ended

September 30

2023

2022

Change

2023

2022

Change

Benchmark Prices

 



 



AECO (C$/Mcf)

$2.64

$3.83

(31%)

$2.77

$4.31

(36%)

Brent ($/bbl)

$92.59

$97.81

(5%)

$82.26

$102.33

(20%)

West Texas Intermediate ($/bbl)

$77.35

$91.65

(16%)

$82.20

$98.15

(16%)

Realized Prices

 



 



Natural gas, net of transportation ($/Mcf)

$1.95

$3.16

(38%)

$2.01

$4.05

(50%)

Natural gas liquids ($/bbl)

$67.10

$82.69

(19%)

$63.30

$83.54

(24%)

Crude oil, net of transportation ($/bbl)

$77.63

$90.90

(15%)

$73.16

$91.00

(20%)

Corporate average, net of transport ($/boe)(1)

$68.80

$73.02

(6%)

$62.14

$61.75

1%

   (1)Non-IFRS measure

The Company realized prices of $68.80 and $62.14 per boe during the three and nine months ended September 30, 2023 (2022: $73.02 and $61.75), respectively, as commodity prices decreased in 2023 compared with 2022.

Operating Expenses


Three months ended

September 30

Nine months ended

September 30

2023

2022

2023

2022

Natural gas & NGL's

319,439

341,156

1,302,246

1,742,933

Crude oil

1,510,394

 553,004

3,036,667

1,664,143

 Total operating expenses

 1,829,833

894,160

4,338,913

3,407,076

Natural gas ($/Mcf)

$1.72

$1.93

$2.10

$2.24

Crude oil ($/bbl)

$7.56

$6.24

$6.50

$10.09

Corporate ($/boe)(1)

$7.92

$7.55

$7.59

$11.50

 (1)Non-IFRS measure

During the three and nine months ended September 30, 2023, Arrow incurred operating expenses of $1,829,833 and $4,338,913 (2022: $894,160 and $3,407,076), respectively. This increase is mainly due to operating expenses incurred in the Company's new Carrizales Norte field in the Tapir block.

Operating Netbacks

 

Three months ended

September 30

Nine months ended

September 30

 

2023

2022

2023

2022

Natural Gas ($/Mcf)

 




Revenue, net of transportation expense

$1.95

$3.16

$2.01

$4.05

Royalties

($0.05)

($0.35)

($0.02)

($0.64)

Operating expenses

($1.72)

($1.93)

($2.10)

($2.24)

Natural Gas operating netback(1)

$0.18

$0.88

($0.11)

$1.18

Crude oil ($/bbl)

 




Revenue, net of transportation expense

$77.63

$90.90

$73.16

$91.00

Royalties

($9.45)

($10.97)

($9.02)

($10.61)

Operating expenses

($7.56)

($6.24)

($6.50)

($10.09)

Crude Oil operating netback(1)

$60.62

$73.69

$57.64

$70.30

Corporate ($/boe)

 




Revenue, net of transportation expense

$68.80

$73.02

$62.14

$61.75

Royalties

($8.21)

(8.72)

($7.40)

($7.59)

Operating expenses

($7.92)

(7.55)

($7.59)

($11.50)

Corporate Operating netback(1)

$52.67

$56.75

$47.15

$42.66

 (1)Non-IFRS measure

The operating netbacks of the Company continued within healthy levels during 2023 due to several factors, mostly increasing production from its Colombian assets, even factoring in decreased crude oil prices, which were offset by decreases in natural gas prices and operating expenses for natural gas.

 

 

General and Administrative Expenses (G&A)

 

Three months ended

September 30

Nine months ended

September 30

 

2023

2022

2023

2022

General & administrative expenses

2,069,314

2,490,114

7,259,939

5,139,135

G&A recovered from 3rd parties

 (145,225)

 (222,735)

 (468,975)

 (389,765)

Total G&A

1,924,089

2,267,379

6,790,964

4,749,370

Cost per boe

$8.33

$30.74

$11.89

$16.03

For the three and nine months ended September 30, 2023, G&A expenses before recoveries totaled $2,069,314 and $7,259,939 (2022: $2,490,114 and $5,139,135), respectively, which represent a decrease and an increase, respectively, when compared to the same periods in 2022. These variances are mainly due to additional personnel and legal services during 2023, payment of performance bonuses to management and employees, as well as increase in marketing expenses. Despite these increased expenses, and due to the Company's increased production, G&A expenses remain consistent, on a per barrel basis, to $11.89/boe when compared to $16.03/boe for the nine months ended September 30, 2022.

Share-based Compensation

 

Three months ended

September 30

Nine months ended

September 30

 

2023

2022

2023

2022

Share-based Payments

149,102

110,876

440,360

214,712

Share-based compensation expense for the three and nine months ended September 30, 2023 totaled $149,102 and $440,360 (2022: $110,876 and $214,712), respectively. During 2023, the Company has granted 1,650,000 options to its personnel, which was offset by reversal of expenses from cancelled options due to resignations of option holders. The share-based compensation expense is the result of the progressive vesting of the options granted to the Company's employees, plus the effect of cashless exercising, and net of cancellations and forfeitures, according to the company's stock-based compensation plan.

