Operational Update and 2025 Year-End Reserves

Arrow Exploration Corp (TSXV:AXL) has provided a comprehensive operational update alongside its 2025 year-end reserves evaluation, revealing both production advancements and a strategic outlook for its Colombian assets. The company reported a current production rate of approximately 5,325 barrels of oil equivalent per day (boe/d) and anticipates further contributions from the recently drilled Mateguafa 11 (M-11) well, which has encountered promising oil-bearing sands. The M-11 well, drilled to a total measured depth of 11,455 feet, has revealed 18 feet of net pay in the C7 formation and 30 feet in the C9 formation, with plans to perforate these zones and commence production shortly. This operational success is complemented by the company's ongoing drilling campaign, including the upcoming horizontal well M-12Hz, expected to spud by the end of March 2026.

The reserves evaluation conducted by Boury Global Energy Consultants Ltd. indicates a mixed performance for Arrow's reserves as of December 31, 2025. The total proved reserves have decreased to 5,415 thousand barrels of oil equivalent (Mboe), down 7% from the previous year, while probable reserves have also seen a significant decline of 19%, totaling 6,360 Mboe. This reduction is primarily attributed to the conservative oil price forecasts used in the evaluation, which are notably lower than current market prices. The report highlights that 1P reserves are contingent on the expiration of the Tapir block contract in February 2028, whereas the 2P and 3P reserves assume potential extensions of this contract. The management remains optimistic about securing these extensions, which would enhance the company's reserve profile and operational viability.

Financially, Arrow Exploration's market capitalisation stands at CAD 116.1 million, positioning it within the micro-cap tier of the oil and gas sector. The company’s capital structure appears robust, with ongoing discussions regarding the Tapir license extension, which could alleviate potential funding gaps. However, the reliance on regulatory approvals introduces a degree of uncertainty. The company has not disclosed specific cash balances or debt levels in this announcement, making it challenging to assess the funding runway accurately. Given the current production and drilling activities, Arrow will need to manage its capital effectively to sustain operations and fund future drilling campaigns.

In terms of valuation, Arrow's current enterprise value can be assessed against its peers in the micro-cap oil and gas exploration sector. Notably, peers such as Gran Tierra Energy Inc (NYSEAmerican:GTE), which operates in Colombia and has a market cap of approximately CAD 130 million, and Parex Resources Inc (TSX:PXT), with a market cap of around CAD 1.5 billion, provide a comparative backdrop. Arrow's reserves, when evaluated on a per barrel basis, suggest a need for improved recovery rates to enhance its valuation metrics. The current market conditions, with Brent crude prices forecasted at USD 67.00 for 2026, may further impact the valuation outlook, especially given the conservative estimates used in the reserves report.

Arrow's execution track record has been characterized by a series of operational successes, particularly in its drilling campaigns. The Mateguafa Attic field has demonstrated significant potential, with the M-11 well extending the field's productive area. However, the declining reserves figures raise concerns about the sustainability of production levels and the company's ability to replace produced volumes. The management's confidence in securing regulatory extensions for the Tapir block is critical, as failure to obtain these could lead to a more pronounced decline in reserves and production.

The key risks highlighted by this announcement include regulatory uncertainties surrounding the Tapir license extension and the potential for fluctuating oil prices to impact future revenues. The reliance on conservative pricing forecasts in the reserves evaluation could also pose a risk if market conditions do not align with these projections. The next measurable catalyst for Arrow will be the anticipated production from the M-11 well, expected to come online in the coming weeks, alongside the spudding of the M-12Hz well by the end of March 2026.

In conclusion, Arrow Exploration Corp's operational update and reserves evaluation reflect a mixed outlook. While the company demonstrates growth potential through its drilling activities and production increases, the declining reserves figures and reliance on regulatory approvals introduce significant risks. The announcement can be classified as moderate in materiality, as it highlights both operational advancements and critical challenges that could affect the company's valuation and future growth trajectory. Investors will need to closely monitor the upcoming production milestones and regulatory developments to assess the company's ability to navigate these challenges effectively.

Key insights

• ●M-11 well shows promising oil-bearing sands.
• ●2025 reserves down 7% due to conservative pricing forecasts.
• ●Regulatory approvals for Tapir block are critical for future growth.

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