Arrow Announces Q3 2023 Interim Results

Source Press Release
Company Arrow Exploration Corp. 
Tags Production/Development, Exploration, Upstream Activities, Capital Spending, Guidance, Financial & Operating Data
Date November 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 () and will also  be available shortly on Arrow's website at .

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) 
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  

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    218,178    210,654 
Trade and other receivables    2,797,577    2,568,290 
Taxes receivable    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    637,793    608,127 
Exploration and evaluation    3,182,010   
Property and equipment    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    103,718    41,434 
Promissory note      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    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  

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 
                 
                 
                 

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    $                    - 
       
       

  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  

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  

 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  

 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 

  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 

 Lease Obligations

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

      September 30, 2023  December 31, 2022 
Obligation, beginning of the period      $         63,751  $         54,692 
Additions      302,930 
Changes in existing lease      -      44,701 
Lease payments      (54,813)  (39,697) 
Interest      12,237  9,696 
Effects of movements in foreign exchange rates      (776)  (5,641) 
Obligation, end of the period      $       323,329  $         63,751 
Current portion               (103,718)           (41,434) 
Long-term portion      $       219,611  $         22,317 

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

Less than one year      $          105,113 
2 - 5 years      336,198 
Total lease payments      441,311 
Amounts representing interest over the term      (117,982) 
Present value of the net obligation      $          323,329 

  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  

 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     

 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  

  Stock options:

  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  

 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  

Letters of Credit

 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   

 Segmented Information

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  

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) 
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  
    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  

RESULTS OF OPERATIONS

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)   
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  

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  

Source: EvaluateEnergy® ©2024 EvaluateEnergy Ltd