Financing Costs

 

Three months ended

September 30

Nine months ended

September 30

 

2023

2022

2023

2022

Financing expense paid or payable

98,742

164,469

369,833

653,017

Non-cash financing costs

 34,343

 54,272

95,638

144,247

Net financing costs

133,085

218,740

465,471

797,264

The finance expense paid or payable represents mostly interest on the promissory note due to Canacol, as partial payment for the acquisition of Carrao Energy SA, and have decreased due to repayment of the outstanding balance. The non-cash finance cost represents an increase in the present value of the decommissioning obligation for the current periods. The amount of this expense will fluctuate commensurate with the asset retirement obligation as new wells are drilled or properties are acquired or disposed.

 

 

Depletion and Depreciation

 

Three months ended

September 30

Nine months ended

September 30

 

2023

2022

2023

2022

Depletion and depreciation

3,972,850

1,809,340

10,067,403

3,649,932

Depletion and depreciation expense for the three and nine months ended September 30, 2023 totaled $3,972,850 and $10,067,403 (2022: $1,809,340 and $3,649,932), respectively. The increase is due to higher carrying value of depletable property, plant and equipment and increased production. The Company uses the unit of production method and proved plus probable reserves to calculate its depletion and depreciation expense.

Gain (loss) on Derivative Liability

 

Three months ended

September 30

Nine months ended

September 30

 

2023

2022

2023

2022

Gain (loss) on Derivative Liability

 (1,191,385)

 (543,659)

 (109,613)

4,968,934

During the three and nine months ended September 30, 2023, the Company recorded gains in derivative liability of $1,191,385 and $109,613 (2022: $543,659 and loss of $4,968,934), respectively, related to the valuation of its outstanding warrants issued during its AIM listing and private placement completed in 2021. These warrants provide the right to holders to convert them into common shares at a fixed price set in a currency different to the Company's functional currency and, therefore, they are considered a liability and measured at fair value with changes recognized in the statements of operations and comprehensive income (loss).

LIQUIDITY AND CAPITAL RESOURCES

Capital Management

The Company's objective is to maintain a capital base sufficient to provide flexibility in the future development of the business and maintain investor, creditor and market confidence.  The Company manages its capital structure and makes adjustments in response to changes in economic conditions and the risk characteristics of the underlying assets. The Company considers its capital structure to include share capital, debt and adjusted working capital. In order to maintain or adjust the capital structure, from time to time the Company may issue common shares or other securities, sell assets or adjust its capital spending to manage current and projected debt levels.

As at September 30, 2023, the Company has an adjusted working capital of $10,822,475. The Company has continued improving its working capital, using its operational cash flows to settle its obligations and to continue growing its operations. The overall improvement in energy commodity prices has also positively impacted the Company's capacity to generate sufficient financial resources to sustain its operations and growth.

As at September 30, 2023 the Company's net debt (net cash) was calculated as follows:

 

 

September 30, 2023


 

 



Current assets

 

 

$

18,652,504

Less:

 

 



Accounts payable and accrued liabilities

 

 


6,549,995

Income taxes

 

 


1,176,316

Net debt (Net cash) (1)

 

 

$

(10,296,193)

(1)Non-IFRS measure

Adjusted Working Capital

As at September 30, 2023 the Company's adjusted working capital was calculated as follows:

 

 

September 30, 2023

Current assets:

 

 



   Cash and restricted cash

 

 

$

12,891,190

   Restricted cash and deposits

 

 


218,178

   Trade and other receivables

 

 


2,797,577

   Taxes receivable

 

 


1,735,143

   Other current assets

 

 


1,010,416

Less:

 

 



  Accounts payable and accrued liabilities

 

 


6,549,995

  Lease obligation

 

 


103,718

   Promissory note

 

 

 

-

   Income tax payable

 

 

 

1,176,316

Adjusted Working capital(1)

 

 

$

10,822,475

(1)Non-IFRS measure

Debt Capital

During 2023, the Company has paid off its a promissory note payable to Canacol.

 

Letters of Credit

As at September 30, 2023, the Company had obligations under Letters of Credit ("LC's") outstanding totaling $2.7 million to guarantee work commitments on exploration blocks and other contractual commitments. In the event the Company fails to secure the renewal of the letters of credit underlying the ANH guarantees, or any of them, the ANH could decide to cancel the underlying exploration and production contract for a particular block, as applicable. In this instance, the Company could risk losing its entire interest in the applicable block, including all capital expended to date and could possibly also incur additional abandonment and reclamation costs if applied by the ANH.

Current Outstanding Letters of Credit







Contract

Beneficiary

Issuer

Type

Amount

(US $)

Renewal Date

SANTA ISABEL

ANH

Carrao Energy

Abandonment

$563,894

April 14, 2024

ANH

Carrao Energy

Financial Capacity

$1,672,162

December 31, 2023

CORE - 39

ANH

Carrao Energy

Compliance

$100,000

December 31, 2023

OMBU

ANH

Carrao Energy

Financial Capacity

$436,300

April 14, 2024

Total

 



$2,772,356

 

 

Share Capital

As at September 30, 2023, the Company had 245,526,041 common shares, 40,713,308 warrants and 20,865,000 stock options outstanding.

