Arrow Energy Ltd. announces third quarter 2007 financial and operating results



    TSX-V: AOF

    CALGARY, Nov. 29 /CNW/ - Arrow Energy Ltd. today announced its financial
and operating results for the third quarter of 2007.

    HIGHLIGHTS

    
    -   Cash flows from operations totalled $495,473, almost twice the cash
        flows of $267,101 reported in the second quarter of 2007;

    -   Production volumes averaged 320 boe/d compared with 246 boe/d in the
        prior quarter;

    -   Acquisition of Castle Rock Petroleum Ltd. closed in August 2007,
        adding significant land holdings and extensive upside potential to
        Arrow's inventory of opportunities;

    -   Expansion of Arrow team with the addition of several experienced and
        talented individuals.

    ----------------------------------
    Note:
    "BOE" means a barrel of oil equivalent on the basis of 1 BOE to 6 Mcf of
    natural gas. BOEs may be misleading, particularly if used in isolation. A
    BOE conversion ratio of 1 BOE for 6 Mcf is based on an energy equivalency
    conversion method primarily applicable at the burner tip and does not
    represent a value equivalency at the wellhead.

    LETTER TO SHAREHOLDERS

    Fellow Shareholders

    The third quarter 2007 was marked by a number of key events, which all had
a positive impact on Arrow and clearly demonstrate that we are well on our way
to becoming an emerging, growth-oriented oil and gas producer:

    -   The addition of several key staff members who bring great experience
        in their respective fields to Arrow;
    -   Record, positive cash flows of $495,472, almost doubling the prior
        quarter's cash flows that had already set a new bar for the company;
    -   With no new drilling, we were successful in offsetting natural
        production declines and thus essentially maintaining production
        levels from the prior quarter.
    

    Recognizing Arrow's potential, a limited market dealer from Toronto and
Arrow have forged a strategic partnership to increase Arrow's market presence.
 I am very pleased that we were able to successfully raise $2.0 million
together in the quarter.
    This was the first step in making investor relations and market awareness
of our company a key priority and we will continue to greatly enhance our
communications with the markets going forward. Arrow is an exciting company
with great potential, and we will strive to make the markets understand what
sets us apart and how we will succeed by taking a number of proactive
initiatives in the very near future.
    On the operational side, we are very pleased with the acquisition of
Castle Rock Petroleum that closed in late summer. The acquisition brought a
number of new, highly motivated shareholders to Arrow as well as several
exciting operating areas. In particular, the southern Alberta area acquired
through Castle Rock recently saw two successful multi-zonal wells drilled by
Arrow and its partners. As well, our land position in the area has become
quite significant through this acquisition, and we are confident that we will
continue to see successful wells drilled in 2008 and beyond. We also continue
to increase our land holdings in our northern and central core areas through
strategic land acquisitions and extensive development work. Plans call for an
aggressive development program in this winter in the Hotchkiss area where we
will deploy a majority of our available capital and tie in proved reserves.
    As a result of new accounting standards introduced at the outset of the
third quarter, we are also seeing a general decrease in operational
expenditures and general and administrative costs, which is further proof of
our evolution into an efficient, well-structured organization.
    With a new hard-working and talented team in place and great upside
potential in both our legacy and newly acquired operating areas, we look
forward to further imminent growth for Arrow. It remains a top priority to
increase the value of your shares in this exciting company.

    Chris Tesarski
    President and Chief Executive Officer
    November 29, 2007


    
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
    

    The following discussion and analysis, prepared effective November 29,
2007, is management's assessment of the operating results, current financial
condition and outlook for Arrow Energy Ltd. ("Arrow" or the "Company") for the
periods ended September 30, 2007 and 2006. All financial information is
reported in Canadian dollars. This Management Discussion and Analysis ("MD&A")
has been prepared in accordance with Canadian generally accepted accounting
principles ("GAAP") and with Canadian Securities Association National
Instrument 51-101 Standards of Disclosure for Oil & Gas Activities ("NI
51-101"). The MD&A has been approved by the board of directors and prepared
with the oversight of the audit committee. This discussion and analysis should
be read in conjunction with the audited financial statements as at and for the
year ended December 31, 2006 and the unaudited interim financial statements
for the three months and nine months ended September 30, 2007.
    This disclosure includes forward-looking statements and assumptions
respecting the Company's strategies, future operations, expected financial
results, financing sources, commodity prices, costs of production and quantum
of oil and natural gas reserves and discusses certain issues, risks and
uncertainties that can be expected to impact on any of such matters. By their
nature, forward-looking statements are subject to numerous risks and
uncertainties that can significantly affect future results. Actual future
results may differ materially from those assumed or described in such
forward-looking statements as a result of the impact of issues, risks and
uncertainties whether described herein or not, which the Company may not be
able to control. The reader is therefore cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any intention or
obligation to update or revise these forward-looking statements, as a result
of new information, future events or otherwise.

    Notes on Abbreviations

    "BOE" means a barrel of oil equivalent on the basis of 1 BOE to 6 Mcf of
natural gas. BOEs may be misleading, particularly if used in isolation. A BOE
conversion ratio of 1 BOE for 6 Mcf is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.
    "BOE/d" means a barrel of oil equivalent per day;
    "Mcf" means a thousand cubic feet of natural gas. Mcf/d means Mcf per
    day;
    "MMcf" means a million cubic feet of natural gas. MMcf/d means MMcf per
    day;
    "Bbl" means barrel of oil;
    "Bbl/d" means barrel of oil per day;
    "W.I." means working interest;
    "PV" means present value.

    Overview

    Arrow is a Calgary, Alberta-based public company engaged in the
acquisition, exploration, development and production of petroleum and natural
gas reserves in Alberta. The Company's common shares are listed on the TSX
Venture Exchange under the trading symbol "AOF".

    Property Acquisition

    On February 1, 2007, the Company acquired the oil and gas assets of
Tirmoil Energy Ltd. ("Tirmoil"), a related party. The acquisition balanced the
Company's production mix to 50% oil and 50% natural gas by adding
approximately 100 boe/d of oil to the Company's production base. The
consideration paid for the acquisition included the assumption of Tirmoil's
operating line of credit of $450,172 (retired February 2, 2007), payables of
$443,590 and a 12.5% share of Arrow's working interest in
"on-settlement-production" (output produced on Peavine Métis-held lands). The
Company commenced reporting production from the acquisition date on February
1, 2007. The transaction was accounted for as a related-party transaction and
measured in the September 30, 2007 interim financial statements at the
carrying amount of the oil and gas assets as previously recognized in the
accounts of Tirmoil.
    On September 28, 2007 Arrow acquired all the outstanding shares of Castle
Rock Petroleum Ltd. ("Castle Rock") a public company trading on the TSX
Venture Exchange. Arrow issued 4,180,325 common shares valued at $1,755,736
before transaction costs. Arrow exchanged one Arrow Common Share for every
five Castle Rock A Shares and one Arrow Common Share for each onehalf of a
Castle Rock B Share.

