TIDMAXL
RNS Number : 4766X
Arrow Exploration Corp.
30 August 2022
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 SECOND QUARTER RESULTS
CALGARY, August 29, 2022 - Arrow Exploration Corp. (AIM: AXL;
TSXV: AXL) ("Arrow" or the "Company") announces the filing of its
unaudited interim Financial Statements and Management ' s
Discussion and Analysis (" MD&A ") for the quarter ended June
30, 2022, which are available on SEDAR ( www.sedar.com ). All
dollar figures are in U.S. dollars, except as otherwise noted.
The first six months of 2022 saw the Company deploy the capital
it raised at the time of its Admission to AIM on a successful two
well drilling campaign at Rio Cravo on the Tapir Block. The better
than forecasted results from this drilling campaign and the
subsequent generation of positive cashflows in Q3 means Arrow is
pleased to be committing to a further drilling program. Commencing
in Q4 2022, the Company expects to drill up to three further wells
at Rio Cravo and plans a two well program on the Carrizales Norte
Structure on the Tapir Block. A letter of intent has been signed
with a drilling contractor to execute the planned five well program
on the Tapir Block. Along with workovers to other existing wells,
the Company will seek to tie in the East Pepper well in Q4 2022,
confirming Arrow remains on target to increase production to 3,000
boe/d within 18 months of AIM Admission. The Company anticipates
being able to support the planned 2023 CAPEX program with current
cash and cashflow from operations. Arrow continues to focus on
growth and improving its balance sheet and free cash flow.
2022 SECOND QUARTER INTERIM RESULTS
FINANCIAL AND OPERATING HIGHLIGHTS
Three months Six months Three months
ended June ended June ended June
(In United States dollars, except 30, 2022 30, 2022 30, 2021
as otherwise noted)
--------------------------------------- ---------------------------- ---------------------------- -------------
Total natural gas and crude oil
revenues, net of royalties 5,024,604 8,427,566 941,620
Funds flow from (used in) operations
(1) 2,613,843 2,926,795 (247,010)
Funds flow from (used in) operations
(1) per share -
Basic ($) 0.01 0.01 (0.00)
Diluted ($) 0.00 0.00 (0.00)
Net income (loss) 768,318 (4,663,547) (734,317)
Net income (loss) per share -
Basic ($) 0.00 (0.02) (0.01)
Diluted ($) 0.00 (0.02) (0.01)
Adjusted EBITDA (1) 2,809,713 3,371,998 (529,784)
Weighted average shares outstanding
-
Basic ($) 214,367,388 213,979,850 68,674,602
Diluted ($) 288,231,900 270,189,255 68,674,602
Common shares end of period 214,667,143 214,667,143 68,674,602
Capital expenditures 2,777,611 3,503,276 (15,378)
Cash and cash equivalents 7,368,252 7,368,252 4,559,231
Current Assets 12,190,063 12,190,063 8,773,936
Current liabilities 6,596,035 6,596,035 5,632,719
Working capital (1) 5,594,028 5,594,028 3,141,217
Long-term portion of restricted
cash (2) 867,047 867,047 503,257
Total assets 42,670,153 42,670,153 25,948,551
Operating
--------------------------------------- ---------------------------- ---------------------------- -------------
Natural gas and crude oil production,
before royalties
Natural gas (Mcf/d) 2,398 3,329 373
Natural gas liquids (bbl/d) 5 6 4
Crude oil (bbl/d) 575 505 264
Total (boe/d) 980 1,066 331
Operating netbacks ($/boe) (1)
Natural gas ($/Mcf) $2.18 $1.26 $0.74
Crude oil ($/bbl) $80.04 $66.37 $27.31
Total ($/boe) $49.18 $33.27 $22.37
(1) Non-IFRS measures - see "Non-IFRS Measures" section within
the second quarter 2022 MD&A
(2) Long term restricted cash not included in working
capital
Discussion of Operating Results
The Company's second quarter 2022 average corporate production
decreased by 29% to 899 boe/d, compared to the first quarter 2022
average production of 1,144 boe/d. This decrease was largely
attributable to the West Pepper well in Alberta, Canada, which was
brought on production in December 2021 and has been recently
affected by a third party's temporary processing facility
constraints. Arrow's production on a quarterly basis is summarized
below.
Average Production Boe/d Q2 2022 Q1 2022 Q4 2021 Q3 2021 Q2 2021
-------------------------- -------- -------- -------- -------- --------
Oso Pardo 112 121 123 137 20
Ombu (Capella) 97 177 190 193 97
Rio Cravo Este (Tapir) 366 136 142 151 147
Total Colombia 575 434 455 481 264
Fir, Alberta 86 73 82 94 67
Pepper, Alberta 319 636 181 - -
-------------------------- -------- -------- -------- -------- --------
TOTAL (Boe/d) 980 1,144 719 575 331
-------------------------- -------- -------- -------- -------- --------
For the three months ended June 30, 2022, the Company's average
production mix consisted of crude oil and natural gas production in
Colombia of 575 bbl/d (2021: 264 bbl/d) and 2,398 Mcf/d (2021: 373
Mcf/d) , along with minor amounts of natural gas liquids from
Arrow's Canadian properties.
During the quarter, the Company successfully drilled the RCE-2
and RCS-1 wells, which were put into production and have
contributed to the increase in Colombia's crude oil production.
Discussion of Financial Results
During Q2 2022 the Company continued to realize good oil and gas
prices, as summarized below.
Three months ended June
30
------------------------------------------
2022 2021 Change
------------------------------------------ --------- -------- -------
Benchmark Prices
AECO ($/Mcf) $5.42 $2.48 119%
Brent ($/bbl) $111.98 $69.08 62%
West Texas Intermediate ($/bbl) $108.40 $66.19 64%
------------------------------------------ --------- -------- -------
Realized Prices
------------------------------------------ --------- -------- -------
Natural gas, net of transportation
($/Mcf) $5.45 $3.05 78%
Natural gas liquids ($/bbl) $92.56 $48.26 92%
Crude oil, net of transportation ($/bbl) $104.66 $63.19 66%
------------------------------------------ --------- -------- -------
Corporate average, net of transport
($/boe) (1) $71.35 $52.78 35%
------------------------------------------ --------- -------- -------
(1) Non-IFRS measures - see "Non-IFRS Measures" section within
the MD&A
Operating Netbacks
The Company also continued to realize good operating netbacks,
as summarized below.
Three months ended
June 30
2022 2021
---------------------------------------- ---------- ---------
Natural Gas ($/Mcf)
Revenue, net of transportation expense $5.45 $3.05
Royalties (0.62) (0.22)
Operating expenses (2.65) (2.09)
---------------------------------------- ---------- ---------
Natural Gas operating netback (1) $2.18 $0.74
---------------------------------------- ---------- ---------
Crude oil ($/bbl)
Revenue, net of transportation expense $104.66 $63.19
Royalties (13.31) (7.28)
Operating expenses (11.31) (28.60)
---------------------------------------- ---------- ---------
Crude Oil operating netback (1) $80.04 $27.31
---------------------------------------- ---------- ---------
Corporate ($/boe)
Revenue, net of transportation expense $71.35 $52.78
Royalties (8.80) (5.83)
Operating expenses (13.38) (24.58)
---------------------------------------- ---------- ---------
Corporate Operating netback (1) $49.18 $22.37
---------------------------------------- ---------- ---------
(1) Non-IFRS measure
Arrow realized better operating netbacks quarter-over-quarter,
increasing to $49.18/boe in the second quarter of 2022 from
$20.16/boe in the first quarter of 2022. This increase is due to
higher crude oil production and better netbacks from natural
gas.
During Q2 2022, the Company incurred capital expenditures in
connection with the drilling of the RCE-2 and RCS-1 wells. At the
end of the quarter, Arrow had a positive working capital position
of $5.6 million and a cash position of $7.4 million, which are
expected to fund the Company's expenditure plan for the foreseeable
future.
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 (Corporate) +44 (0)7711 627449
Rupert Holdsworth Hunt (Broking)
Camarco (Financial PR)
James Crothers +44 (0)20 3781 8331
Rebecca Waterworth
Billy Clegg
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. Arrow's 50%
interest in the Tapir Block is contingent on the assignment by
Ecopetrol SA of such interest to Arrow. 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.
