Arrow Exploration Share Discussion Threads

[mount teide] 29/11/2024 22:22

Potential for a pre Christmas announcement of the result of the Alberta exploration well - strongly suspect there will be more than few beers sunk if a new multi zone oil discovery is confirmed!

November 2024 - "We're cash flowing $4-5 million a month"

A tremendous achievement when considering Brent is at $72/bbl and there is a $6-8/bbl sales price discount for heavy crude oil.

$2.1m / £1.65m - Horizontal Well Net Cost

$1.6m / £1.26m - Vertical Well Net Cost

Market cap of $76m - with net cash of $19m.

Enterprise value: $54 million / 18.75p a share!
(Equivalent to one eleventh of Parex's forecast operational cash flow for 2024, and one eighth of a Capex Budget which is forecast to deliver a MID GUIDANCE REDUCTION in average production of 7,500 bopd for the year!)

AIMHO/DYOR

[the_gold_mine] 29/11/2024 19:23

Baquiano to spud (probably) Monday according to Marshall, he advises results within 10 days-2 weeks...

Exciting times

[the_gold_mine] 29/11/2024 19:18

New interview out

[mount teide] 29/11/2024 18:51

swan - 'Declines given between two dates should always refer to production rates on those dates. IOW the total decline so far on HZ1 is around 63.5%, not 77%'

Thanks - Would have been reasonable to expect, since it results in a slowing of the decline rate after three months rather than a more implausible acceleration.

[swanvesta] 29/11/2024 18:16

Declines given between two dates should always refer to production rates on those dates. IOW the total decline so far on HZ1 is around 63.5%, not 77% - and that matches the 580 bopd (vs 1575 IP) given in the previous news release.

But that's not the point. When projecting production a year out it clearly makes a huge difference if the annual decline is 27% vs 27% compounded 6 times! It would mean every 1k of current production becomes either 730bpd or 151 bpd. Which is not to say either of those numbers are realistic, rather the opposite. I'm just pointing out the information HAT passed on in September seems to have been disappointingly misleading.

(BTW I'm happy with my own modelling, which seems considerably more conservative than others here. 5500 bopd was my best guess, and I think we'll exit the year under 5000 assuming no other wells come on line.)

[here and there] 29/11/2024 15:25

It was a a broad brush stroke Swan and clearly all the wells will differ. And MT is correct about from level do we measure the drop.
I know they have had to wait until all the water disposal measures were in place before they could try turning the pumps up a wee bit. I suspect (but don't know for sure) the decline rates have been v good the past 6 weeks or so because they have turned the pumps up a notch.

[jacks13] 29/11/2024 15:03

The statement re 50% initial followed by 25% steady state is surely intended as a broad brush statement and should be read in that context.

With all that is going on does it really move the needle as to whether you hold or sell?

[mount teide] 29/11/2024 14:49

swan - 'I note MA's latest decline estimate for HZ1 is 50% in 3 months and then 27% from day 90 to present (a further 2 months.)'

On first reading the Interims, what immediately came to mind in this respect was that the wording did not make clear whether it was a 27% drop from the 50% level reached after 3 months OR a 27% further drop relative to the IP level.

ie: is it a 63.5% post IP decline after 5 months or 77%?

[swanvesta] 29/11/2024 14:41

HAT, I note MA's latest decline estimate for HZ1 is 50% in 3 months and then 27% from day 90 to present (a further 2 months.) That's rather different to 25% pa ongoing as you posted below, and much less reassuring! Not blaming you for anything (it's nice to hear these things), just flagging as a bit of a step backwards in my ongoing search for clarity.

here and there
19 Sep '24 - 10:40 - 9338 of 10033
0 31 0
Had a decent broker zoom with Arrow this week, some highlights
...
- Really interesting on the horizontal decline rates. So far the wells are performing better than their modelling. As a basic rule of thumb it works like this. 50% decline in 3 months (An initial flush). From that point on expect annual declines of 25%.
...