    
    Selected Financial Information

    The table below sets out selected financial information for Arrow for the
three and nine months ended September 30, 2007 and 2006:

                                Three months ended       Nine months ended
                                    September 30            September 30
    ($)                          2007         2006        2007        2006

    Production revenue         1,370,492     567,869   3,543,113   1,939,244
    Pipeline revenue             356,990           -     993,053           -
                             ------------------------------------------------
                               1,727,482     567,869   4,536,166   1,939,244

    Working capital
     (deficit)                (1,494,945) (1,684,612) (1,494,945) (1,684,612)
    Shareholders' equity      14,553,975   7,095,438  14,553,975   7,095,438
    Cash flow from
     operations(1)               495,472    (778,474)    629,796    (673,113)
      Per share, basic              0.03       (0.06)       0.04       (0.05)
      Per share, diluted(2)         0.03         N/A        0.04         N/A

    Net income (loss)(2)        (422,561)   (806,002) (1,294,025) (1,090,342)
      Per share, basic             (0.03)      (0.06)      (0.09)      (0.08)
      Per share, diluted(2)        (0.03)        N/A       (0.08)        N/A
    Capital assets            17,162,487  10,444,123  17,162,487  10,444,123
    Long-term liabilities              0   1,664,072           0   1,664,072

    (1) Cash flow from operations and cash flow per share are non-GAAP terms
        that represent cash generated from operating activities before
        changes in non-cash working capital and other operating items.
        Arrow's cash flow from operations may not be comparable to other
        companies'. Arrow considers cash flow a key measure of performance as
        it demonstrates Arrow's ability to generate the cash flow necessary
        to fund future capital investments.

    (2) A diluted per-share calculation would be anti-dilutive and is
        therefore not applicable.

    Quarterly Information


    The following table summarizes revenue from petroleum and natural gas
sales, net of royalties, cash flow from operations and net income for Arrow
for the periods indicated.

    Quarterly Financial                          2007                  2006
     Data ($)                       Sep 30    June 30     Mar 31     Dec 31
    -------------------------------------------------------------------------

    Production revenue, net of
     royalties                    1,179,571    946,886    649,392    402,351
    Pipeline revenue                356,990    383,046    253,017          -
    Cash flow from operations(1)    495,472    267,101   (132,776)  (234,800)
      Per share basic                 $0.03      $0.02     ($0.01)    ($0.02)
      Per share, diluted(2)            0.03        N/A        N/A        N/A
    Net income (loss)              (422,561)  (273,174)  (592,288)  (630,307)
      Per share basic                ($0.03)    ($0.03)    ($0.04)    ($0.04)
      Per share, diluted(2)           (0.03)       N/A        N/A        N/A


                                                 2006                  2005
                                    Sep 30     Jun 30     Mar 31     Dec 31
    -------------------------------------------------------------------------

    Production revenue, net of
     royalties                      465,293    490,545    596,285  1,020,255
    Pipeline revenue                      -          -          -          -
    Cash flow from operations(1)   (778,474)   (44,748)   150,109    464,932
      Per share basic                ($0.06)     $0.00      $0.01      $0.01
      Per share, diluted(2)             N/A      $0.00      $0.01      $0.01
    Net income (loss)              (802,002)  (149,307)  (135,033)    71,453
      Per share basic                ($0.06)    ($0.01)    ($0.01)     $0.01
      Per share, diluted(2)             N/A        N/A        N/A      $0.00

    (1) Cash flow from operations and cash flow per share are non-GAAP terms
        that represent cash generated from operating activities before
        changes in non-cash working capital and other operating items.
        Arrow's cash flow from operations may not be comparable to other
        companies'. Arrow considers cash flow a key measure of performance as
        it demonstrates Arrow's ability to generate the cash flow necessary
        to fund future capital investments.

    (2) A diluted per-share calculation would be anti-dilutive and is
        therefore not applicable.
    

    Operational Review

    Average daily sales volumes for the third quarter 2007 amounted to
320 boe/d compared with 246 boe/d for the second quarter of this year.
Included in the average production for the third quarter are 38 boe/d, which
were sales volumes attributable to the second quarter of this year that were
underaccrued for in the prior reporting period. With actual production at 282
boe/d and no new drilling occurring in the third quarter, declines were
successfully offset by keeping output levels essentially flat
quarter-over-quarter. Year-over-year for the nine-month period ended September
30, production increased to 245 boe/d from 179 boe/d, largely as a result of
the acquisition of Tirmoil early in 2007.
    Compared with prior-quarter reporting, production revenue increased seven
percent for the third quarter of 2007 to $1,370,492 from $1,280,783.
Production revenue of $3,543,113 for the nine months ended September 30, 2007
was 83 percent higher than the $1,939,244 reported in the same period in 2006.
The main reason for both increases in production revenue was higher production
as a result of the Tirmoil acquisition and two successful wells drilled in the
second quarter. Additional revenue from Arrow's pipeline operations amounted
to $356,990 for the quarter and $993,053 for the nine months ended
September 30, 2007. No pipeline revenue was recorded in 2006 as the pipeline
was acquired through the acquisition of Tirmoil's assets in early 2007. The
natural gas price realized by Arrow during the nine-month period ending
September 30, 2007 of $6.56/Mcf was essentially unchanged from the same period
in the prior year, when it was $6.55/Mcf. Oil prices realized for the third
quarter of 2007 were $77.64/boe; in the comparative period of 2006, Arrow did
not have any oil production.
    Arrow's royalty expenses for the nine-month period ending September 30,
2007 amounted to $767,264 compared with $387,140 for the prior-year period.
This represents a 98-percent increase year-over-year, mainly due to almost
double the amount of revenue year-over-year as well as Alberta Royalty Tax
Credit ("ARTC") received in 2006, which was not received in 2007 as the
program was discontinued effective January 1, 2007.
    For the nine-month period ended September 30, 2007 royalties averaged
21.7 percent of revenue as compared to 20.0 percent for the corresponding
period in 2006.
    Operating costs, including transportation costs, for the first three
quarters of 2007 averaged $7.43/boe, compared with the prior-year's operating
costs of $12.80/boe. The lower operating costs for the nine months ended
September 30, 2007 are a result of the exclusion of the pipeline
transportation expenses which had previously been included in the production
expenses as well as higher operational efficiencies applied throughout 2007.
Beginning in the third quarter of 2007, pipeline-related expenses were also
excluded from transportation costs.
    The increase in transportation costs is due to the acquisition of the
pipeline from Tirmoil in early 2007.