CONTRACTUAL OBLIGATIONS

The following table provides a summary of the Company's cash requirements to meet its financial liabilities and contractual obligations existing at September 30, 2023:

 

 

 

Less than 1 year

1-3 years

Thereafter

Total






Exploration and production contracts

 

-

 

17,800,000

 

-

 

17,800,000

Exploration and Production Contracts

The Company has entered into a number of exploration contracts in Colombia which require the Company to fulfill work program commitments and issue financial guarantees related thereto. In aggregate, the Company has outstanding exploration commitments of $17.8 million. The Company, in conjunction with its partners, have made applications to cancel its commitments on the COR-39, Macaya and Los Picachos blocks.

On November 17, 2023, the ANH confirmed the termination by mutual agreement of the Macaya block exploration and production contract. This contract included minimum work commitments for $3,830,000 for the Company, which have been waived by the ANH according to the terms of termination.

SUMMARY OF THREE MONTHS RESULTS

 

2023

2022

2021

 

Q3

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Oil and natural gas sales, net of royalties

 

13,990,353

 

11,637,968

 

6,992,860

 

8,931,562

 

7,614,336

 

5,024,604

3,911,329

 

3,038,832

Net income (loss)

7,153,120

(757,416)

2,989,735

2,968,117

2,041,955

768,318

(5,431,865)

6,960,035

Income (loss) per share -

   basic

   diluted

 

0.03

0.02

 

(0.00)

(0.00)

 

0.01

0.01

 

0.01

0.01

 

0.02

0.00

 

0.00

0.00

 

(0.03)

(0.02)

 

0.04

0.04

Working capital (deficit)

10,822,475

(2,363,388)

2,619,715

(1,316,665)

7,392,310

5,594,027

7,657,938

8,006,074

Total assets

62,755,250

56,305,530

53,719,944

53,190,248

46,979,259

42,670,153

39,914,240

41,195,798

Net capital expenditures

5,471,561

6,870,258

4,271,693

2,106,463

4,836,860

2,777,611

725,665

1,991,163

Average daily production (boe/d)

2,518

2,169

1,635

1,736

1,503

980

1,144

712

 

The Company's oil and natural gas sales have increased 84% in 2023 when compared to Q3 2022 due to increased production in its existing assets and healthy oil and gas prices. The Company's production levels in Colombia continue growing. Trends in the Company's net income are also impacted most significantly by operating expenses, financing costs, income taxes, depletion, depreciation and impairment of oil and gas properties, and other income.

OUTSTANDING SHARE DATA

At November 27, 2023, the Company had the following securities issued and outstanding:

 

Number

Exercise Price

Expiry Date

Common shares


285,864,348


n/a

             

n/a

Stock options


750,000


CAD$ 1.15


October 22, 2028

Stock options


270,000


CAD$ 0.31


May 3, 2029

Stock options


1,200,000


CAD$ 0.05


March 20, 2030

Stock options


2,000,000


CAD$ 0.05


April 13, 2030

Stock options


5,966,668


GBP 0.07625


June 13, 2024 and 2025

Stock options


2,300,000


CAD$0.28


Dec. 9, 2023, 2024 and 2025

Stock options


1,250,000


CAD$0.26


Mar. 7, 2024, 2025 and 2026

Stock options


5,478,332


GBP 0.1675


June 21, 2024, 2025 and 2026

Stock options


650,000


GBP 0.1925


July 23, 2024, 2025 and 2026

Stock options


1,000,000


CAD $0.33


Mar. 21, 2024, 2025 and 2026

 

 

OUTLOOK

The Company has deployed the capital raised at the time of the Admission to AIM on a successful drilling campaigns at Rio Cravo and Carrizales Norte on the Tapir Block. These successful campaigns have translated into production growth and in positive cashflows during 2022 and 2023, providing Arrow with the funds required to continue with its capital program for 2023.

 

To date, the Company has already drilled eight wells of its 2023 budget (four at Rio Cravo, three at Carrizales Norte and one in Oso Pardo), which have increased overall production and more wells being drilled in Q4 2024. This confirms Arrow's commitment to increase production and shareholder value. The Company is able to support the remaining planned 2023 CAPEX program with current cash on hand and cashflow from operations. 

CRITICAL ACCOUNTING ESTIMATES

A summary of the Company's critical accounting estimates is contained in Note 3 of the Annual Financial Statements. These accounting policies are subject to estimates and key judgements about future events, many of which are beyond Arrow's control.

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the Company's significant accounting policies is included in the Annual Financial Statements. These accounting policies are consistent with those of the previous financial year.

 

RISKS AND UNCERTAINTIES

The Company is subject to financial, business and other risks, many of which are beyond its control and which could have a material adverse effect on the business and operations of the Company. Please refer to "Risk Factors" in the MD&A for the year ended December 31, 2022 for a description of the financial, business and other risk factors affecting the Company which are available on SEDAR at www.sedar.com

 

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