The company, trading at 17 cents per share on the  TSX Venture Exchange, is down from a 52-week high of 52 cents per share. The firm had to renegotiate its debt and postpone payment of $5 million USD due Canacol Energy Ltd. (TSX: CNE, BVC: CNE.C, OTCQX: CNNEF). Late last year, Arrow announced that it was exploring strategic alternatives “including: a sale, merger or other business combination; a disposition of all or certain assets of Arrow Exploration.”

Last week, the firm announced that Tim de Freitas, Gustavo Antonio Dajer Barguil and Brian Hearst, have been appointed to the board of directors, and Mauricio Nuñez Restrepo has been appointed as corporate secretary. The board of directors now consists of Ravi Sharma, Juan Carlos Salazar, Dr. Luis Baena, Anthony Zaidi, Tim de Freitas, Gustavo Antonio Dajer Barguil and Brian Hearst.

Tim de Freitas was a co-founder, and CEO of Ikkuma Energy in 2014 and grew that company until its merger with Pieridae Energy in late 2018. He is currently a director of Pieridae Energy and Briko Energy. Before that he was cofounder, Vice President, Exploration, and COO at Manitok Energy until October 2013. He also was COO of Drako Energy and Amarok Energy for several years, and he managed producing and nonproducing assets in Colombia and the western US. Prior to that, he held various technical and managerial roles at Talisman, Nexen, Canadian Occidental, British Gas and Exxon/Imperial Oil.

Colombian lawyer Gustavo Antonio Dajer Barguil ‎is a former diplomat with the Colombia Mission to The United Nations in New York and the former Consul General of Colombia in London, England. He holds a Master of Administrative Science from Fairleigh Dickinson University.

Brian Hearst is a chartered accountant with two decades of experience as CFO with various energy companies. He has also been a team member in several public listing projects: for TSX and TSXV, London AIM Exchange, and the BVC in Colombia.

Oil Pump Courtesy Kobiecanka – Pixabay

Revised Canacol Promissory Note Terms

Arrow and Canacol have agreed to a third amendment and extension to the existing $5 million Canacol promissory note, effective December 31, 2019. Under terms of the amended note, repayment of the principal and accrued and outstanding interest, which now total $5.6 million, has been deferred an additional six months to commence on April 1, 2021 with the outstanding interest to be paid in full at that time and the principal to be fully paid in six monthly installments by September 1, 2021.

The amended note provides Arrow with additional flexibility to manage its long-dated payables while the strategic alternatives process progresses, with support from Arrow’s financial advisor, Stifel FirstEnergy.

Key terms under the Amended Note are as follows:

• On or before April 1, 2021 Arrow Exploration shall pay in full all accrued and outstanding interest owing on the principal sum of $5 million from the origination date of the promissory note to July 31, 2019 being $628,767 plus interest on such sum at a rate equal to 15.0% per annum accruing as of December 31, 2019 until the date of payment (the “Interim Accrued Interest”).
• Commencing September 1, 2019 and on the first day of each month thereafter until no further obligations are owing, Arrow Exploration shall make interest-only monthly payments equal to the total amount of the outstanding interest on the principal sum and the Interim Accrued Interest.
• Commencing April 1, 2021 and on the first day of each of the following six months thereafter Arrow Exploration shall make equal monthly payments of the balance of the Principal Sum which remains outstanding as of April 1, 2021, amortized over such six month period, such that all remaining obligations are paid in full on or before September 1, 2021.
• At any time, all or any portion of the obligations then outstanding, may be prepaid by Arrow Exploration to Canacol without penalty or prepayment fee.
• In case of a change in control of Arrow Exploration, all of the amended note obligations shall be immediately due and payable to Canacol. For purposes of the amended note, a change in control means:
  1. Any direct or indirect change in control of Arrow Exploration (whether through merger, sale of shares or other equity interest, or otherwise through a single transaction or series of related transactions, from one or more transferors to one or more transferee or
  2. Any change in the composition of the board of directors of Arrow Exploration where the majority of the current directors of Arrow Exploration are replaced (whether at the same time or separately) at any time within a time period of 12 months from December 31, 2019. Control means the ownership directly or indirectly of more than 50% of the voting rights in a legal entity.
• Until all Amended Note obligations are paid in full, Arrow Exploration shall arrange to appoint two Canacol employees of Canacol´s choice to sit on Arrow’s board of directors at all times. In the normal course such appointments are subject to approval of regulatory authorities including the TSX Venture Exchange.
• The general security agreement granted to Canacol as part of the second amendment to the Canacol promissory note in July 31, 2019 remains in place as updated to reflect linkage to this third amendment.
• Other terms of the original Canacol promissory note remain unchanged.

Appointment of New Director

Under terms of the Amended Note, Arrow has agreed to appoint Anthony Zaidi, VP Business Development and General Counsel at Canacol, to the board of directors of Arrow to fill an existing vacancy, subject to regulatory approvals. With this appointment, Canacol will have two of its executives on the Arrow Board of Directors also including Mr. Ravi Sharma, the Chief Operating Officer of Canacol and a founding director of Arrow. Dr. Luis Baena, a founding director of Arrow originally nominated by Canacol, is no longer an employee of Canacol. The Arrow Board of Directors will now include Mr. Dominic Dacosta (Chair), Dr. Luis Baena, Mr. James McFarland, Mr. Juan Carlos Salazar, Mr. Ravi Sharma, Mr. Steve Smith and Mr. Anthony Zaidi.