[mount teide] 29/11/2024 14:35

UncleOswald - many thanks for your thoughts - much appreciated.

As we run down the twilight days of 2024 and begin to think about the prospects for Arrow in 2025 some thoughts:

The very low cost, high impact horizontal drilling programme in the Ubaque at Carizalles Norte is not only continuing to meet or exceed modelled expectation but, is proving extremely reliable throughout the length, breadth and depth of the huge Ubaque reservoir and, has derisked further horizontal development to both the north and south of the current horizontal wells.

This bodes very well for the horizontal drilling programme in 2025, and potentially at:

* Baquiano/Alberta - which is on trend with the Carrizales Norte field and looks remarkably like its twin in many respects:

The aerial extent of the Baquiano three-way structural closure against a fault, is similar in size to the original Carrizalles Norte Prospect - ie: 1,850 metres(1.15 miles) x 375 meters(0.24 miles).

With similar targets: C7, Guadalupe, Gacheta, & Ubaque

Located approximately 3.5 km northeast of the Carrizales Norte discovery(itself, a step out of the Carrizales Field) on the same fault trend, in a basin where historically, exploration drilling on a three way structural closure against a fault has delivered a circa 90% CoS.

* Oso Pardo - has similar reservoir thickness & characteristics to CN's Ubaque

The proposed partnership with Canacol to develop the extension of the field into the adjacent VMM2 block is tremendous news, however, the icing on the cake from this arrangement will surely be the opportunity to explore the conventional prospects across the length and breadth of this huge block, which has a gross size of 72,500 acres - larger than our gross 65,154 acre Tapir Block.

A VMM-2 Block partnership deal with Canacol has the potential to deliver a highly material further step-change in the company's development by more than doubling the company's land under license for conventional O&G E&P operations and its P2 reserves.


In light of the above and drilling inventory out to 2027 of very low cost, ultra quick payback, very high return production development and low risk exploration prospects,

Some food for thought:

Arrow Exp share price is up 24% YTD

Perex Resources share price is down 40% YTD(US$1.02 billion fall in market cap) - a drop of more than 12 times Arrow's current market cap!

Parex has returned to shareholders US$1.35 billion in dividends and share buybacks over the last 5 years......that's 3.17 times Arrow's current market cap EVERY YEAR since 2018!

The recent heavy fall in Parex's shareprice was the result of a disappointing performance at one of what was previously described as its 'key growth drivers in the company's long term planning - the Arauca Asset', where Parex has a 50% Participating interest with NOC Ecopetrol.

'The primary event and circumstance that led Parex to withdraw the long term plan is due to Arauca underperformance, with the drilling and subsequent results being materially lower than Management’s expectations.' Parex recently revised down Arauca production guidance for 2024 down from 5,000 bopd to 500 bopd.

“Today, we have announced revisions to our outlook, primarily driven by lower-than-expected results at Arauca, which have materially impacted our production view for 2024. Our long-term profiles at LLA-34(Llanos Basin), Cabrestero and Capachos underpin continued shareholder returns, and we are taking meaningful and immediate steps to position Parex to deliver,” commented Imad Mohsen, President & Chief Executive Officer.

This could well result in Parex Resources, the largest O&G license land owner in Colombia, which recently acquired large tracts of unexplored acreage surrounding the Tapir Block, secured in an off tender deal during the last Government O&G license auction, to run their slide rule over Arrow a little earlier than they may have been previously planning......as an offer in this current weak priced oil market even at 2-3 times Arrow's current market cap would represent far better value compared to the shareholders funds they have spent over recent years increasing production organically on their own acreage.

AIMHO/DYOR

[che7win] 29/11/2024 14:32

3x 50k sells all at once.

[chrysalis99] 29/11/2024 14:10

Valuation metrics are much much lower these days

[j1m1e] 29/11/2024 12:28

KS
I often think back to that Geopark sale as a comparison of similiar size company's (will be relatively soon) in the same jurisdiction.
Id imagine that £242m in 2019 would be worth closer to £300m - £325m in today's money with the rampant inflation we've had these past 5 years.