Glossary
Bbl/d: Barrels per day
$/Bbl: Dollars per barrel
Mcf/d: Thousand cubic feet of gas per day
$/Mcf: Dollars per thousand cubic feet of gas
Boe/d: Barrels of oil equivalent per day
$/Boe: Dollars per barrel of oil equivalent
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.
MANAGEMENT's DISCUSSION AND ANALYSIS
THREE AND SIX MONTHS ended JUNE 30, 2022
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 August 26, 2022 and should be read
in conjunction with Arrow's condensed consolidated financial
statements (unaudited) and related notes for the three and six
months ended June 30, 2022 and 2021. Additional information
relating to Arrow is available under Arrow's profile on
www.sedar.com , including Arrow's Audited Consolidated Financial
Statements (the "Annual Financial Statements") for the year ended
December 31, 2021 and 2020.
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; Arrow's interest in
the OBC Pipeline (as defined herein) and the consequences thereof;
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 and duration 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; 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 and duration 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 (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.
Working capital is calculated as current assets minus current
liabilities; funds from operations is calculated as cash flows from
(used in) operating activities adjusted to exclude settlement of
decommissioning obligations and 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 loss adjusted for interest,
income taxes, depreciation, depletion, amortization and other
similar non-recurring or non-cash charges; and net debt is defined
as the principal amount of its outstanding debt, less working
capital items.
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 loss and
comprehensive loss per share.
A reconciliation of the non-IFRS measures is included as
follows:
Three months Six months Three months
ended June ended June ended June
(in United States dollars) 30, 2022 30, 2022 30, 2021
----------------------------------------------- ------------- ------------- -------------
Net income (loss) 768,318 (4,663,547) (734,317)
Add/(subtract):
Share based payments 40,917 103,836 (278,254)
Financing costs:
Accretion on decommissioning obligations 45,644 89,975 32,906
Interest 123,741 244,519 115,883
Other 134,981 244,029 716
Depreciation and depletion 971,353 1,840,592 333,282
Derivative loss 724,758 5,512,593 -
Adjusted EBITDA (1) 2,809,713 3,371,998 (529,784)
Cash flows used in operating activities (99,185) (196,893) (1,762,640)
Minus - Changes in non--cash working
capital balances:
Trade and other receivables 2,185,670 2,350,855 50,628
Restricted cash 157,481 157,481 (3,099)
Taxes receivable (4,560) 303,003 143,500
Deposits and prepaid expenses (81,506) 11,182 123,288
Inventory 150,459 228,776 182,695
Accounts payable and accrued liabilities 305,484 72,391 1,018,618
Funds flow from (used in) operations
(1) 2,613,843 2,926,795 (247,010)
(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
Three months Six months Three months
ended June ended June ended June
(in United States dollars, except 30, 2022 30, 2022 30, 2021
as otherwise noted)
--------------------------------------- ---------------------------- ---------------------------- -------------
Total natural gas and crude oil
revenues, net of royalties 5,024,604 8,427,566 941,620
Funds flow from (used in) operations
(1) 2,613,843 2,926,795 (247,010)
Funds flow from (used in) operations
(1) per share -
Basic($) 0.01 0.01 (0.00)
Diluted ($) 0.00 0.00 (0.00)
Net income (loss) 768,318 (4,663,547) (734,317)
Net income (loss) per share -
Basic ($) 0.00 (0.02) (0.01)
Diluted ($) 0.00 (0.02) (0.01)
Adjusted EBITDA (1) 2,809,713 3,371,998 (529,784)
Weighted average shares outstanding
-
Basic ($) 214,367,388 213,979,850 68,674,602
Diluted ($) 288,231,900 270,189,255 68,674,602
Common shares end of period 214,667,143 214,667,143 68,674,602
Capital expenditures 2,777,611 3,503,276 (15,378)
Cash and cash equivalents 7,368,252 7,368,252 4,559,231
Current Assets 12,190,063 12,190,063 8,773,936
Current liabilities 6,596,035 6,596,035 5,632,719
Working capital (1) 5,594,028 5,594,028 3,141,217
Long-term portion of restricted
cash (2) 867,047 867,047 503,257
Total assets 42,670,153 42,670,153 25,948,551
Operating
--------------------------------------- ---------------------------- ---------------------------- -------------
Natural gas and crude oil production,
before royalties
Natural gas (Mcf/d) 2,398 3,329 373
Natural gas liquids (bbl/d) 5 6 4
Crude oil (bbl/d) 575 505 264
Total (boe/d) 980 1,066 331
Operating netbacks ($/boe) (1)
Natural gas ($/Mcf) $2.18 $1.26 $0.74
Crude oil ($/bbl) $80.04 $66.37 $27.31
Total ($/boe) $49.18 $33.27 $22.37
(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, 2022 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 Operated 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 23,643 100% 23,643
Wapiti Non-operated 1,280 13% 160
Total Canada 33,723 26,961
------------------------------------------ ----------------- ---------------------- ---------------
TOTAL 499,140 253,966
------------------------------------------ ----------------- ---------------------- ---------------
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.
The 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 License
area.
Ombu E&P Contract - Capella Conventional Heavy Oil
Discovery
The Caguan Basin covers an area of approximately 60,000 km(2)
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.
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 Motney
P&NG rights at Pepper. The 06-26 well (West Pepper) is a
horizontal Upper Motney exploration well that produces natural gas
into the Galloway gas plant where it is processed.
Three months ended June 30, 2022 Financial and Operational
Highlights
-- Arrow recorded $5,024,604 in revenues (net of royalties) on
crude oil sales of 42,763 bbls, 458 bbls of natural gas liquids
("NGL's") and 222,642 Mcf of natural gas sales;
-- Generated funds flow from operations of $2,613,843 ;
-- Adjusted EBITDA was $2,809,713;
-- The Company recorded a net income of $768,318;
-- Drilled and completed the Rio Cravo Este -2 (RCE-2) and Rio
Cravo Sur-1 (RCS-1) wells in the Tapir block, increasing oil
production in Colombia
Results of Operations
The Company has significantly recovered its production and
improved its operations despite the challenges from the Covid-19
pandemic, combined with improved pricing of energy commodities.
During the three and six months ended June 30, 2022, the Company
increased production at its Tapir block from the drilling of the
RCE-2 and RCS-1 wells, offset by a decrease in production at the
Ombu blocks, and consistent production in the Oso Pardo field.
Also, the West Pepper Well decrease its production during the three
months ended June 30, 2022 due to third party's temporary
processing facility constraints.
Average Production by Property
Average Production Boe/d Q2 2022 Q1 2022 Q4 2021 Q3 2021 Q2 2021
-------------------------- -------- -------- -------- -------- --------
Oso Pardo 112 121 123 137 20
Ombu (Capella) 97 177 190 193 97
Rio Cravo Este (Tapir) 366 136 142 151 147
Total Colombia 575 434 455 481 264
Fir, Alberta 86 73 82 94 67
Pepper, Alberta 319 636 181 - -
-------------------------- -------- -------- -------- -------- --------
TOTAL (Boe/d) 980 1,144 719 575 331
-------------------------- -------- -------- -------- -------- --------
For the three months ended June 30, 2022, the Company's average
production was 980 boe/d (2021: 331 boe/d), which consisted of
crude oil production in Colombia at 575 bbl/d (2021: 264 bbl/d),
and natural gas production of 2,398 Mcf/d (2021: 373 Mcf/d) and
minor amounts of natural gas liquids from the Company's Canadian
properties.
Average Daily Natural Gas and Oil Production and Sales
Volumes
Three months ended Six months ended
June 30 June 30
--------------------------------
2022 2021 2022 2021
-------------------------------- ---------- --------- ---------- -------
Natural Gas (Mcf/d)
Natural gas production 2,398 373 3,329 378
-------------------------------- --------- -------
Natural gas sales 2,398 373 3,329 378
-------------------------------- --------- -------
Realized Contractual Natural
Gas Sales 2,398 373 3,329 378
-------------------------------- ---------- --------- ---------- -------
Crude Oil (bbl/d)
Crude oil production 575 264 505 220
Inventory movements and other (105) (101) (142) (51)
-------------------------------- ---------- --------- ---------- -------
Crude Oil Sales 470 163 364 169
-------------------------------- ---------- --------- ---------- -------
Corporate
Natural gas production (boe/d) 400 63 555 63
Natural gas liquids(bbl/d) 5 4 6 4
Crude oil production (bbl/d) 575 264 505 220
-------------------------------- ---------- --------- ---------- -------
Total production (boe/d) 980 331 1,066 287
Inventory movements and other
(boe/d) (105) (101) (142) (51)
-------------------------------- ---------- --------- ---------- -------
Total Corporate Sales (boe/d) 874 230 924 236
-------------------------------- ---------- --------- ---------- -------
During the three months ended June 30 , 2022 the majority of
production was attributed to Colombia, where the Company has two
operated properties: Oso Pardo and Rio Cravo Este, and one
non-operated property, Ombu. Production has also increased in
Canada where the Company has one operated (Pepper) and one
non-operated (Fir) producing properties.