    
                    Operating Expenses and Pipeline Costs

                                 Three months ended       Nine months ended
                                    September 30            September 30
                                                 %                       %
                                2007    2006  change    2007    2006  change
    -------------------------------------------------------------------------
    Operating expenses
     ($000s)(1)                219.0   208.6     5.0   588.9   608.3    (3.2)
    Operating expenses
     ($/boe)(1)                 7.43   12.80     (42)   8.79    12.4   (29.1)
    Pipeline costs ($000s)     246.6       -     N/A   657.4       -     N/A

    1) includes transportation costs
    

    The general and administrative ("G&A") expenses for the nine months ended
September 30, 2007 totaled $1,791,583 ($26.74/boe) compared with $699,500
($14.29/boe) for the nine months ended September 30, 2006. The significant
year-over-year increase in G&A costs is mainly attributable to expenses
associated with integration of Tirmoil operations, growth in the
administration of the Company and extraordinary legal fees associated with a
disputed agreement. Comparing the third quarter 2007 G&A costs per boe of
$18.33 with G&A costs per boe of $30.08 for the prior quarter, steps for
increased operational efficiencies are beginning to show results, and
management expects further reductions in G&A expenses going forward. As well,
Arrow has placed greater focus on its capitalization determinations at the
onset of the third quarter, which means that larger portions of expenses
incurred are now being capitalized. This is in accordance with general
practices applied in the oil and gas industry.

    
                     General and Administrative Expenses

                                 Three months ended       Nine months ended
                                   September 30            September 30
    ($000s, except per BOE                       %                       %
     amounts)                   2007    2006  change    2007    2006  change
    -------------------------------------------------------------------------
    G&A expense, gross         545.2   238.0   122.5 1,807.6   776.4   126.7
    Capitalized overhead        (5.1)  (15.1)  (66.2)  (16.0)  (98.0)  (83.6)
                             ------------------------------------------------
    G&A expense, net           540.1   222.9   142.3 1,791.6   678.4   164.1
                             ------------------------------------------------
    G&A expense per BOE, net   18.33   13.76    33.2   26.74   14.29    92.9
    

    Stock-based compensation measures the implicit cost of compensating key
personnel through the issuance of stock options.
    For the nine months ended September 30, 2007, the Company incurred
stock-based compensation expense of $235,529 compared with $21,123 for the
same period in 2006. The increased stock-based compensation expense is the
result of an increased number of stock options issued in the third quarter of
2007 mainly in conjunction with the issuance of new options to directors and
employees. Stock options issued to directors have an immediate vesting period
and the expense was taken entirely in the third quarter.
    Interest expense for the nine-month period ended September 30, 2007 was
$150,433 compared with $41,949 for the prior-year period. The higher expenses
incurred are primarily due to the increase in debt resulting from the
acquisition of the Timoil oil and gas assets and the additional debt taken on
to fund the 2007 capital program.
    Arrow's depletion, depreciation and accretion for first nine months of
2007 totaled $2,255,468, compared with the amount of $972,495 reported for the
same period in 2006. The increase is mainly a result of the Tirmoil property
and pipeline acquisition in February of this year. The current period
provision includes the depreciation of the major assets acquired from Tirmoil.
The oil pipeline, which is a considerable asset, is being depreciated over a
twenty-five-year term.

    
    Outstanding Share Capital

    Arrow is authorized to issue an unlimited number of common shares and an
unlimited number of preferred shares, in series. The following securities of
Arrow were outstanding as at September 30, 2007:

    -   23,983,727 common shares;

    -   2,400,178 options to purchase common shares at a weighted average
        exercise price of $0.40 per share.

    Results of Operations

    Production Summary

    The following tables summarize Arrow's production and prices received for
the periods ended September 30, 2007 and 2006:

                                    Three months ended     Nine months ended
                                        September 30          September 30
    Average Daily Sales Volumes        2007       2006       2007       2006
                                  -------------------------------------------

    Natural gas (Mcf/d)               1,208      1,057        877      1,076
    Oil (Bbl/d)                         119          0         99          0
                                  -------------------------------------------
    Total (BOE/d)                       320        176        245        179
                                  -------------------------------------------
                                  -------------------------------------------

                                    Three months ended     Nine months ended
                                        September 30          September 30
    Average selling price              2007       2006       2007       2006
                                  -------------------------------------------

    Natural gas ($/Mcf)                5.54       5.84       6.56       6.55
    Oil ($/Bbl)                       77.64          -      72.52          -
                                  -------------------------------------------
    Total average selling
     price - $/boe                    52.88      37.61      53.22      42.09
                                  -------------------------------------------
                                  -------------------------------------------

    Drilling Activity

    The following table summarizes the results of the wells that Arrow drilled
or participated in drilling for the periods ended September 30, 2007 and 2006,
respectively:

                                  Three months ended     Nine months ended
                                     September 30          September 30
                                    2007       2006       2007       2006
                             ------------------------------------------------
                             Gross   Net Gross   Net Gross   Net Gross   Net
    Natural gas                  -     -     -     -  3.00  0.86  1.00  0.31
    Oil                          -     -     -     -  1.00  0.25     -     -
    Dry & abandoned              -     -     -     -     -     -     -     -
                             ------------------------------------------------
    Total                        -     -     -     -  4.00  1.11  1.00  0.31
                             ------------------------------------------------
                             ------------------------------------------------

    Oil and Natural Gas Wells

    The following table summarizes Arrow's interest, as at September 30, 2007,
in wells that are producing or which Arrow considers to be capable of
production.

                               Producing        Producing       Non Producing
                                  Oil          Natural Gas       Natural Gas
                              Gross  Net       Gross   Net       Gross   Net
                             ------------------------------------------------

                              5.00  1.45        9.00  4.10        9.00  4.10

    Undeveloped Land Holdings

    The undeveloped land holdings of Arrow as at September 30, 2007 and 2006,
respectively, are set forth in the following table:

                                               Undeveloped Land

                                       Gross Acres              Net Acres
                                    2007        2006        2007        2006
                             ------------------------------------------------

    Total                         17,600      18,240      10,856      10,952
                             ------------------------------------------------
                             ------------------------------------------------

    Working Capital, Liquidity and Capital Resources

    At September 30, 2007, Arrow had a working capital deficiency of
$1,494,945, The primary source of capital was through the use of the Company's
term facility. Arrow expects that its future capital expenditures will be
funded by a combination of cash flow from operations, debt and new equity.
    During the third quarter of 2007, Arrow re-negotiated its loan facility
from $4,200,00 to $3,500,000 with an institutional bank. The formal agreement
has recently been executed. However, the agreement is subject to immediate
review based on Arrow's new reserves evaluated following its recent
acquisitions. The facility bears interest at the bank's prime lending rate
plus 50 basis points, payable monthly and is secured by a fixed and floating
charge on the assets of the Company. The credit facility is subject to annual
review. As at November 28, 2007, the Company has approximately $2.5 million
drawn on its demand loan facility.

