Arrow Exploration’s Q2 2025: Production up 48%, costs bite, big wells ahead
Arrow Exploration (AIM/TSXV: AXL) has filed its Q2 2025 interim numbers. The headline is simple: production surged, pricing fell, and water handling costs spiked. Management has ploughed cash into infrastructure and drilling to set up the next leg of growth, with a potentially company-changing exploration well to come.
Quick jargon buster for newer readers: boe/d is barrels of oil equivalent per day; “operating netback” is the profit per barrel after royalties, transport and operating costs – a clean way to see field economics before overheads and taxes.
Key Q2 2025 numbers investors should know
| Metric | Q2 2025 | YoY / Comment |
|---|---|---|
| Average production | 3,768 boe/d | +48% vs 2,546 boe/d (Q2 2024) |
| Revenue net of royalties | $15,868,938 | +5% vs $15,146,366 |
| Adjusted EBITDA | $6,269,979 | Down vs $8,884,099 |
| Net income (loss) | $(934,735) | Q2 loss; YTD profit $1,729,029 |
| Corporate operating netback | $27.36/boe | Down from $51.21/boe |
| Cash | $13,212,417 | No debt outstanding |
| Capital expenditures | $14,771,206 (Q2) | $26,150,386 in H1 |
| Current production (post period) | ~4,200 boe/d | Two more wells due on in two weeks |
| Adjusted working capital | $393,211 | Thin buffer; current liabilities $19,820,706 |
| Prepayment facility | $20 million | Undrawn; SOFR + 4–5% |
Operations: water infrastructure now in place, horizontals gaining momentum
Why production dipped quarter-on-quarter: natural declines and rising water cuts in Tapir offset the new wells. Arrow leaned into the problem, spending heavily to convert and stimulate three water disposal wells (AB-2, CN-4, CN-5) and build out handling kit. That investment shows up as pain in the quarter’s costs, but it matters because it unlocks higher oil rates and lower trucking bills from here.
- $0.8 million spent trucking water in Q2.
- $1.7 million of water-handling spend booked within operating costs.
- Tapir water disposal capacity now over 130,000 barrels per day – a step change that should compress opex.
On the drilling front, Arrow ran a busy programme across Alberta Llanos (AB), Carrizales Norte (CN) and Rio Cravo Este (RCE), and also spud the first RCE horizontal well (RCE HZ-10) in Q2. Post period, RCE HZ-10, CN HZ12 and AB HZ5 were all brought onto production. Current production is approximately 4,200 boe/d and two near-term additions are lined up: CN HZ13 (Ubaque) and an AB3 recompletion (C7).
Exploration is next. The rig is set to drill Mateguafa Oeste – management says it could be larger than Carrizales Norte if it works. Success would trigger four follow-up horizontal wells. If it misses, the rig pivots to three lower-risk C7 wells at Mateguafa Attic. A second rig remains an option if results warrant it.
Pricing pressure and costs: why netbacks halved
Brent averaged $69.80/bbl in Q2 2025 versus $83.00/bbl last year, and Arrow’s realised oil price fell to $56.87/bbl from $72.99/bbl. That hurts. Layer on higher operating costs – driven by water handling and field workovers – and corporate operating netbacks dropped to $27.36/boe from $51.21/boe. Natural gas remains small and loss-making on an operating basis at $(1.44)/Mcf.
- Crude oil opex rose to $20.17/bbl (Q2 2024: $9.72/bbl).
- Corporate opex increased to $19.79/boe (Q2 2024: $10.01/boe).
The silver lining: the heavy lifting on water disposal is now done. With trucking curtailed and disposal wells online, Arrow expects “a significant reduction in water handling costs” and the ability to “turn up production” in existing wells.
Financials: cash held, no debt, but a tighter cushion
Revenue net of royalties grew 5% year-on-year to $15.9 million, thanks to higher volumes offsetting lower prices. Adjusted EBITDA came in at $6.3 million. After taxes and higher operating spend, Arrow posted a Q2 net loss of $934,735, though the company is profitable year-to-date at $1,729,029.
Cash stood at $13.2 million with no borrowings. However, adjusted working capital narrowed to $393,211 as accounts payable rose with the ramped-up activity. Arrow also secured a two-year, $20 million crude prepayment facility at SOFR + 4–5% – undrawn at quarter-end – providing optional liquidity if needed.
Capital investment remained brisk: $14.8 million in Q2 and $26.2 million in H1 against a 2025 budget of approximately $50 million. Spend included a 90 km² 3D seismic programme over southern Tapir at $3 million and road/pad infrastructure linking CN to Mateguafa Oeste/Capullo/Mateguafa Attic for approximately $2 million.
Licences and regulatory: Tapir extension in focus, COR-39 exit sought
Arrow says it has met the requirements for the Tapir block extension and continues constructive discussions with the authorities. The company is also engaging regulators to terminate obligations on the COR-39 block. These are important housekeeping items; the Tapir extension underpins the medium-term drilling runway.
Why this update matters for AXL shareholders
Positives I’m taking away
- Material volume growth: 3,768 boe/d in Q2, up 48% year-on-year, and roughly 4,200 boe/d currently.
- Structural cost fix: >130,000 bwpd of disposal capacity should improve netbacks and uptime in H2.
- Clear catalysts: CN HZ13 and AB3 recompletion imminent; Mateguafa Oeste spud next with follow-up wells on success.
- Balance sheet flexibility: $13.2 million cash and an undrawn $20 million prepay line; no debt.
- Option value building: fresh 3D seismic has identified additional prospects, with Icaco testing targeted for early 2026.
What keeps me cautious
- Netbacks compressed: $27.36/boe leaves less cushion if oil prices soften further.
- Working capital is tight: $393,211 adjusted working capital reflects heavy activity and payable build.
- Taxes and royalties bite: Q2 income tax expense was $3,083,846.
- Execution risk: the near-term thesis leans on water cost reductions, timely well tie-ins, and the Tapir extension.
- Commodity and quality mix: heavier oil brings larger discounts, and gas remains a negative netback component.
My view: set-up for a busier, better H2 if costs roll over
This quarter was about spending to solve a bottleneck. Production growth is intact on a year-on-year view, and the water-handling investment should start paying back quickly through lower opex and higher stable rates. If Mateguafa Oeste comes in, Arrow’s growth story gets another kick. If it doesn’t, the company pivots to lower-risk targets with the same rig.
The balance sheet is sensible, though the working capital squeeze is worth watching. The undrawn prepayment facility is a useful backstop. For me, the key H2 watchpoints are simple: evidence of opex per barrel falling, current production sustaining above 4,000 boe/d as new wells come onstream, and progress on the Tapir block extension.
Net-net, this is a constructive operational update wrapped in a messy cost quarter. The direction of travel – more barrels, lower water costs, and a pipeline of horizontal wells – is the part that matters.