Natural Gas and Oil Revenues
Three months ended Six months ended
June 30 June 30
-------------------------------------
2022 2021 2022 2021
------------------------------------- ----------- ----------- ------------- -----------
Natural Gas
Natural gas revenues 1,218,731 103,520 2,599,851 207,784
NGL revenues 42,528 21,993 86,145 39,702
Royalties (138,491) (9,500) (436,155) (22,331)
------------------------------------- ----------- ----------- ------------- -----------
Revenues, net of royalties 1,122,768 116,013 2,249,841 225,155
------------------------------------- ----------- ----------- ------------- -----------
Oil
Oil revenues 4,475,645 933,103 6,956,442 1,799,933
Royalties (569,224) (107,497) (778,717) (236,036)
------------------------------------- ----------- ----------- ------------- -----------
Revenues, net of royalties 3,906,421 825,606 6,177,725 1,563,897
------------------------------------- ----------- ----------- ------------- -----------
Corporate
Natural gas revenues 1,218,731 103,520 2,599,851 207,784
NGL revenues 42,528 21,993 86,145 39,702
Oil revenues 4,475,645 933,103 6,956,442 1,799,933
------------------------------------- ----------- ----------- ------------- -----------
Total revenues 5,736,905 1,058,616 9,642,438 2,047,419
Royalties (707,716) (116,997) (1,214,871) (258,367)
------------------------------------- ----------- ----------- ------------- -----------
Natural gas and crude oil revenues,
net of royalties, as reported 5,029,189 941,619 8,427,566 1,789,052
------------------------------------- ----------- ----------- ------------- -----------
Revenue for the three and six months ended June 30, 2022 was
$5.0 and $8.4 million, respectively, net of royalties, which
represents an increase of 371% and 434%, respectively, when
compared to the same periods in 2021. This significant increase is
mainly due to having all Colombian wells back in production,
additional wells drilled and producing, and the additional natural
gas production from the West Pepper well in Canada.
Average Benchmark and Realized Prices
Three months ended Six months ended
June 30 June 30
------------------------------------
2022 2021 Change 2022 2021 Change
------------------------------------ -------- ------- ------- -------- ------- -------
Benchmark Prices
AECO ($/Mcf) $5.42 $2.48 119% $4.55 $2.39 90%
Brent ($/bbl) $111.98 $69.08 62% $104.59 $65.23 60%
West Texas Intermediate ($/bbl) $108.40 $66.19 64% $101.45 $62.22 63%
------------------------------------ -------- ------- ------- -------- ------- -------
Realized Prices
------------------------------------ -------- ------- ------- -------- ------- -------
Natural gas, net of transportation
($/Mcf) $5.45 $3.05 78% $4.32 $3.04 42%
Natural gas liquids ($/bbl) $92.56 $48.26 92% $83.87 $48.86 72%
Crude oil, net of transportation
($/bbl) $104.66 $63.19 66% $91.12 $59.10 54%
------------------------------------ -------- ------- ------- -------- ------- -------
Corporate average, net of
transport ($/boe)(1) $71.35 $52.78 35% $54.23 $48.92 11%
------------------------------------ -------- ------- ------- -------- ------- -------
The Company realized prices of $71.35 and $54.23 per boe during
the three and six months ended June 30, 2022 (2021: $52.78 and
$48.92 per boe). This increase is a reflection of improved oil and
natural gas prices during 2022 .
Operating Expenses
Three months ended Six months ended
June 30 June 30
---------------------------
2022 2021 2022 2021
--------------------------- ------------- -------- ----------- --------
Natural gas & NGL's 590,932 70,745 1,401,777 128,864
Crude oil 483,503 422,283 1,111,139 606,309
--------------------------- ------------- -------- ----------- --------
Total operating expenses 1,074,435 493,028 2,512,916 735,173
--------------------------- ------------- -------- ----------- --------
Natural gas ($/Mcf) $2.65 $2.09 $2.33 $1.88
Crude oil ($/bbl) $11.31 $28.60 $14.55 $19.91
Corporate ($/boe)(1) $13.38 $24.58 $14.13 $17.56
--------------------------- ------------- -------- ----------- --------
(1)Non-IFRS measure
During the three and six months ended June 30, 2022, Arrow
incurred operating expenses of $1,074,435 and $2,512,916,
respectively, at an average cost of $13.38 and $14.13 per boe,
respectively. Operating expenses per boe have improved due to
increases in production of both crude oil and natural gas.
Operating Netbacks
Three months ended Six months ended
June 30 June 30
2022 2021 2022 2021
---------------------------------- ---------- --------- --------- --------
Natural Gas ($/Mcf)
Revenue, net of transportation
expense $5.45 $3.05 $4.32 $3.04
Royalties (0.62) (0.22) (0.72) (0.27)
Operating expenses (2.65) (2.09) (2.33) (1.89)
---------------------------------- ---------- --------- --------- --------
Natural Gas operating netback(1) $2.18 $0.74 $1.26 $0.88
---------------------------------- ---------- --------- --------- --------
Crude oil ($/bbl)
Revenue, net of transportation
expense $104.66 $63.19 $91.12 $59.10
Royalties (13.31) (7.28) (10.20) (7.75)
Operating expenses (11.31) (28.60) (14.55) (19.91)
---------------------------------- ---------- --------- --------- --------
Crude Oil operating netback(1) $80.04 $27.31 $66.37 $31.44
---------------------------------- ---------- --------- --------- --------
Corporate ($/boe)
Revenue, net of transportation
expense $71.35 $52.78 $54.23 $48.92
Royalties (8.80) (5.83) (6.83) (6.17)
Operating expenses (13.38) (24.58) (14.13) (17.56)
---------------------------------- ---------- --------- --------- --------
Corporate Operating netback
(1) $49.18 $22.37 $33.27 $25.19
---------------------------------- ---------- --------- --------- --------
(1) Non-IFRS measure
General and Administrative Expenses (G&A)
Three months ended Six months ended
June 30 June 30
2022 2021 2022 2021
----------------------------------- ----------- -------- ----------- ----------
General & administrative expenses 1,275,915 913,069 2,649,021 2,291,697
Less: G&A capitalized - - - -
G&A recovered from 3(rd) parties (147,030) - (167,030) -
----------------------------------- ----------- -------- ----------- ----------
Total operating overhead recovery (147,030) 913,069 (167,030) 2,291,697
----------------------------------- ----------- -------- ----------- ----------
Total G&A 1,128,885 913,069 2,481,991 2,291,697
----------------------------------- ----------- -------- ----------- ----------
Cost per boe $15.30 $45.52 $13.96 $54.75
For the three and six months ended June 30, 2022, G&A
expenses, before recoveries totaled $1,275,915 and $2,649,021,
respectively, which indicates stable G&A spending.
Share-based Payments Expense
Three months ended Six months ended
June 30 June 30
2022 2021 2022 2021
---------------------- -------- ----------- -------- ----------
Share-based Payments 40,917 (278,254) 103,836 (550,310)
---------------------- -------- ----------- -------- ----------
Share-based payments expense for the three and six months ended
June 30, 2022 totalled $40,917 and $103,836, respectively (201:
shared-based payment income of $278,254 and $550,310,
respectively). The share-based payments expense is the result of
the progressive vesting of the options granted to the Company's
employees and consultants, net of cancellations and forfeitures,
according to the company's stock-based compensation plan.