[rckillco1] 29/11/2024 11:35

Does Marshall have an interview planned today?

[jacks13] 29/11/2024 10:54

It seems the latest horizontal (Carrizales Norte HZ-7) has simultaneously served three purposes; production, water management and exploration.

Production is self explanatory. By placing HZ7 lower into the structure, below other producers it could serve a sacrificial purpose in due course by moderating water accumulation at the upper levels of the reservoir. Thirdly HZ7 has broken through the fault structure. Clever, and an impressively efficient use of capital.

[11_percent] 29/11/2024 10:23

AYCTUS ADVISERS UP-DATE.

Its free, but you need to register.

There are a lot of tables in the up-date which I can not post.




==========================

ARROW EXPLORATION CORP (AIM: AXL)

November 28, 2024

FY25 budget: Production growth and exploration upside

• The 3Q24 financials were in line with our expectations with cash of US$16.5 mm at the end of September, which is consistent with previous indications.

• The sixth horizontal well at Carrizales Norte (CNB HZ-7) is producing 700 bbl/d of oil (350 bbl/d net to Arrow) with a water cut of 65%. While this flow rate is lower than at previous wells, we note that the horizontal well has been positioned lower in the structure and only 50 feet above the oil water contact. The other horizontal wells were positioned ~100 feet above the oil water contact. Arrow was expecting a higher initial water cut at HZ-7 well than at other horizontal wells.

• The HZ-7 well is the first well that went through the fault in this area of the field, resulting in additional drilling locations and potential reserves.


• Overall current net production is now 5.5 mboe/d (5,305 boe/d on 11 November).

• Arrow plans to spend ~US$50 mm in 2025 to drill up to ~23 wells with two rigs. The programme includes development wells at RCE and Carrizales Norte as well as exploration wells at Mateguafa Oeste and Capullo. Including the upcoming Alberta prospect, the programme is targeting ~11 mmboe prospective resources with an aggregate unrisked NAV of £0.42/sh. Arrow will also shoot 3D seismic to mature additional prospects.

• We forecast that the drilling programme will increase production from ~5.5 mbbl/d to >7 mbbl/d at YE25. By comparison, the US$37 mm FY24 drilling programme has increased production from 2.6 mboe/d in 4Q24 to 5.5 mbbl/d.

• As we incorporate the FY25 budget, partially offset by lower Brent price assumptions, we have increased our target price from £0.70/sh to £0.75/sh. We anticipate an increase in 2P reserves at YE24.



Reflections on decline rates and water cut


The decline rates at the horizontal wells are less than the company expected. Declines from CNB HZ-1, the longest producing horizontal well, were 50% in the first 3 months and 27% from day 90 until now. Using water cut as a proxy for decline rates, we are assuming water cut of 6080% after six months.


Valuation and cashflow

We have reduced our Brent price assumptions for 4Q24 and 1Q25 from US$80/bbl to US$75/bbl. Our Core NAV based on the company’s 2P reserves is now £0.36/sh (£0.32/sh previously) with a ReNAV of £0.76/sh (£0.67/sh previously). We forecast net cash of US$46 mm at YE25.

[king suarez] 29/11/2024 09:35

I keep having to remind myself of this comparator:



Amerisur - sold in 2019, for £242m, with just shy of 7k bopd, 22mb of 2P reserves and were netting around $50m p/a.

[che7win] 29/11/2024 09:10

I've topped up today.The results indicate the damage the warrants have done, the share dilution has held us back.But the company is a gem, will power upwards soon.

[here and there] 29/11/2024 08:53

Very happy with update.

Decline rates have stabilised which is a source of great comfort. I assume this is because they have been able to turn upm the pumps for the first time as all water disposal capibility is in place.

A new Auctus not is out. Forecasting 7000bopd plus by year end, $46m in cash in the bank, and this is after a $50m capex programme featuring 23 wells and a 3D campaign.