    Commitments and Contingencies

    (a) The Company has remaining lease commitments for office space of
        $33,750, $179,143 and $144,327 expiring on December 31, 2007,
        August 31, 2008 and July 1, 2012 respectively.

    (b) The Company is involved in a legal claim associated with the normal
        course of business. At this time, in the opinion of management, this
        matter is not reasonably expected to result in a material adverse
        effect on the Company's financial position.
    

    Share Issuance

    On September 28, 2007 Arrow issued 5,714,461 units ("Units") at a price
of $0.35 per Unit for proceeds of approximately $2,000,000. Each Unit is
comprised of one (1) common share ("Common Share") and one-half (1/2) Common
Share purchase warrant. Each whole warrant entitles the holder to purchase one
(1) additional Common Share at a price of $0.50 per Common Share for a period
of twenty-four (24) months following the date of closing, however, if after
four months and one day following the closing date, the closing price of the
Common Shares is equal to or exceeds $0.75 for 20 consecutive days, then the
warrants shall automatically accelerate to expire on the date which is 30 days
after the 20 days. The securities issued have a four (4) month hold period
which expires on January 29, 2008.
    In connection with the private placement, Arrow paid fees totaling
$160,000 and issued Broker Options exercisable for a total of 571,428 Units
("Broker Unit") at a price of $0.35 for a period of twenty-four (24) months
from the closing date. Each Broker Unit is exercisable at the same price and
on the same terms and conditions as the Units. The fair value of the warrants
and broker units have been calculated using the Black Scholes pricing model
based on the following assumptions: risk-free rate of 4.5%, expected life of
two years, no dividends and expected volatility of 90%.
    As at September 30, 2007, Arrow had received $80,000 of the total
expected $2.0 million in funds raised through these efforts, with the balance
held in escrow and recorded in accounts receivable in the financial
statements. Subsequent to period-end, the balance held in escrow was received.

    Subsequent Events

    Arrow has entered into an agreement whereby Arrow will acquire from two
private vendors (the "Vendors") 100% of their jointly owned petroleum and
natural gas interests in the vicinity of Carstairs, Alberta. In consideration
for this acquisition, Arrow will pay to the Vendors a total of $1,800,000 as
follows: (a) $700,000 paid by cash ($350,000 on closing and $350,000 plus
interest at 8% six months from closing); and (b) $1,100,000 by issuance of
2,000,000 units of Arrow at a price of $0.55 per unit. Each unit is comprised
of one (1) common share and one (1) warrant entitling the holder to purchase
one flow-through common share at a price of $0.70 per common share exercisable
until June 30, 2008.
    On November 16, 2007, Arrow announced the successful drilling, along with
its partners, of two successful wells in its southern Alberta core area. One
well achieved initial flow rates of up to 4m3 of fluid per hour, with up to
99 percent (average: 60 - 70 percent) oil cut (Arrow's net W.I. is 50 percent
BPO, 35 percent APO), while the other well saw over 1.0 MMcf/d of dry gas
(Arrow's net W.I. is 12.5 percent).

    Business Risks

    The business of exploring for, developing and producing oil and natural
gas reserves is inherently risky. There is substantial risk that the manpower
and capital employed will not result in the finding of new reserves in
economic quantities. There is a risk that the sale of reserves may be delayed
indefinitely due to processing constraints, lack of pipeline capacity or lack
of markets. Financial risks include fluctuations in commodity prices, interest
rates and exchanges rates, which are largely beyond the Company's control.
Arrow is also subject to operational risks associated with owning oil and
natural gas properties, including environmental risks and regulations;
regulatory constraints and legislation; competition against entities that may
have greater technical and financial resources; and uncertainties in
estimating Arrow's reserve base due to the complexities in estimating the
magnitude and timing of future production, revenue, expenses and capital.
Arrow's growth is dependent upon external sources of financing which may not
be available on acceptable terms.
    Arrow mitigates these risks by diligent management of those factors that
it can control; including the engagement of highly qualified and experienced
professionals, the latest technology and a focus on low cost reserves.
    Arrow carries insurance coverage to protect itself against potential
losses due to accidental destruction of assets, well blowouts and
environmental damages. Arrow also follows all government regulations and has
in place an emergency response plan.

    Related-Party Transactions

    For the three months and nine months ended September 30, 2007, the
Company has $27,910 and $168,823 (September 30, 2006 nil and nil) included in
legal fees and accounts payable to a law firm of which a director of Arrow is
a partner. Transactions in the normal course of operations are measured at the
exchange amount, which is the amount of consideration established and agreed
to by the related parties.
    At September 30, 2007 the Company has $162,166 (September 30, 2006: nil)
included in accounts payable due to a major shareholder.

    Critical Accounting Estimates

    Certain accounting policies require that management make appropriate
decisions with respect to the formulation of estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses. The
following is included in the MD&A to aid the reader in assessing the critical
accounting policies and practices of the Company. The information will also
aid in assessing the likelihood of materially different results being reported
depending on management's assumptions and changes in prevailing conditions
which affect the application of these policies and practices.

    Oil and Gas Reserves Determination

    The process of estimating reserves is complex. It requires significant
judgment and decisions based on available geological, geophysical, engineering
and economic data. Reserve estimates are based on current production
forecasts, prices and economic conditions. These estimates may change
substantially as additional data from ongoing development and production
activities becomes available and as economic conditions impact oil and gas
prices and costs. All of the Company's properties are evaluated by independent
petroleum engineering consultants.

    Full-Cost Accounting for Oil and Gas Activities

    Asset Retirement Obligation
    ---------------------------
    The present value of expected future abandonment and reclamation costs is
recorded on the balance sheet as a liability with a corresponding increase in
the amount of the related asset. The capitalized amount is depleted over the
life of the reserves using the unit of production method. The amount of the
liability increases with the passage of time and the amount of the accretion
is charged to earnings in the period. Revisions resulting from changes to
estimates or timing of future cash flows may increase or decrease the
liability. Actual abandonment and reclamation costs incurred are recorded as a
reduction of the liability on the balance sheet.
    The total future asset retirement obligations were estimated by
management based on the Company's net ownership interest in all wells and
facilities, estimated costs to reclaim and abandon the wells and facilities,
and the estimated timing of the costs to be incurred in future periods. The
Company's credit adjusted risk free rate of 8.0% and an inflation rate of 2.0%
were used to calculate the present value of the asset retirement obligations.

    Depletion Expense
    -----------------
    The Company uses the full cost method of accounting for exploration and
development activities. In accordance with this method of accounting, all
costs associated with exploration and development is capitalized whether
successful or not. The aggregate of net capitalized costs, estimated future
development costs less estimated salvage values is amortized using the unit of
production method based on estimated proved oil and gas reserves.
    An increase in estimated proved oil and gas reserves will result in a
corresponding reduction in depletion and depreciation expense. A decrease in
estimated future development costs will result in a corresponding reduction in
depletion and depreciation expense.