Financing Costs
Three months ended Six months ended
June 30 June 30
2021 2021 2021 2021
----------------------------------- ----------- -------- --------- --------
Financing expense paid or payable 258,723 116,599 488,549 424,150
Non-cash financing costs 45,644 32,906 89,975 64,969
----------------------------------- ----------- -------- --------- --------
Net financing costs $304,367 149,505 $578,524 489,119
----------------------------------- ----------- -------- --------- --------
The finance expense paid or payable represents interest on the
promissory note due to Canacol, as partial payment for the
acquisition of Carrao which bears interest at 15% per annum. The
decrease on this financing expense is due to a reduced outstanding
balance outstanding in Canacol's promissory note. In addition,
financing expense includes fees and interest associated with
financing standby letters of credit on certain of the Company's
Colombian blocks. The non-cash finance cost represents an increase
in the present value of the decommissioning obligation for the
current periods.
Loss on Derivative Liability
Three months ended Six months ended
June 30 June 30
2022 2021 2022 2021
------------------------------ ------------ ------- ------------ -----
Loss on Derivative Liability 724,758 - 5,512,593 -
------------------------------ ------------ ------- ------------ -----
During the three and six months ended June 30, 2022, the Company
recorded a loss in derivative liability of $724,758 and $5,512,593,
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
loss.
Depletion and Depreciation
Three months ended Six months ended
June 30 June 30
2021 2021 2021 2021
---------------------------- ---------- --------- ---------- --------
Depletion and depreciation 371,353 333,282 1,840,592 603,712
---------------------------- ---------- --------- ---------- --------
Depletion and depreciation expense in the three and six months
ended June 30, 2022 totalled $371,353 and $1,840,592, respectively
(2021: $333,282 and $603,712, respectively). The Company uses the
unit of production method and proved plus probable reserves to
calculate depletion expense and this increase is directly related
to an increase in depletable values and production of crude and
natural gas during Q2 2022 compared with 2021.
Other Income
Three months ended Six months ended
June 30 June 30
2022 2021 2021 2021
------------------------ ----------- -------- --------- ----------
Other expense (income) (20,204) 46,341 (12,094) (494,924)
------------------------ ----------- -------- --------- ----------
The Company reported other income of $20,204 and $541,266 for
the three and six months ended June 30, 2022, respectively (2021:
$46,341 expense and $494,934 income, respectively). The 2021 amount
was generated from the Company's ongoing negotiations of accounts
payable and debts with vendors, both in Colombia and Canada, which
have resulted in reductions of amounts actually paid in cash to
settle its liabilities.
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 working capital, excluding non-cash
items. 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.
On October 2021, the Company raised approximately $12 million
(C$15.0 million), through a placing and subscription for new common
shares with new investors and executive management as part of the
Company's shares admission to trade on the AIM Market of the London
Stock Exchange plc. This fundraising consisted on placement and
subscription of 140,949,565 new common shares, at an issue price of
GBP0.0625 (C$0.106125) per new common share, and one warrant for
every two new common shares, exercisable at GBP0.09 per new common
share for 24 months from the AIM admission date (October 25, 2021).
On November 24, 2021, the Company closed a private placement of
C$395,375 for issuance of 3,765,476 new common shares and 1,999,938
warrants.
As at June 30, 2022, the Company's working capital is
$5,594,028. During 2021 and 2022, the Company has been favorably
impacted by the overall improvement in energy commodity prices,
which has also impacted the Company's capacity to generate
sufficient financial resources to sustain its operations. This has
contributed to the Company's ability to complete financing
transactions in 2021, in the form of fundraisings, from its
existing and new investors and management is confident that
additional resources would be available to the Company to close
similar transactions. As at June 30, 2022 the Company's net debt
was calculated as follows:
June 30, 2022
-------------------------------------------------------- ------------ ---------------------------------------
Current assets $ 12,190,063
Less:
Accounts payable and accrued liabilities 3,000,160
Promissory Note - short term portion 3,557,792
------------------------------------------------------------------------------------------ -------------------
Net debt (1) $ 5,632,111
---------------------------------------------------------------------- ---------------- -------------------
(1) Non-IFRS measure
Working Capital
As at June 30, 2022 the Company's working capital was calculated
as follows:
June 30, 2022
--------------------------------------------------------- ------------ --------------------------------------
Current assets:
Cash $ 7,368,252
Trade and other receivables 2,990,437
Taxes receivable 1,022,052
Other current assets 809,321
Less:
Accounts payable and accrued liabilities 3,000,160
Lease obligation 38,084
Promissory note - short term portion 3,557,792
------------------------------------------------------------------------------------------- ------------------
Working capital(1) $ 5,594,027
----------------------------------------------------------------------- ---------------- ------------------
(1) Non-IFRS measure
Debt Capital
The Company currently has $3.5 million in outstanding debt in
the form of a promissory note payable to Canacol and a long-term
debt of $31,040. On October 18, 2021, Arrow and Canacol entered
into a Seventh Amended and Restated Promissory Note. The principal
amendments are the following:
- The new principal amount of the promissory note is $6,026,166
- On or before October 31, 2021, the Company shall make a
payment of C$ 3,900,000 plus all Canacol's expenses incurred in
connection with this amendment and related matters, which has
already occurred;
- On or before December 31, 2022, the Company shall make a
payment equal to 50% of the total amount outstanding of interest
and principal; and
- The remaining balance of principal and interest shall be paid no later than June 30, 2023
The total balance of this promissory note and its interest of
$3,557,792 is presented as a current liability in the interim
condensed consolidated statement of financial position as at June
30, 2022. This amendment also provided that, in the event that the
Company made the payment due on October 31, 2021, Canacol agreed to
forgive $658,654 for excess pipeline shipping costs, as a result of
the settlement of the OBC pipeline dispute.
Letters of Credit
As at June 30, 2022, the Company had obligations under Letters
of Credit ("LC's") outstanding totaling $5.3 million to guarantee
work commitments on exploration blocks and other contractual
commitments. Of the total, approximately $4 million has been
guaranteed by Canacol. Under an agreement with Canacol, Canacol
will continue to provide security for the LC's providing that Arrow
uses all reasonable efforts to replace the LC's. In the event the
Company fails to secure the renewal of the LC's underlying the
Company's Agencia Nacional de Hidrocarburos ("ANH") guarantees, or
any of them, the ANH could decide to cancel the underlying E&P
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 April 14,
ANH Carrao Energy Abandonment $563,894 2023
Canacol and Financial December
ANH Carrao Capacity $1,672,162 31, 2022
December
COR - 39 ANH Canacol Compliance $2,400,000 31, 2022
Financial April 14,
OMBU ANH Carrao Energy Capacity $436,300 2023
-------------- ------------- --------------- ------------- ----------- ----------
Total $5,072,356
===========
Share Capital
As at June 30, 2022, the Company had 214,667,143 common shares,
71,572,206 warrants and 15,845,000 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 June 30, 2022:
Less than
1 year 1-3 years Thereafter Total
------------------------ ------------------------------------- ------------------------------------- ---------------------- -------------------------------------
Promissory
Note $ 3,557,792 $ - - $ 3,557,792
Long term debt - 31,040 - 31,040
Exploration and production
contracts - 17,800,000 - 17,800,000
---------------------------------------- --------------------- ------------- ---------------------- ---------------------- ------------- ----------------------
$ 3,557,792 $ 17,831,040 - $ 21,388,832
--------------------------------------- --------------------- ------------- ---------------------- ---------------------- ------------- ----------------------
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 at
June 30, 2022 of $17.8 million. The Company, in conjunction with
its partners, have made applications to cancel $15.5 million ($5.79
million Arrow's share) in commitments on the Macaya and Los
Picachos blocks. The remaining commitments are expected to be
satisfied by means of seismic work, exploration drilling and
farm-outs.
SUMMARY OF THREE MONTHS RESULTS
2022 2021 2020
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
------------ ------------ ----------- ----------- ----------- ------------ ------------ -------------
Oil and natural
gas sales, net
of royalties 5,024,604 3,911,329 3,038,832 1,684,609 941,620 847,432 368,140 207,934
Net income (loss) 768,318 (5,431,865) 6,960,035 (21,782) (734,317) (510,405) (7,953,001) (1,390,746)
Income (loss) per
share -
basic 0.00 (0.03) 0.04 (0.00) (0.01) (0.01) (0.12) (0.02)
diluted 0.00 (0.02) 0.04 (0.00) (0.01) (0.01) (0.12) (0.02)
Working capital
(deficit) 5,594,027 7,657,938 8,006,074 783,707 3,141,217 (2,659,690) (1,932,940) (11,086,377)
Total assets 42,670,153 39,914,240 41,195,798 25,362,323 25,948,551 27,684,920 33,532,299 46,702,911
Net capital
expenditures 2,777,611 725,665 1,991,163 148,528 (15,378) 97,330 89,198 146,584
Average daily
production
(boe/d) 980 1,144 712 575 331 242 140 105
------------ ------------ ----------- ----------- ----------- ------------ ------------ -------------
Over the past quarters, the Company's oil and natural gas sales
have fluctuated due to changes in production, movements in the
Brent benchmark oil price and fluctuations in realized oil price
differentials. The Company's production levels in Colombia have
been variable, with increases driven by additional crude oil from
the Tapir wells, partially offset by the sale of the Company's
interest in the LLA-23 blocks and natural declines on mature
blocks. Trends in the Company's net income (loss) are also impacted
most significantly by commodity prices, increase in production,
financing costs, income taxes, depletion, depreciation and
impairment of oil and gas properties, gains and losses from risk
management activities.