Someone posted a sensible comment about news flow. I don't think they will RNS every well result. I expect any exploration well to be RNSd as these will be material but as for the rest, they will be bunched together.

The key thing about this play is to understand the maths of the production profile. I tried to explain the notion of the 'tail' to my good wife.
"Give me £50k and I will give it back to you in three months. Then in year 1 I will give you £25k, in year two £15k, in year three £10k and over the next ten years or so £5k a year......would you do that deal?'
" And then , we can repeat the same deal another 50 times or so over the next couple of years.......fancy that?'

The return on capital is fabulous...a $2m well returning $30m plus over time

[uncleoswald] 29/11/2024 07:37

Best wishes for the immunotherapy treatment MT. I am sure we all wish you well.
You have been a most valuable contributor here over the years.
The weakness in the share price seems to be affecting many small oilers at the moment.
Could be partly down to a concensus of a weak oil price next year.

[dave4545] 28/11/2024 18:16

Cash $16.5 million end of September

1st November it's $19 mil so a $2.5 mil increase in just one month.

How on earth did this almost close unchanged. I get stocks dropping on good news after a super strong run but it's drifted down from 32p last few months?

[royalalbert] 28/11/2024 15:24

Good figures KS for highlighting the economies of scale

[king suarez] 28/11/2024 15:12

rota - I think 4 months makes sense. 350bpd at c$50 operating netback is approx $2.1m over 4 months. The payback period will be based on average production, whereas the IP rate in the presentation is initial production, so we can't be certain what average rate they assume during the payback period?

Having a look at some of the numbers - between end of 2023 and Q3 2024 AXL have spent c$25m on investing capex, which has delivered an incremental 2,105bopd average quarterly growth in production. In addition to the capex spend (recovered over 3-4 months on average) the combined operating and admin costs per qtr increased just $1.4m between Q3 2023 and Q3 2024, which equates to around $2.7/bbl on an annualised basis. This really highlights the economies of scale with the production growth here!

The capex spend of $25m on end 2023 production equates to around $33/bbl.

For next year, a capex budget of $50m equates to around $25/bbl on the current 5,500bopd.

I made Q3 2024 operating cash flow out to be $13.5m or $36.3/bbl on the average 4,042bpd or $43.0/bbl on the EBITDA of $15.9m (the difference, I think, being tax).

In the 9 month period the average benchmark Brent oil price dropped $7.31/bbl, however EBITDA only dropped $4.10/bbl - implying in increase in the operating margin of $3.21/bbl - again reinforcing the impact of the low cost incremental production.

[mount teide] 28/11/2024 14:56

Out this morning having latest session of immunotherapy treatment - so, reading the Interims now - which at first glance look very good and in line with the high expectation of the market.

With respect to the business progress made since April 2024(less than 8 months) from the CN Horizontal well drilling programme:

Production
+90% - 2,900 bopd to 5,500 bopd

Net Cash
+59% - $12.0m to $19.1m

An outstanding return on shareholders funds in under 8 months, particularly when considering that the $12m of net cash in April 2024 had been generated during a period when the oil price averaged over $90/bbl, while it's averaged around $78/bbl since commencement of the horizontal well programme.

CN Horizontal wells have delivered a near doubling of production in under 8 months while increasing the net cash position by 59%. All achieved at an average circa $78 oil price and from production attracting a circa $6-8/bbl discount to the sales price achieved by the light oil produced from the vertical wells during the previous 2.5 years.

In conclusion, the CN horizontal wells have delivered a spectacular step change improvement in production growth and cash flow compared to the vertical wells - an incredible achievement when considering the vertical wells on the Tapir Block had delivered a doubling of production for zero net cost, an almost unheard of performance by wider industry standards.

AIMHO/DYOR

[return_of_the_apeman] 28/11/2024 13:44

Thanks for correcting my figures King Suarez

I guess then the payback reducing to 4 months vs the 7 in the report must be that the cost to drill was significantly lower (I think 2.1m was stated for an earlier well) and they had assumed a lower oil price?