    Unproved Properties
    -------------------
    Costs related to unproved properties are excluded from costs subject to
depletion until proved reserves have been determined or their value is
impaired. These properties are reviewed quarterly and any impairment is
transferred to the costs being depleted.

    Impairment of Oil and Natural Gas Properties
    --------------------------------------------
    Under AcG-16, impairment is recognized if the carrying amount of the
petroleum and natural gas assets exceed the sum of the undiscounted cash flows
expected to result from the Company's proved reserves. If the carrying value
is not fully recoverable, the amount of the impairment is measured by
comparing the carrying amounts of the petroleum and natural gas assets to an
amount equal to the estimated net present value of future cash flows from
proved plus probable reserves. This calculation incorporates risks and
uncertainties in the expected future cash flows, which are discounted using a
risk-free rate. Any excess carrying value above the net present value of the
future estimated cash flows would be recorded as a permanent impairment and
charged to earnings.

    Income Tax Accounting

    The determination of the Company's income and other tax liabilities
requires interpretation of complex laws and regulations. All tax filings are
subject to audit and potential reassessment after the lapse of considerable
time. Accordingly, the actual income tax liability may differ significantly
from that estimated and recorded by management.

    Off-Balance-Sheet Arrangements and other Financial Instruments

    Arrow does not, at present, have any commitments under oil and gas
forward sales contracts or other types of hedging arrangements, which might
expose it to commodity price or production volume risks. The Company does not
have in place any off-balance sheet financing type commitments.

    Changes in Accounting Policies

    Effective January 1, 2007, the Company adopted the Canadian Institute of
Chartered Accountants ("CICA") section 3855 - "Financial Instruments -
Recognition and Measurement", section 3865 - "Hedges", section 1530 -
"Comprehensive Income", section 3861 - "Financial Instruments - Disclosure and
Presentation" and section 1506 - "Accounting Changes". For a discussion of the
change in accounting policies, refer to Note 3 to the interim financial
statements for the period ended September 30, 2007.

    Disclosure Controls and Procedures

    Disclosure controls and procedures are designed to provide reasonable
assurance that material information is gathered and reported to senior
management, including the Chief Executive Officer who has assumed the duties
of the Chief Financial Officer on an interim basis, as appropriate to permit
timely decisions regarding public disclosure.
    Management has evaluated the effectiveness of the Company's disclosure
controls and procedures as at the interim period ended September 30, 2007.
Based on this evaluation, the Chief Executive Officer and Chief Financial
Officer has concluded that the design and operation of these disclosure
controls and procedures were effective as at September 30, 2007 to provide
reasonable assurance that the material information relating to the Company is
made known to him by others within the entity.
    During the nine-month period ended September 30, a lapse in the
disclosure controls and procedures was identified. In order to meet the
deadline of April 17, 2007, a Business Acquisition Report ("BAR") and other
documents were filed on SEDAR that did not contain all of the required
information as set out by NI 51-102 Continuous Disclosure Obligations. An
amended BAR will be refiled on SEDAR to meet the requirements of NI 51-102
Continuous Disclosure Obligations.

    Internal Control Over Financial Reporting

    As at the interim period ended September 30, 2007, the Chief Executive
Officer, currently also Chief Financial Officer ad interim, evaluated the
design of the Company's internal control over financial reporting. Based on
that evaluation the Chief Executive Officer and interim Chief Financial
Officer concluded that the internal controls over financial reporting were
effective as at September 30, 2007 to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of the financial
statements for external purposes in accordance with Generally Accepted
Accounting Principles.
    During this evaluation the Company identified two significant internal
control weaknesses as a result of minimal staffing within a small company.
These internal control weaknesses include a lack of segregation of duties and
a lack of in-house technical expertise. Due to the small nature of the Company
complete segregation of incompatible duties is not feasible; and the Company
is very dependent upon its advisors and consultants (principally its legal
counsel) to assist in recognizing, interpreting, understanding, and complying
with the securities regulations disclosure requirements. Mitigating factors
are that the Chief Executive Officer and interim Chief Financial Officer is
aware of and actively involved in the Company's operational and financial
activities; the Company seeks outside expertise for knowledge and guidance;
and board of director review over significant operational and financial
matters.
    There have been no changes in the Company's internal control over
financial reporting that occurred during the most recent interim period ended
September 30, 2007, that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
    Although the Company has concluded that these internal controls and
procedures over financial reporting are effective at September 30, 2007,
lapses in these controls could occur. Should such occur, the Company intends
to take whatever steps it deems necessary to minimize the consequences
thereof. The Company does not expect that these internal controls and
procedures will prevent all errors and fraud. A control system, no matter how
well conceived or operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met.


    
    Consolidated Statements of Loss and Comprehensive Loss and Deficit

    For the Periods Ended September 30 (Unaudited)
    -------------------------------------------------------------------------
                      Three Months  Three Months   Nine Months   Nine Months
                              2007          2006          2007          2006
    REVENUE
      Petroleum and
       natural gas
       sales          $  1,370,492  $    567,869  $  3,543,113     1,939,244
      Royalties           (190,921)     (102,576)     (767,264)     (387,148)
                     --------------------------------------------------------
                         1,179,571       465,293     2,775,849     1,552,096
     Transportation
      income               356,990             -       993,053             -
     Other income           25,532         6,010        49,191        23,210
                     --------------------------------------------------------
                         1,562,093       471,303     3,818,093     1,575,306

    EXPENSES
      Production           219,007       208,585       588,929       608,270
      Pipeline
       (Note 14)           246,598             -       657,352             -
      General and
       administrative      540,136       229,899     1,791,583       699,463
      Reorganisation
       costs                     -       794,860             -       919,860
      Interest              60,880        16,433       150,433        20,826
      Stock based
       compensation
       (Note 7(a))         195,949         7,076       235,529        21,123
      Depletion,
       depreciation
       and accretion
       (Notes 5 and 6)     895,981       320,391     2,255,468       972,499
                     --------------------------------------------------------
                         2,158,550     1,577,244     5,679,294     3,242,041
                     --------------------------------------------------------
    LOSS FROM
     OPERATIONS           (596,457)   (1,105,941)   (1,861,201)   (1,666,735)

    Loss on disposal
     of office
     equipment                   -         8,388             -         8,388

    LOSS BEFORE
     INCOME TAXES         (596,457)   (1,114,329)   (1,861,201)   (1,675,119)

    INCOME TAX
     EXPENSE/(RECOVERY)
      Future              (173,896)     (308,327)     (567,176)     (584,777)
                     --------------------------------------------------------