OUTSTANDING SHARE DATA
At August 26, 2022, the Company had the following securities
issued and outstanding:
Exercise
Number Price Expiry Date
------------------------- ------------------------- --------------------------------- ---------------------------
Common shares 216,175,741 n/a n/a
Warrants 70,063,607 GBP 0.09 Oct. and Nov,
2023
Stock options 1,050,000 CAD$ 1.15 October 22,
2028
Stock options 345,000 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 2,983,332 GBP 0.07625 June 13, 2023
Stock options 2,983,332 GBP 0.07625 June 13, 2024
Stock options 2,983,336 GBP 0.07625 June 13, 2025
Stock options 766,665 CAD$ 0.28 December 9,
2023
Stock options 766,667 CAD$ 0.28 December 9,
2023
Stock options 766,668 CAD$ 0.28 December 9,
2023
OUTLOOK
The first six months of 2022 saw the Company deploy the capital
it raised at the time of its Admission to AIM on a successful two
well drilling campaign at Rio Cravo on the Tapir Block. The better
than forecasted results from this drilling campaign and the
subsequent generation of positive cashflows in Q3 means Arrow is
pleased to be committing to a further drilling programme. In Q4
2022, the Company expects to drill up to three further wells at Rio
Cravo and plans a two well program on the Carrizales Norte
Structure on the Tapir Block. A letter of intent has been signed
with a drilling contractor to execute the planned five well program
on the Colombian Tapir Block. Along with workovers to other
existing wells, the Company will seek to tie in the East Pepper
well in Q4 2022, confirming Arrow remains on target to increase
production to 3,000 boe/d within 18 months of AIM Admission. The
Company is able to support the planned 2023 CAPEX program with
current cash and cashflow from operations. Arrow continues to focus
on growth and improving its balance sheet and free cash flow.
On January 30, 2020, the World Health Organization declared the
Coronavirus disease (COVID-19) outbreak a Public Health Emergency
of International Concern and, on March 10, 2020, declared it to be
a pandemic. Actions taken around the world to mitigate the spread
of COVID-19, combined with OPEC's initial plan to increase global
supply resulted in significant weakness and volatility in commodity
prices in early 2020. Commodity prices began to recover in late
2020 and continued that recovery in 2021 and 2022. Although it is
impossible to reliably estimate the continuous impact of COVID-19,
and OPEC's policies and the volatile commodities market, both are
anticipated to have material effects on the Company's 2022
financial results relative to 2021.
CRITICAL ACCOUNTING ESTIMATES
A summary of the Company's significant accounting policies is
contained in Note 3 of the audited consolidated financial
statements as at and for the years ended December 31, 2021 and
2020. 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 of the audited consolidated financial statements as at
and for the years ended December 31, 2021 and 2020. 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, 2021 for a description of the financial,
business and other risk factors affecting the Company which are
available on SEDAR at www.sedar.com
Arrow Exploration Corp.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ended JUNE 30, 2022 AND 2021
IN UNITED STATES DOLLARS
(UNAUDITED)
Notice of No Auditor Review of the Interim Condensed
Consolidated Financial Statements
as at and for the three and six months ended June 30, 2022
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 June 30, December 31,
2022 2021
ASSETS
Current assets
Cash $ 7,368,252 $ 10,878,508
Trade and other receivables 4 2,990,437 639,582
Taxes receivable 5 1,022,052 719,049
Deposits and prepaid expenses 333,481 322,300
Inventory 475,841 247,063
------------------------------------- -------------- --- ---------------------- ----------------------
12,190,063 12,806,502
------------------------------------- -------------- --- ---------------------- ----------------------
Non-current assets
Deferred income taxes 4,839,785 4,839,785
Restricted cash 3 867,047 732,553
Exploration and evaluation 6 6,964,506 6,964,506
Property and equipment 7 17,808,752 15,852,452
------------------------------------- -------------- --- ---------------------- ----------------------
Total Assets $ 42,670,153 $ 41,195,798
------------------------------------- -------------- --- ---------------------- ----------------------
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued
liabilities $ 3,000,160 $ 3,120,777
Lease obligation 9 38,084 20,258
Promissory note 8 3,557,792 1,659,393
------------------------------------- -------------- --- ---------------------- ----------------------
6,596,036 4,800,428
------------------------------------- -------------- --- ---------------------- ----------------------
Non-current liabilities
Long-term debt 31,040 31,552
Lease obligation 9 45,773 34,434
Other liabilities 10 177,500 177,500
Deferred income taxes 3,371,935 3,371,936
Decommissioning liability 11 2,799,579 2,470,239
Promissory note 8 - 1,659,393
Derivative liability 12 9,941,498 4,692,203
Total liabilities 22,963,361 17,237,685
------------------------------------- -------------- --- ---------------------- ----------------------
Shareholders' equity
Share capital 13 56,932,670 56,698,237
Contributed surplus 1,346,633 1,249,418
Deficit (37,849,353) (33,185,806)
Accumulated other comprehensive
loss (723,158) (803,736)
------------------------------------- -------------- --- ---------------------- ----------------------
Total shareholders' equity 19,706,792 23,958,113
------------------------------------- -------------- --- ---------------------- ----------------------
Total liabilities and shareholders'
equity $ 42,670,153 $ 41,195,798
------------------------------------- -------------- --- ---------------------- ----------------------
Commitments and contingencies (Note 14)
The accompanying notes are an integral part of these interim
condensed consolidated financial statements.
On behalf of the Board:
signed "Gage Jull" Director signed "Maria Charash" Director
Gage Jull Maria Charash
Arrow Exploration Corp.
