Arrow Exploration Corp (TSX-V:AXL, AIM:AXL, OTC:CSTPF) shares are tipped for significant upside, with London-based stockbroker Zeus Capital repeating a ‘buy’ recommendation, following Thursday’s financial results.
The company reported a 48% increase in second-quarter production to 3,768 barrels of oil equivalent per day, as operations in Colombia continue to ramp up.
Oil and gas revenue net of royalties rose to $15.9 million, a 5% increase year-on-year, and the firm ended June with $13.2 million of cash.
The company drilled five development wells across the Alberta Llanos, Carrizales Norte and Rio Cravo Este fields in the half, and invested $2 million in road and pad infrastructure. It also completed a $3 million 3D seismic programme over the southern Tapir block.
Current production is about 4,200 boe/d, with additional wells due online in early September expected to lift the rate further.
“We are pleased to see Arrow forging on with its drilling programme,” Zeus Capital analyst Daniel Slater said in a note.
“The company is able to drill attractive wells, with horizontals often paying out in around three months.”
Zeus’s ‘buy’ recommendation comes with a 35p price target, suggesting substantial upside to the current price of 12.75p.
“We remain of the view that, as more of these are drilled, the company will continue to build a lower-decline production base, which should ultimately result in increased cash flows even if drilling is slowed,”
Slater added: “Arrow’s drilling and production focus is its Tapir block, where its existing licence runs out in 2028. Arrow continues in discussion with the Colombian authorities to extend this, which we would expect to be likely given the degree of drilling activity the JV is driving.
“This is important for long term value, and any extension would be a significant positive catalyst for the shares, in our view.”