Mr. Zaidi is a lawyer and businessman with significant experience in corporate finance and in the mining and energy sector in Colombia. Prior to joining Canacol, Mr. Zaidi was the President and General Counsel of Carrao Energy Ltd., a private oil and gas exploration company he co-founded and co-managed until its acquisition by the Canacol in November 2011 and in turn by Arrow in September 2018. Prior to this time, he had been an officer or director of several private and public companies, including Integral Oil Services, Pacific Rubiales Energy, Petro Magdalena Energy, Medora Resources and others, as well as a securities lawyer at Blake, Cassels & Graydon LLP. Mr. Zaidi holds a Juris Doctor degree from the University of Toronto as well as a Bachelor of Commerce (Finance) degree from McGill University.

All dollar amounts: US Dollars

Third Quarter Financial and Operating Results

Arrow Exploration’s Financial Statements and MD&A are available on SEDAR (www.sedar.com). All numbers are expressed in US dollars unless otherwise noted.

^{(1) Non-IFRS Measures – see “Non-IFRS Measures” below
(2) Includes $5 million Canacol promissory note
(3) Long-term restricted cash not included in working capital}

Third Quarter 2019 Highlights and Subsequent Events

• For the three months ended September 30, 2019, Arrow recorded $6,320,471 in revenues (net of royalties) on crude oil sales of 151,313 barrels, 528 barrels of NGL’s and 55,037 Mcf of natural gas sales.
• Adjusted EBITDA for the three months ended September 30, 2019 was $1,993,407.
• Production averaged 1,799 boe/d, a decrease of 60 boe/d over the second quarter of 2019.
• Revenue (net of royalties) of $6.32 million represented a decrease of approximately $1.2 million over the previous quarter. Brent oil prices averaged $62.03 for the third quarter of 2019 which represented a reduction of more than $6 per barrel relative to the second quarter. Lower Brent oil prices in the third quarter compared to the second quarter had a negative impact on operating netbacks which were $21.68 per boe vs. $25.40 per boe, respectively.
• Operating costs were $2,828,585 or $17.56 per produced boe which represents a reduction of $376,552 (12%) versus the second quarter of 2019.
• Working Capital deficit of approximately $3.2 million does not include the $5 million promissory note to Canacol Energy Ltd. (“Canacol”) which was included in the Working Capital deficit calculation in the second quarter due to amending and extending the promissory note in July, 2019. Arrow Exploration’s net debt was calculated at $7,092,058 as of September 30, 2019 which is comprised of: Current Assets of $8,771,087, Accounts Payable and Accrued Liabilities of $11,935,993, Canacol promissory note of $5 million, and long-term receivables of $1,072,848.
• Subsequent to quarter end, Arrow announced that Mr. Bruce McDonald resigned as President, Chief Executive Officer and Director of Arrow Exploration. Mr. McDonald was entitled to severance payments totaling $485,000 that was paid subsequent to quarter end and will be reported in fourth quarter financial statements. Mr. Jack Scott, Chief Operating Officer of Arrow Exploration, was appointed interim President and CEO.

Jack Scott, Interim CEO commented, “I’m pleased to report a record quarter from the perspective of EBITDA and funds flow from operations at $1,993,407 and $1,500,573 respectively. These record operating results were achieved despite a reduction in Brent Oil pricing of more than $6 per barrel and average production being reduced by 60 boe/d relative to the second quarter. Record results were driven by our continued focus on reducing both operating and G&A costs throughout Arrow Exploration. Further cost reduction initiatives have been identified and will be implemented in future quarters in order to expand Arrow’s free cash flow, allowing Arrow Exploration to pay down debt.”

Strategic Alternatives Process

Arrow’s Board of Directors has formed a Special Committee to evaluate strategic alternatives for Arrow Exploration with a view to improving Arrow Exploration’s balance sheet, including addressing its working capital deficit, long-dated payables and upcoming debt maturity in October 2020, and maximizing enterprise value. The strategic alternatives process is intended to explore a comprehensive range of strategic alternatives including: a sale, merger or other business combination; a disposition of all or certain assets of Arrow Exploration; recapitalization and refinancing opportunities; sourcing new financing and equity capital; and other alternatives to maximize value. The committee has been given a mandate by the board to hire a strategic advisor(s) to support the evaluation of all potential alternatives. Arrow Exploration will provide additional information regarding the strategic alternatives process once such advisor(s) has been selected. There can be no guarantees as to whether the strategic alternatives process will result in a transaction or the terms or timing of any resulting transaction.

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 Colombian oil assets that are under-exploited, under-explored and offer high potential growth. Arrow Exploration’s business plan is to rapidly 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 seasoned team is led by a hands-on and in-country executive team supported by an experienced board. Arrow is listed on the TSX Venture Exchange under the symbol “AXL”