Interim Condensed Consolidated Statements of Operations and
Comprehensive Loss
In United States Dollars
(Unaudited)
For the three months For the six months
ended June 30 ended June 30
Notes 2022 2021 2022 2021
------------------------------ ------ ------------ -------------- ---------------- --------------
Revenue
Oil and natural gas $ 5,731,109 $ 1,058,616 $ 9,642,438 $ 2,047,419
Royalties (706,505) (116,997) (1,214,872) (258,367)
5,024,604 941,619 8,427,566 1,789,052
------------ -------------- ---------------- --------------
Expenses
Operating 1,074,435 493,028 2,512,916 735,173
Administrative 1,128,885 913,069 2,481,991 2,291,697
Listing costs 44,958 - 76,323 -
Share based payments 14 40,917 (278,254) 103,836 (550,311)
Financing costs:
Accretion 13 45,644 32,906 89,975 64,969
Interest 123,741 115,883 244,519 377,687
Other 134,981 716 244,029 46,463
Derivative loss (gain) 724,758 - 5,512,593 -
Foreign exchange loss (21,292) 18,965 4,543 (40,692)
Depletion and depreciation 971,353 333,282 1,840,592 603,712
Other expense (income) (12,094) 46,341 (20,204) (494,924)
------------ -------------- ---------------- --------------
4,256,286 1,675,936 13,091,113 3,033,774
------------ -------------- ---------------- --------------
Income (loss) before
taxes 768,318 (734,317) (4,663,547) (1,244,722)
Income taxes (recovery)
Current - - - -
Deferred - - - -
------------ -------------- ---------------- --------------
- - - -
Net income (loss)
for the period 768,318 (734,317) (4,663,547) (1,244,722)
Other comprehensive
income (loss)
Foreign exchange 35,925 277,028 80,578 263,557
------------ -------------- ---------------- --------------
Net income (loss)
and comprehensive income
(loss) for the period $ 804,243 $ (457,289) $ (4,582,969) $ (981,165)
Net income (loss)
per share
- basic $ 0.00 $ (0.01) $ (0.02) $ (0.02)
* diluted $ 0.00 $ (0.01) $ (0.02) $ (0.02)
Weighted average shares
outstanding
- basic 214,367,388 68,674,602 213,979,850 68,674,602
* diluted 288,231,900 68,674,602 270,189,255 68,674,602
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)
Accumulated
Contributed other
Share Surplus comprehensive Deficit Total
Capital loss Equity
--------------------- --- ----------- -------------- ---------------- ------------- ------------
Balance January
1, 2022 $ 56,698,237 $ 1,249,418 $ (803,736) $ (33,185,806) $ 23,958,113
Subscription of
common shares,
net 234,433 - - - 234,433
Options settled
in cash - (6,622) - - (6,622)
Net loss for the
period - - - (4,663,547) (4,663,547)
Comprehensive
income for the
period - - 80,578 - 80,578
Share based payments - 103,837 - - 103,837
Balance June 30,
2022 $ 56,932,670 $ 1,346,633 $ (723,158) $ (37,849,353) $ 19,706,792
Accumulated
Share Contributed other
Capital Surplus comprehensive Deficit Total
loss Equity
--------------------- --- ----------- -------------- ---------------- ------------- ------------
Balance January
1, 2021 $ 50,740,292 $ 1,521,845 $ (589,478) $ (38,879,338) $ 12,793,321
Net loss for the
period - - - (1,244,722) (1,244,722)
Comprehensive
income for the
period - - 263,557 - 263,557
Share based payments - (550,311) - - (550,311)
Balance June 30,
2021 $ 50,740,292 $ 971,534 $ (325,921) $ (40,124,060) $ 11,261,845
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 six months ended June 30, 2022 2021
------------------------------------------------------- -------------- --------------
Cash flows used in operating activities
Net loss $ (4,663,547) $ (1,244,722)
Items not involving cash:
Share based payment 103,836 (550,311)
Depletion and depreciation 1,840,592 603,712
Interest on leases 5,946 3,440
Interest on promissory note, net of forgiveness 238,573 318,099
Accretion 89,975 64,969
Foreign exchange loss (gain) (111,604) 186,696
Loss on derivative liability 5,512,593 -
Settlement of decommissioning obligations (89,569) -
Changes in non--cash working capital balances:
Restricted cash (157,481) 256,113
Trade and other receivables (2,350,855) 410,909
Taxes receivable (303,003) (78,537)
Deposits and prepaid expenses (11,182) (135,047)
Inventory (228,776) (182,695)
Accounts payable and accrued liabilities (72,391) (4,351,550)
Cash used in operating activities (196,893) (4,698,924)
-------------- --------------
Cash flows provided by (used in) investing
activities
Additions to property and equipment (3,503,276) (81,952)
Changes in non-cash working capital (48,227) (2,136,379)
-------------- --------------
Cash flows provided by (used in) investing
activities (3,551,503) (2,218,331)
-------------- --------------
Cash flows used in financing activities
Common shares issued 118,260 -
Lease payments (19,544) (12,047)
Cash flows used in financing activities 98,716 (12,047)
Effect of changes in the exchange rate
on cash 139,424 15,329
Decrease in cash (3,510,256) (6,913,973)
Cash, beginning of period 10,878,508 11,473,204
-------------- --------------
Cash, end of period 7,368,252 4,559,231
============== ==============
Supplemental information
Interest paid $ - $ -
Taxes paid $ - $ -
------------------------------------------------------ -------------- --------------
The accompanying notes are an integral part of these
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 550, 333 -
11th Ave SW, Calgary, Alberta, Canada, T2R 1L9 and the registered
office is located at 1600, 421 - 7th Avenue SW, Calgary, Alberta,
Canada, T2P 4K9.
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 authorised for issue by
the board of directors of the Company on August 26, 2022. 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, 2021.
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, 2021. 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 consolidated financial
statements for the year ended December 31, 2021.
3. Restricted Cash
June 30 December
, 31, 2021
2022
-------------------- ---------- --------------- -------- ----------------
Colombia (i) $ 195,289 $ 53,726
Canada (ii) 671,758 678,827
$ 867,047 $ 732,553
=============== ================
(i) Restricted cash is comprised of a deposit held as collateral
to guarantee abandonment expenditures related to wells in the Tapir
and Oso Pardo blocks.
(ii) Pursuant to Alberta government regulations, the Company was
required to keep a $324,501 (CAD $418,171; 2021: $415,557) deposit
with respect to the Company's liability rating management ("LMR").
The deposit is held by a Canadian chartered bank with interest paid
to the Company on a monthly basis based on the bank's deposit rate.
The remaining $347,257 pertain to commercial deposits with
customers, lease and other deposits held in Canada.
4. Trade and other receivables
June 30, December
31, 2021
2022
--------------------------------- ---------- ---------------- -------- ----------------
Trade receivables, net of
advances $ 1,735,605 $ 252,141
Other accounts receivable 1,254,832 387,441
$ 2,990,437 $ 639,582
================ ================
5. Taxes receivable
June 30, December
31, 2021
2022
------------------------------------- ---------- ---------------- -------- ----------------
Value-added tax (VAT) credits
recoverable $ 227,989 $ 105,827
Income tax withholdings and
advances, net 794,063 613,222
$ 1,022,052 $ 719,049
================ ================
The VAT recoverable pertains to non-compensated value-added tax
credits originated in Colombia as operational and capital
expenditures are incurred. The Company is entitled to claim for the
reimbursement of these VAT credits.
6. Exploration and Evaluation
June 30, December
31, 2021
2022
---------------------------- ---------- ---------------- -------- ----------------
Balance, beginning of the
period $ 6,964,506 $ 6,961,667
Additions, net - 2,839
---------------- ----------------
Balance, end of the period $ 6,964,506 $ 6,964,506
================ ================
7. Property and Equipment
Oil and Gas Right of
Cost Properties Use and Total
Other Assets
---------------------------- ------------------ ------------------- ------------------
Balance, December 31,
2020 $ 30,436,344 $ 182,105 $ 30,618,449
Additions 1,734,746 1,380 1,736,126
Decommissioning adjustment (10,173) - (10,173)
Balance, December 31,
2021 $ 32,160,917 $ 183,485 $ 32,344,402
Additions 3,835,617 50,046 3,885,663
Balance, June 30, 2022 $ 35,996,534 $ 233,531 $ 36,230,065
---------------------------- ------------------ ------------------- ------------------
Accumulated Oil and Gas Right of
depletion Properties Use and Total
and depreciation and Other Assets
impairment
--------------------- --------------------------- ------------------- -------------------------------------
Balance, December
31,
2020 $ 20,718,742 $ 83,207 $ 20,801,949
Depletion and
depreciation 1,591,179 31,758 1,622,937
Reversal of
impairment
losses of oil and
gas
properties (5,617,776) - (5,617,776)
--------------------- --------------------------- ------------------- -------------------
Balance, December
31,
2021 $ 16,692,145 $ 114,965 $ 16,807,110
Depletion and
depreciation 1,819,500 21,092 1,840,592
--------------------- --------------------------- ------------------- -------------------
Balance, June 30,
2022 $ 18,511,645 $ 136,057 $ 18,647,702
--------------------- --------------------------- ------------------- -------------------
Foreign exchange
--------------------- ------ ------------------- ------------------- -------------------------------------
Balance December 31,
2020 $ 339,364 $ (4,166) $ 335,198
Effects of movements
in foreign (20,038)
exchange rates (20,747) 709
--------------------- --------------------------- ------------------- -------------------------------------
Balance December 31,
2021 $ 318,617 $ (3,457) $ 315,160
Effects of movements
in foreign (88,771)
exchange rates (87,509) (1,262)
--------------------- --------------------------- ------------------- -------------------------------------
Balance June 30,
2022 $ 231,108 $ (4,719) $ 226,389
--------------------- --------------------------- ------------------- -------------------------------------
Net Book Value
Balance December 31, 2021 $ 15,787,389 $ 65,063 $ 15,852,452
Balance June 30, 2022 $ 17,715,997 $ 92,755 $ 17,808,752
As at June 30, 2022, the Company reviewed its cash-generating
units ("CGU") for property and equipment and determined that there
were no indicators of impairment present. As at December 31, 2021,
the Company reviewed its cash-generating units ("CGU") for property
and equipment and determined that there were indicators of
impairment reversal previously recognized in its Tapir block in
Colombia and its Canadian assets mostly driven by the recovery in
energy commodity prices. The company prepared estimates of both the
value in use and fair value less costs of disposal of its CGUs of
its CGUs and determined that recoverable amounts exceeded their
carrying value and, therefore, an impairment loss reversal of
$5,617,776 is included in the consolidated statements of operations
and comprehensive income (loss) for the year ended December 31,
2021. The following table outlines forecast benchmark prices and
exchange rates used in the Company's impairment test as at December
31, 2021:
Exchange AECO Spot
rate Brent Gas
Year $US / $Cdn US$/Bbl C$/MMBtu
2022 0.80 74.50 3.71
2023 0.80 72.00 3.28
2024 0.80 69.50 2.99
2025 0.80 71.00 3.10
2026 0.80 72.00 3.13
Thereafter (inflation 2.0%/yr 2.0%/yr
%)
The recoverable amounts were estimated at their fair value less
costs of disposal, based on the net present value of the future
cash flows from oil and gas reserves as estimated by the Company's
independent reserve evaluator at December 31, 2021. The fair value
less costs of disposal used to determine the recoverable amounts
are classified as Level 3 fair value measurements as certain key
assumptions are not based on observable market data but rather, the
Company's best estimate. The Company used a 17.5% discount rate,
which took into account risks specific to the Colombian CGUs and
inherent in the oil and gas business, and 15% discount rate for its
Canadian CGU, and provided the following recoverable values:
Recoverable Impairment
CGU Amount Reversal
Canada 5,036,655 1,435,201
Tapir 9,147,575 4,182,575
----------------
5,617,776
================
8. Promissory Note
The promissory note was issued to Canacol Energy Ltd.