    NET LOSS AND
     COMPREHENSIVE
     LOSS                 (422,561)     (806,002)   (1,294,025)   (1,090,342)

    DEFICIT, BEGINNING
     OF PERIOD          (4,470,140)   (2,163,132)   (3,598,677)   (1,880,885)
                     --------------------------------------------------------
    INTEREST RECEIVABLE
     ON SHARE PURCHASE
     LOANS                       -           764             -         2,857
                     --------------------------------------------------------
                     --------------------------------------------------------
    DEFICIT, END OF
     PERIOD           $ (4,892,702) $ (2,968,370) $ (4,892,702) $ (2,968,370)
                     --------------------------------------------------------
                     --------------------------------------------------------

    NET LOSS PER SHARE
      Basic and
       diluted       $       (0.03) $      (0.06) $      (0.09) $      (0.08)
                     --------------------------------------------------------
                     --------------------------------------------------------

    WEIGHTED AVERAGE
     COMMON SHARES
      Basic and
       diluted          14,304,019    14,098,525    14,162,686    14,098,525

    See accompanying notes to the financial statements



    Consolidated Balance Sheets
    (Unaudited)
    -------------------------------------------------------------------------
                                                  September 30   December 31
                                                          2007          2006
                                                 ----------------------------
    ASSETS

    CURRENT
      Cash                                        $    384,090  $          -
      Accounts receivable (Note 4)                   3,707,335       399,795
      Deposits and prepaid expenses                    178,031       127,596
                                                 ----------------------------
                                                     4,269,456       527,391

    Capital assets (Note 5 and 6)                   17,162,487    10,328,370
                                                 ----------------------------
                                                 ----------------------------
                                                  $ 21,431,943    10,855,761
                                                 ----------------------------
                                                 ----------------------------
    LIABILITIES

    CURRENT
      Accounts payable and accrued liabilities       1,798,271     1,081,688
      Bank loan (Note 8)                             3,966,131     1,667,975
                                                 ----------------------------
                                                     5,764,402     2,749,663

    Future income taxes (Note 9)                       677,284     1,244,460

    Asset retirement obligation (Note 6)               436,283       234,050
                                                 ----------------------------
                                                     6,877,969     4,228,173
                                                 ----------------------------
    Basis of presentation - going concern (Note 2)

    Commitments and contingencies (Note 10)

    SHAREHOLDERS' EQUITY
      Share capital (Note 7)                        13,193,155     9,743,897
      Contributed surplus (Note 7(b))                6,253,522       482,368
      Deficit                                       (4,892,702)   (3,598,677)
                                                 ----------------------------
                                                    14,553,975     6,627,588
                                                 ----------------------------
                                                  $ 21,431,943  $ 10,855,761
                                                 ----------------------------
                                                 ----------------------------

    See accompanying notes to the financial statements

    APPROVED BY THE BOARD

    (signed) "Jason Pack", Director
    --------------------------------
    (signed) "Richard Edgar", Director
    -----------------------------------



    Consolidated Statements of Cash Flows
    For the Periods Ended September 30 (Unaudited)
    -------------------------------------------------------------------------
                      Three Months  Three Months   Nine Months   Nine Months
                              2007          2006          2007          2006
    -------------------------------------------------------------------------

    CASH FLOWS RELATED
     TO THE FOLLOWING
     ACTIVITIES:

    OPERATING
      Net loss        $   (422,561) $   (806,002) $ (1,294,025) $ (1,090,342)
      Items not
       involving cash:
        Loss on
         disposal of
         office equipment        -         8,388             -         8,388
        Depletion,
         depreciation
         and accretion     895,981       320,391     2,255,468       972,495
        Stock
         compensation
         expense           195,949         7,076       235,529        21,123
        Future income
         tax expense/
         (recovery)       (173,896)     (308,327)     (567,176)     (584,777)
                     --------------------------------------------------------
                           495,473      (778,474)      629,796      (673,113)
       Changes in non-
        cash working
        capital
        (Note 11)       (1,304,776)       46,774    (1,027,044)      284,862
                     --------------------------------------------------------
                          (809,303)     (731,700)     (397,248)     (388,251)
                     --------------------------------------------------------

    FINANCING
      Increase in
       bank loan           566,131       469,083     2,298,156     1,620,353
      Share purchase
       loan                      -        17,163             -        17,163
      Proceeds from
       issuance of
       share capital        80,000             -        80,000             -
      Share issue
       costs              (160,000)            -      (160,000)            -
                     --------------------------------------------------------
                           486,131       486,246     2,218,156     1,637,516
                     --------------------------------------------------------

    INVESTING
      Additions to
       capital assets      107,929        44,669    (1,307,824)   (1,188,620)
      Disposal of
       capital assets            -         4,335       120,000         4,335
      Acquisition of
       oil & gas assets
       (Note 4)                  -             -      (893,762)
      Cash from acquisition
       of subsidiary
       (Note 5)            381,745                     381,745
      Changes in non-cash
       working capital
       (Note 11)          (202,316)      196,250      (263,023)     (878,680)
                     --------------------------------------------------------
                           691,990       245,254     (1436,817)   (2,062,965)
                     --------------------------------------------------------
    NET INCREASE
     (DECREASE) IN
     CASH AND CASH
     EQUIVALENTS           368,818          (200)      384,091      (813,700)

    CASH AND CASH
     EQUIVALENTS,
     BEGINNING OF
     PERIOD                 15,273           200             -       813,700
                     --------------------------------------------------------

    CASH AND CASH
     EQUIVALENTS,
     END OF PERIOD    $    384,091  $          -  $    384,091  $          -
                     --------------------------------------------------------
                     --------------------------------------------------------

    See accompanying notes to the financial statements



    1.  NATURE OF OPERATIONS
        Arrow Energy Ltd. (the "Company" or "Arrow") is incorporated under
        the laws of Alberta and listed on the TSX Venture Exchange (symbol
        "AOF"). The Company is engaged primarily in the exploration for and
        production of petroleum and natural gas reserves in Alberta.

    2.  ACCOUNTING POLICIES
        Basis of presentation - Going Concern
        The financial statements have been prepared using Canadian generally
        accepted accounting principles applicable to a going concern, which
        assumes Arrow will continue operations in the foreseeable future and
        be able to realize assets and satisfy liabilities in the normal
        course of business. While the Company had positive cash flow from
        operating activities there is a working capital deficiency of
        $1,494,946 as at September 30, 2007. Many of the Company's oil and
        gas properties are still in the exploration and development stage and
        as such the Company's ongoing ability to continue as a going concern
        is dependent on its ability to generate future profitable operations,
        secure additional sources of financing, and on the continued support
        of its lenders and creditors. The outcome of all of these matters
        cannot be predicted at this time. The financial statements do not
        reflect adjustments to the carrying values and classification of
        assets and liabilities that might be necessary should the Company be
        unable to continue its operations.

