Arrow Exploration Corp. (TSX-V:AXL) is a rapidly growing oil and gas E&P company focused on Colombia.
Its assets in the Latin American country provide it with low-cost production and contain an extensive inventory of low-risk, high-upside exploration, appraisal, and development opportunities.
The company’s management and board have significant expertise in turning around, building, and developing international oil and gas companies, and are positioning Arrow to become a leading independent oil producer in the region.
Proactive sat down with Arrow’s CEO, Marshall Abbott to find out more about this exciting oil play.
Proactive: Arrow’s core assets are in Colombia - the Tapir Block and the Oso Pardo Field – what attracted the company to the region?
Marshall Abbott: Well, initially, when we had a look at the company's assets and the blocks that they held it was apparent to us that we were in a very prolific hydrocarbon producing fairway, onshore Colombia. It also became quite apparent that the opportunities that were presented to us on our blocks were developmental in nature, very low risk, and offered significant upside.
As well, there is scope and repeatability - it's not just one or two shots, it's a number of shots. There is existing oil production that surrounds us on the Tapir Block, right out to our block boundary. In fact, there's probably been 40 million barrels of oil produced within five kilometers of our block boundary. So we very much are excited by the Tapir Block.
We intend to be active on Tapir inside of 90 days of closing the previously-announced financing. And we’ll shoot a relatively focused 3D seismic program at the same time as drilling between eight and 10 development wells on two separate prospects on the Tapir Block. To give you an idea of the size of the Tapir Block, it's over 100 square miles.
So the geology is right, the engineering is right, the oil comes out fast - it's light, sweet, crude - and the fiscal regime is excellent. It's one of the top fiscal regimes in the world and we will pay between an 8% and 14% royalty.
Oso Pardo is very similar, but shallower. We've got existing production there and we have room, ultimately, to drill upwards of 20 wells at Oso Pardo. We do require a block extension, which we have applied for, and which there is precedent for. We've had an independent third party go through the technical data, and they are actually a little more optimistic on productivity and ultimate production.
So would you look for other assets in the same area?
For certain we would. The issues facing Colombia right now are that they peaked as an oil producer in 2012/2013 at about a million barrels a day. That has declined through lack of investment and the commodity price to about 750,000 barrels a day. But they have a mandate issued by the government to get back to a million barrels a day.
So what has transpired is that a number of undercapitalized entities have not been able to access capital, yet they are sitting on relatively attractive blocks that require a little bit of technical work to get them to drilling stage. So we're going to focus on them as much as we're going to focus on drilling our own blocks.
So you've got this opportunity-rich asset base, you're looking to increase production and cash flow, and have a strong balance sheet with the aim of creating significant shareholder value. How is that progressing?
Well, since we arrived on the scene, we've cleaned up the balance sheet. We have positive cash flow and positive working capital to the tune of $4.7 million. We also have some very near term production adds that we can initiate inside of 60 to 90 days, one of them being an asset that we actually have in Canada, the 3-26 West Pepper Well, that was drilled by a predecessor entity and that has the capacity to come on at just under 1,000 barrels of oil equivalent a day.
On the Colombian side, as I've mentioned, we estimate there are 8 to 10 wells that we can drill on two separate prospects that are developmental in nature, where historically, based on initial production rates over 90 days, the wells can each produce between 1,000 and 2,000 barrels a day of oil.
So when we kind of circle all of that into how does it look financially, we estimate we have the potential for cashflow, based on strip pricing, of upwards of $20 million dollars next year. And that would deliver significant cash flow per share, which could drive a quantum shift in share price as we execute in the field.
The company’s management and board have expertise in turning around, building, and developing international oil and gas companies. How important is this to the goal of becoming become a leading independent oil producer in Colombia?
Well, it's crucial for sure. Having run a number of international entities around the globe, I can say that, as I mentioned, the fiscal regime in Colombia is in the top 10% of fiscal regimes worldwide. The technical expertise we have in the Colombian basins is as good as it gets.
We've got a very progressive and transparent and diverse board that has significant international experience, in fact, two of our board members have been involved in companies producing hydrocarbons in Colombia for almost 20 years. We also have the gravitas from a people perspective, to add materially to our cash flow and production. At the same time, we have a good relationship with Canacol, where two of our directors hail from, so we are using their expertise and their relationships in-country to ensure that we don't have to break trail and reinvent the wheel.
We're pretty excited with that, and with the opportunity we see in the Colombian basins, with Colombia being at the same stage of drilling maturity that Canada was in the 1980s. So we pursue conventional assets, conventional prospects, we're not into drilling $10 million dollar multi frack horizontal wells. That's not our game. And the room for conventional production additions in Colombia is broad, diverse, and is material to us.
So what do you think you, personally, bring as CEO to the company?
Well, I've been in the business now for just under 40 years. I was trained at one of the majors, Texaco, and worked for a number of companies that had international focus. I started my own international company in the late 1990s and got that up to 30,000 barrels a day in a hurry.
So that expertise in building an asset base, of course, is crucial. But the more important thing is building the talent base. From the perspective of our technical professionals being fluent, that's very important to our guys that have worked in Colombia for a long time. And it's been my experience that, outside of the major oil and gas companies, there are about 200 explorationists that really understand international oil and gas, and our guys are part of that rather elite club.
I'm a team builder - I empower guys - and the experience I've got in executing in the field, raising the capital required, and ensuring that our focus is controlling our own destiny with high working interests, that experience has been mine as a CEO. Some of it learned the hard way, some of it learned the easy way.
So, what should Arrow Exploration shareholders expect in the near to medium term?
So in the near term, we are attempting to execute in the field as quickly as possible.
The Canadian asset, that I spoke of earlier, is capable of producing five and a half million cubic feet of gas a day. Gas prices in Alberta are very robust at the moment, so that well has the potential to produce C$10,000 of cash flow per day. It would pay out very quickly - it's 100 meters from a pipeline, and we would tie that in inside of 60 to 90 days and get the production on stream and cash flowing robustly in under three months.
That will actually make an impact on cash flow per share as well as providing us with the optionality of monetizing that asset or seeking somebody to come and farm-in. That asset is known as the Montney play, which is the most sought-after play in Western Canada right now.
But we want to really use that as a tool to focus on Colombia. In the near to medium term, we are going to initiate drilling in the field on the Tapir Block on two separate prospects. One is the Rio Cravo Este block prospect, where we do have existing production there of about 150 barrels a day net to us. We've got room on the existing pad to expand to handle up to five wells, and we have production facilities in place.
The other prospect that we have is Carrizales Norte, which goes right to our block boundary. And on the other side of that block boundary, there's a field that's produced eight and a half million barrels to date with the closest well a kilometer and a half away from us that came on at 2,500 barrels a day. So you get a sense for the material adds that we can bring to the table very quickly.
We build companies and the shareholder is preeminent in our minds. If the shareholder’s happy, we're happy. And that's the way we'd like to move forward.
Contact the author at jon.hopkins@proactiveinvestors.com