("Canacol") as partial consideration in the acquisition of Carrao
Energy S.A. from Canacol. The promissory note bears interest at 15%
per annum, was initially due on January 28, 2019 and has been
subsequently amended and extended. On October 18, 2021, Arrow and
Canacol entered into a Seventh Amended and Restated Promissory Note
agreement. The principal amendments are the following:
- The new principal amount of the promissory note is $6,026,166
- On or before October 31, 2021, the Company shall make a
payment of C$ 3,900,000 plus all Canacol's expenses incurred in
connection with this amendment and related matters, which has
already occurred;
- On or before December 31, 2022, the Company shall make a
payment equal to 50% of the total amount outstanding of interest
and principal; and
- The remaining balance of principal and interest shall be paid no later than June 30, 2023
The total balance of this promissory note and its interest of
$3,557,792 is presented as a current liability in the interim
condensed consolidated statement of financial position as at June
30, 2022. The Company has granted a general security interest to
Canacol for the obligations under the Promissory Note.
9. Lease Obligations
A reconciliation of the discounted lease obligation is set forth
below:
2022 2021
----------- -----------
Obligation, beginning of the period $ 54,692 $ 70,842
Changes in existing lease 44,701 1,381
Lease payments (19,544) (24,535)
Interest 5,946 6,506
Effects of movements in foreign
exchange rates (1,938) 498
----------- -----------
Obligation, end of the period $ 83,857 $ 54,692
=========== ===========
Current portion $ 38,084 $ 20,258
Long-term portion 45,773 34,434
----------- -----------
$ 83,857 $ 54,692
=========== ===========
As at June 30, 2022, the Company has the following future
commitments associated with its office lease obligations:
Less than one year $ 44,841
2 - 5 years 48,290
--------
Total lease payments 93,132
Amounts representing interest over
the term (9,275)
--------
Present value of the net obligation 83,857
========
During 2022, the Company renegotiated its remaining lease
agreement to add space to its leased corporate space and its
related future lease obligation. As a result, the Company increased
its right-of-use assets and its lease obligation in $44,701.
10. Other Liabilities
The other liabilities of the Company relate to an environmental
fee in Colombia that is levied on capital projects. The fee is
calculated as 1% of the project cost. The program is administered
by the Colombian National Authority of Environmental Licences
("ANLA") and is levied on projects that utilize surface water or
deep water wells that may have an impact on the environment. The
funds are generally used in the affected communities for purposes
of land purchases, biomechanical works (e.g. containment walls in
rivers), reforestation, research projects and others. At December
31, 2021 the Company had provided for $177,500 (December 31, 2020 -
$177,500) for the environmental fee.
11. 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.
June 30, December
31, 2021
2022
---------------- -------- ----------------
Obligation, beginning of the period $ 2,470,239 $ 2,584,907
Change in estimated cash flows - (10,173)
Additions 338,319 -
Payments or settlements (89,569) (237,826)
Accretion expenses 89,976 132,807
Effects of movements in foreign
exchange rates (9,387) 524
---------------- -------- ----------------
Obligation, end of the period $ 2,799,579 $ 2,470,239
================ ======== ================
T he obligation was calculated using a risk-free discount rate
range of 1.00% to 2.00% in Canada (2021: 1.00% to 2.00%) and 8.46%
in Colombia (2021: 8.46%) with an inflation rate of 2.0% and 4.5%,
respectively (2021: 2.0% and 4.5%). It is expected that the
majority of costs are expected to occur between 2022 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 $4,754,579 (2021:
$4,222,717) .
12. Derivative liability
Derivative liability includes warrants issued and outstanding as
follows:
June 30, December 31,
2022 2021
Warrants Number Amounts Number Amounts
Balance beginning
of the period 72,474,706 $ 4,692,303 - $ -
Issued in AIM financing
(Note 15) - - 70,474,768 5,124,985
Issues in private
placement (Note
15) - - 1,999,938 149,543
Exercised (902,500) (112,969)
Fair value adjustment - 5,362,264 - (582,225)
----------- ----------- ------------------------ -----------
Balance end of the
period 71,572,206 $ 9,941,599 72,474,706 $ 4,692,303
=========== =========== ======================== ===========
Each warrant is exercisable at GBP0.09 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 June 30, 2022 and December 31, 2021 was
estimated using the following assumptions:
June 30, December 31,
2022 2021
------------------------------ ----------------- -------------------
Number outstanding
re-valued warrants 71,572,206 72,474,706
Fair value of warrants
outstanding GBP 0.115 GBP 0.048
Risk free interest
rate 1.63% 0.50%
Expected life 1.32 years 1.82 years
Expected volatility 154% 160%
------------------------------ ----------------- -------------------
The following table summarizes the warrants outstanding and
exercisable at June 30, 2022:
Number
of Exercise Expiry date
warrants price
----------- ----------- --------------
GBP 0.09 October 25,
70,234,768 2023
GBP 0.09 November 23,
1,337,438 2023
-----------
71,572,206
===========
13. Share Capital
(a) Authorized: Unlimited number of common shares without par value
(b) Issued:
June 30, December 31,
2022 2021
------------------------- -------------------------
Common shares Shares Amounts Shares Amounts
----------- ------------ ----------- ------------
Balance beginning
of the period 213,389,643 $ 56,698,237 68,674,602 $ 50,740,292
Issued in AIM financing
(i) - - 140,949,565 12,086,423
Issued in private
placement (ii) - - 3,765,476 308,501
Allocated to warrants
(Note 14) - - - (5,274,528)
Share-issue costs
(iii) - - - (1,162,451)
Issued from warrants
exercised 902,500 216,508 - -
Issued from options
exercised 375,000 19,725 - -
----------- ------------ ----------- ------------
Balance at end of
the period 214,667,143 $ 56,932,670 213,389,643 $ 56,698,237
=========== ============ =========== ============
(i) On October 2021, the Company raised approximately $12
million (C$15.0 million), through a placing and subscription for
new common shares with new investors, Canacol Energy Ltd.
(Canacol), and executive management (the Fundraising) as part of
the Company's shares admission to trade on the AIM Market of the
London Stock Exchange plc. The Fundraising consisted on placement
and subscription of 140,949,565 new common shares at an issue price
of GBP0.0625 (C$0.106125) per new common share. The Company's
executive management invested approximately C$ 1.41 million and
Canacol participated in the subscription to hold 19.9% of the
enlarged share capital. Investors received one warrant for every
two new common shares, exercisable at GBP0.09 per new common share
for 24 months from the AIM admission date (October 25, 2021).