        The unaudited interim financial statements follow the same accounting
        policies as the most recent annual audited financial statements
        except for policies described in Note 3. The interim financial
        statement note disclosures do not include all of those disclosures
        required by Canadian generally accepted accounting principles
        ("GAAP") applicable for annual financial statements. Accordingly,
        these interim financial statements should be read in conjunction with
        the audited financial statements included in the Company's 2006
        Annual Report.

    3.  CHANGES IN ACCOUNTING POLICIES
        Effective January 1, 2007, the Company adopted three new standards
        issued by the CICA relating to the accounting for and disclosure of
        financial instruments. Section 3855 - "Financial Instruments -
        Recognition and Measurement" prescribes when a financial asset,
        financial liability, or non-financial derivative is to be recognized
        on the balance sheet as well as its measurement amount depending on
        its classification. This Section also specifies how gains and losses
        on financial instruments are to be presented. Section 3865 - "Hedges"
        expands on and replaces Accounting Guideline 13 - "Hedging
        Relationships" by specifying how hedge accounting is to be applied
        and what disclosures are necessary when it is applied. Section 1530 -
        "Comprehensive Income" introduces new standards for reporting and
        disclosure of comprehensive income. Comprehensive income is the
        change in equity of the Company during that period from transactions
        and other events and circumstances from non-owner sources including
        changes in the fair value of financial instruments designated as cash
        flow hedges as well as foreign currency translation amounts related
        to self-sustaining foreign operations.


        At January 1, 2007 and September 30, 2007 the Company's financial
        instruments included accounts receivable, bank loan, and accounts
        payable and accrued liabilities. Accounts receivable is measured at
        amortized cost consistent with "loan and receivable" classification.
        The financial liabilities are all measured at amortized cost
        consistent with the "other liabilities" classification. The fair
        value of these financial instruments approximate their carrying value
        due to their short-term maturity or, as with the bank loan, it bears
        interest at the prevailing interest rate.

        The Company does not hold any derivative financial instruments or any
        embedded derivatives and does not apply hedge accounting under
        Section 3865.

        In addition, the Company does not have any items related to
        comprehensive income for the nine months ended September 30, 2007;
        and accordingly, comprehensive loss is equivalent to net loss.

        The Company adopted CICA Handbook Section 1506, Accounting Changes,
        the only effect of which is to provide disclosure and the resulting
        impact to the Company when an entity has not applied a new source of
        generally accepted accounting principles that has been issued but is
        not yet effective.

        This applies to CICA Handbook Sections 3862, "Financial Instruments
        Disclosure," and 3863, "Financial Instruments Presentation," which
        are required to be adopted for fiscal years on or after October 1,
        2007. The Company intends to adopt these standards January 1, 2008
        and it is expected that the only effect on the Company's consolidated
        financial statements will be incremental disclosures regarding the
        significance of financial instruments for the entity's financial
        position and performance; and the nature, extent and management of
        risks to which the entity is exposed arising from financial
        instruments.

        As of January 1, 2008, the Company will be required to adopt CICA
        Handbook Section 1535, Capital Disclosures, which requires entities
        to disclose their objectives, policies, and processes for managing
        capital, and in addition, whether the entity has complied with any
        externally imposed capital requirements. The Company is assessing the
        impact of this new standard on its consolidated financial statements
        and anticipates that the main impact will be in terms of additional
        disclosures required

    4.  ACCOUNTS RECEIVABLE
        ---------------------------------------------------------------------
                                                  September 30,  December 31,
                                                          2007          2006
        ---------------------------------------------------------------------
        Trade account receivable                  $  1,787,314       399,795
        ---------------------------------------------------------------------
        Receivable from private placement         $  1,920,021             -
        ---------------------------------------------------------------------
        Total                                     $  3,707,335       399,795
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    5.  PROPERTY ACQUISITION
        On February 1, 2007, the Company acquired the oil and gas assets of
        Tirmoil, a related party. Tirmoil owns at the time of acquisition
        approximately 65% of all of the outstanding common shares of Arrow
        Energy Ltd. The acquisition included $450,172 of assumed debt and
        $443,590 has been paid out to settle obligations on behalf of
        Tirmoil. The purchase equation remains open and an adjustment of
        $2,324 was recorded in the third quarter as a reduction of the
        liabilities assumed. The Company commenced reporting production from
        the acquisition date on February 1, 2007. The acquisition was
        accounted for as a related party transaction and measured in these
        financial statements at the carrying amount of the oil and gas assets
        as previously recognized in the accounts of Tirmoil. The difference
        between the amount paid $896,086 and the carrying amount $6,285,211
        has been credited to contributed surplus (Note 7(b)).

        BUSINESS ACQUISITION
        On September 28, 2007 Arrow acquired all the outstanding shares of
        Castle Rock Petroleum Ltd. a public company trading on the
        TSX Venture Exchange. Arrow issued 4,180,325 common shares valued at
        $1,755,736 before transaction costs. Arrow exchanged one Arrow Common
        Share for every five Castle Rock A Shares and one Arrow Common Share
        for each one half of a Castle Rock B Share.

        The acquisition has been accounted for using the purchase price
        method. Management has estimated the fair market value based on
        currently available information as follows:

        ---------------------------------------------------------------------
        Consideration:
        ---------------------------------------------------------------------
          Common Shares                                         $  1,755,737
        ---------------------------------------------------------------------
          Transaction costs                                           54,598
        ---------------------------------------------------------------------
                                                                   1,810,335
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        Net Assets Received at Estimated Fair Value
        ---------------------------------------------------------------------
          Cash                                                       381,745
        ---------------------------------------------------------------------
          Accounts receivable                                        381,083
        ---------------------------------------------------------------------
          Prepaid                                                     29,827
        ---------------------------------------------------------------------
          Property, plant & equipment                              1,559,127
        ---------------------------------------------------------------------
          Accounts payable                                          (453,556)
        ---------------------------------------------------------------------
          Asset retirement obligation                                (87,891)
        ---------------------------------------------------------------------
                                                                   1,810,335
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    6.  CAPITAL ASSETS

        ---------------------------------------------------------------------
                                              September 30, 2007
        ---------------------------------------------------------------------
                                                   Accumulated
                                                 Depletion and      Net Book
                                            Cost  Depreciation         Value
                                    ------------- ------------- -------------
        Petroleum and natural
         gas properties             $ 19,542,901  $  6,100,470  $ 13,442,431
        Pipeline                       3,740,798        74,817     3,665,981
        Office equipment and furniture    86,599        32,524        54,075
                                    ------------- ------------- -------------
                                    $ 23,648,040  $  6,207,811  $ 17,162,487
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------

        ---------------------------------------------------------------------
                                                December 31, 2006
        ---------------------------------------------------------------------
                                                   Accumulated
                                                 Depletion and      Net Book
                                            Cost  Depreciation         Value
                                    ------------- ------------- -------------
        Petroleum and natural
         gas properties             $ 14,253,636  $  3,944,999  $ 10,308,637
        Office equipment and
         furniture                        45,575        25,842        19,733
                                    ------------- ------------- -------------
                                    $ 14,299,211  $  3,970,841  $ 10,328,370
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------

        ---------------------------------------------------------------------


        Petroleum and natural gas properties as at September 30, 2007 include
        costs of $1,040,310 (December 31, 2006 - $1,040,310) relating to
        undeveloped land, which has been excluded from the amounts subject to
        depletion. General and administrative costs capitalized for the three
        months ended September 30, 2007 were $83,081 (September 30, 2006 -
        $19,980) and for the nine months ended September 30, 2007 were
        $137,542 (September 30, 2006 - $82,922).

