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.
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 |
| | ||
| Long-term portion |
| |
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 |
| Less than 1 year | 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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