(ii) On November 24, 2021, the Company announced that it has
closed a private placement of C$395,375 for issuance of 3,765,476
new common shares and 1,999,938 warrants (see Note 12).
(iii) During 2021, the Company recognized share issue costs for
$1,162,451 and listing costs of $583,972 associated with the
financings completed in 2021 as per above.
(b) 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 of the Company stock option plan as at December 31,
2021 and 2020 and changes during the respective periods ended on
those dates is presented below:
June 30, 2022 December 31, 2021
------------------------------------ ------------------------------------
Weighted Weighted
average average
exercise exercise
Number Price Number price
Stock Options of options (CAD $) of options (CAD $)
--------------------------- ------------------ ---------------- ------------------ ----------------
Beginning of period 17,114,000 $0.18 6,859,000 $0.40
Granted 2,300,000 $0.28 11,400,000 $0.13
Exercised in shares (375,000) $0.05 - -
Exercised in cash (400,000) $0.05 - -
Expired/Forfeited (2,794,000) $0.12 (1,145,000) $1.04
------------------ ---------------- ------------------ ----------------
End of period 15,845,000 $0.18 17,114,000 $0.18
================== ================ ================== ================
Exercisable, end
of period 3,395,000 $0.42 2,969,669 $0.46
================== ================ ================== ================
Weighted
Exercise Average Number
Price Remaining Exercisable
Date of Number (CAD Contractual Date of June 30,
Grant Outstanding $) Life Expiry 2021
------------- ------------- --------- ------------- ------------ -------------
October Oct. 22,
22, 2018 1,050,000 $1.15 6.32 years 2028 1,050,000
May 3, 2019 345,000 $0.31 6.85 years May 3, 2029 345,000
March 20, March 20,
2020 1,200,000 $0.05 7.73 years 2030 800,000
April 13, April 13,
2020 2,000,000 $0.05 7.79 years 2030 1,200,000
December June 13,
13, 2021 2,983,332 $0.13 0.96 years 2023 -
December June 13,
13, 2021 2,983,332 $0.13 1.96 years 2024 -
December June 13,
13, 2021 2,983,336 $0.13 2.96 years 2025 -
June 9, December
2022 766,665 $0.28 1.45 years 9, 2023 -
June 9, December
2022 766,667 $0.28 2.45 years 9, 2024 -
June 9, December
2022 766,668 $0.28 3.45 years 9, 2025 -
Total 15,845,000 $0.18 3.85 years 3,395,000
============= ============= ========= ============= ============ =============
During 2022, the Company recognized an expense of $103,836 (2021
- income of $272,056) as share based payments expense, with a
corresponding decrease in the contributed surplus account.
14. 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 at
June 30, 2022 of $17.8 million. T he Company, in conjunction with
its partners, have made applications to cancel $15.5 million ($5.8
million Arrow's share as per table below) in commitments on the
Macaya and Los Picachos blocks. The remaining commitments are
expected to be satisfied by means of seismic work, exploration
drilling and farm-outs. Presented below are the Company's
exploration and production contractual commitments at June 30,
2022:
Less
than
Block 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 June 30, 2022, the Company had obligations under Letters of
Credit ("LC's") outstanding totaling $5.3 million to guarantee work
commitments on exploration blocks and other contractual
commitments. Of the total, approximately $4.1 million has been
guaranteed by Canacol. Under an agreement, Canacol will continue to
provide security for Arrow's Letters of Credit providing that Arrow
uses all reasonable efforts to replace the LC's. 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 April 14,
ANH Carrao Energy Abandonment $563,894 2023
Canacol and Financial December
ANH Carrao Capacity $1,672,162 31, 2022
December
COR - 39 ANH Canacol Compliance $2,400,000 31, 2022
Financial April 14,
OMBU ANH Carrao Energy Capacity $436,300 2023
-------------- ------------- --------------- ------------- ----------- ----------
Total $5,072,356
===========
15. Financial Instruments
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. Currently, the Company does not have any commodity
price contract in place.
(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 production. 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 which is less than what they are worth; 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:
June 30, 2022 December 31,
2021
------------------- -------------------
Working capital, before promissory
note $ 5,594,027 $ 8,006,074
Non-Current portion of promissory
note - (1,659,393)
------------------- -------------------
$ 5,594,027 $ 6,346,681
=================== ===================
16. 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 Canadian segment is also
considered the corporate segment. The following tables show
information regarding the Company's segments for the three months
ended and as at June 30:
Three months ended June Colombia Canada Total
30, 2022
------------------------- --- ------------ ------------ -------------
Revenue:
Oil Sales $ 4,475,645 $ - $ 4,475,645
Natural gas and liquid
sales 1,255,464 1,255,464
Royalties (569,224) (137,281) (706,505)
Expenses (1,541,018) (2,715,267) (4,256,286)
Net loss $ 2,365,403 $ (1,597,084) $ 768,318
Six months ended June Colombia Canada Total
30, 2022
------------------------- --- ------------ ------------ -------------
Revenue:
Oil Sales $ 6,956,442 $ - $ 6,956,442
Natural gas and liquid
sales - 2,685,996 2,685,996
Royalties (778,717) (436,155) (1,214,872)
Expenses 3,157,421 9,933,692 (13,091,113)
Net income (loss) $ 3,020,304 $ (7,683,851) $ (4,663,547)
--- ------------ ------------ -------------
As at June 30, 2022 Colombia Canada Total
---------------------------- --- ----------- ----------- -----------
Current assets $ 6,491,047 $ 5,699,016 $ 12,190,063
Non-current:
Deferred income taxes 4,839,785 - 4,839,785
Restricted cash 195,289 671,758 867,047
Exploration and evaluation 6,964,506 - 6,964,506
Property and equipment 12,530,568 5,278,184 17,808,752
Total Assets $ 31,021,195 $ 11,648,958 $ 42,670,153
--- ----------- ----------- -----------
Current liabilities $ 2,196,394 $ 4,399,641 $ 6,596,035
Non-current liabilities:
Other liabilities 177,500 - 177,500
Deferred income taxes 3,371,935 - 3,371,935
Lease obligation - 45,773 45,773
Decommissioning liability 2,244,675 554,904 2,799,579
Long-term debt - 31,040 31,040
Derivative liability - 9,941,499 9,941,499
Total liabilities $ 7,990,505 $ 14,972,857 $ 22,963,362
--- ----------- ----------- -----------
Three months ended June Colombia Canada Total
30, 2021
-------------------------- --- --------------- ------------ ------------
Revenue:
Oil Sales $ 933,103 $ - $ 933,103
Natural gas and liquid
sales 125,513 125,513
Royalties 107,497 9,500 116,997
Expenses 1,196,850 479,086 1,675,936
Net loss $ (371,244) $ (363,073) $ (734,317)
Six months ended June Colombia Canada Total
30, 2021
-------------------------- --- --------------- ------------ ------------
Revenue:
Oil Sales $ 1,799,933 $ - $ 1,701,009
Natural gas and liquid
sales - 247,486 247,486
Royalties 236,036 22,331 258,367
Expenses 1,734,851 1,298,923 3,033,774
Net loss $ (170,954) $ (1,073,768) $ (1,244,722)
--- --------------- ------------ ------------
As at June 30, 2021 Colombia Canada Total
------------------------------- ----------- ------------ ------------
Current assets $ 4,797,199 $ 3,976,737 $ 8,773,936
Non-current:
Restricted cash 53,726 443,155 496,881
Exploration and evaluation 6,961,667 - 6,961,667
Property and equipment 6,568,383 3,147,684 9,716,067
Total Assets $ 18,380,975 $ 7,567,576 $ 25,948,551
----------- ------------ ------------
Current liabilities $ 4,064,824 $ 1,567,895 $ 5,632,719
Non-current liabilities:
Other liabilities 177,500 - 177,500
Lease obligation - 45,461 45,461
Decommissioning liability 2,142,865 520,757 2,663,622
Long-term debt - 32,272 32,272
Promissory note - 6,135,132 6,135,132
Total liabilities $ 6,385,189 $ 8,301,517 $ 14,686,706
----------- ------------ ------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR XKLLLLVLBBBE
(END) Dow Jones Newswires
August 30, 2022 02:02 ET (06:02 GMT)
Arrow Exploration (LSE:AXL)
Historical Stock Chart
From Jun 2024 to Jul 2024
Arrow Exploration (LSE:AXL)
Historical Stock Chart
From Jul 2023 to Jul 2024