        The Castle Rock acquisition included $1,313,110 of undeveloped land.
        The Castle Rock petroleum and natural gas properties were not
        included in the depletion calculation at September 30, 2007.

        The pipeline which was included in the February 2007 acquisition is
        not included in the full cost pool as it is amortized on a straight
        line basis over 25 years.

        ASSET RETIREMENT OBLIGATION
        The total future asset retirement obligation was estimated by
        management based on the Company's net ownership interest in all wells
        and facilities, estimated costs to reclaim and abandon the wells and
        facilities, and the estimated timing of the costs to be incurred in
        future periods. The Company has estimated the net present value of
        its total asset retirement obligation to be $348,392 as at
        September 30, 2007 (December 31, 2006 - $234,050) based on a total
        future liability of $574,985 (December 31, 2006 - $449,985). These
        payments are expected over the next 20 years with the majority of
        costs incurred between 2010 and 2026. The Company's credit adjusted
        risk free rate of 8.0% and an inflation rate of 2.0% were used to
        calculate the present value of the asset retirement obligation.

        The following table reconciles the Company's total asset retirement
        obligation:

        ---------------------------------------------------------------------
                                                   Nine Months          Year
                                                         Ended         Ended
                                                  September 30   December 31
                                                          2007          2006
        ---------------------------------------------------------------------
        Carrying amount, beginning of period      $    234,050  $    245,836
        Increase in obligations                         95,845         6,468
        Increase in obligations due to Castle Rock      87,891             -
        Settlement of liabilities                            -       (32,195)
        Accretion expense                               18,497        19,871
        Change in estimate                                   -        (5,930)
        ---------------------------------------------------------------------
        Carrying amount, end of period            $    436,283  $    234,050
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    7.  SHARE CAPITAL
        ---------------------------------------------------------------------
                                       Number of     Number of
                                          Shares      Warrants        Amount
        Balance, December 31, 2006    14,138,914             -  $  9,743,897
        ---------------------------------------------------------------------
        Shares deposited into treasury   (50,000)            -       (34,500)
        ---------------------------------------------------------------------
        Shares issued for acquisition  4,180,352             -     1,755,737
        ---------------------------------------------------------------------
        Units issued for private
         placement
        ---------------------------------------------------------------------
          Shares issued net of costs   5,714,461             -     1,264,290
        ---------------------------------------------------------------------
          Warrants                             -     2,857,244       463,731
        ---------------------------------------------------------------------
        Balance, September 30, 2007   23,983,727     2,857,244  $ 13,193,155
        ---------------------------------------------------------------------


        On September 28, 2007 Arrow issued 5,714,487 units ("Units") at a
        price of $0.35 per Unit for proceeds of approximately $2,000,000.
        Each Unit is comprised of one (1) common share ("Common Share") and
        one-half (1/2) Common Share purchase warrant. Each whole warrant
        entitles the holder to purchase one (1) additional Common Share at a
        price of $0.50 per Common Share for a period of twenty (24) months
        following the date of closing, however, if after four months and one
        day following the closing date the closing price of the Common Shares
        is equal to or exceeds $0.75 for 20 consecutive days, then the
        warrants shall automatically accelerate to expire on the date which
        is 30 days after the 20 days. The securities issued have a four (4)
        month hold period which expires on January 29, 2008.

        In connection with the private placement, Arrow paid fees totaling
        $160,000 and issued Broker Options exercisable for a total of 571,428
        Units ("Broker Unit") at a price of $0.35 for a period of twenty (24)
        months from the closing date. Each Broker Unit is exercisable at the
        same price and on the same terms and conditions as the Units. The
        fair value of the warrants and broker units have been calculated
        using the Black Scholes pricing model based on the following
        assumptions: risk-free rate of 4.5%, expected life of two years, no
        dividends and expected volatility of 90%.

    a)  Stock Options
        Under the Company's stock option plan, options may be granted in such
        numbers and with such vesting provisions as the Board of Directors
        may determine. At the time an option is granted, the Board will
        determine the exercise price of the option. The aggregate number of
        shares that may be available for issuance, from time to time, under
        the plan shall not exceed 15 percent of the outstanding shares,
        excluding broker options. In addition, the aggregate number of shares
        so available for issuance under the plan to any one person in any 12
        month period shall not exceed 5% of the issued shares calculated at
        the time of grant of the option.

        ---------------------------------------------------------------------
                                                  September 30,     Weighted
                                                          2007       average
                                                     Number of      exercise
                                                       Options         price
        Balance at December 31, 2006                 1,210,000  $       0.45
        ---------------------------------------------------------------------
        Forfeited during the period                   (425,000)         0.45
        Granted during the period                    1,043,750          0.38
        Broker options issued for units                571,428          0.35
        ---------------------------------------------------------------------
        Balance at September 30, 2007                2,400,178          0.40
        ---------------------------------------------------------------------


        The following table summarized information about stock options
        outstanding as at September 30, 2007:


        ---------------------------------------------------------------------
        Exercise Price        Options        Exercisable    Weighted Average
                            Outstanding                     Years to Expiry
        ---------------------------------------------------------------------
           $0.45               785,000          410,000           1.7
        ---------------------------------------------------------------------
           $0.38             1,043,750          625,000           1.9
        ---------------------------------------------------------------------
           $0.35               571,428                -           2.0
        ---------------------------------------------------------------------
           Total             2,400,178        1,035,000           1.9
        ---------------------------------------------------------------------


    b)  Contributed Surplus
        A summary of the change in the Company's contributed surplus balance
        for the period ended September 30, 2007 is as follows:
        ---------------------------------------------------------------------
                                                                      Amount
        Balance, December 31, 2006                              $    482,368
        Acquisition of oil and gas assets (Note 5)                 5,389,125
        Cancellation of shares                                        34,500
        Stock-based compensation expense                             235,529
        Fair value of common shares included in broker units         112,000

        ---------------------------------------------------------------------
        Balance September 30, 2007                                 6,253,522
        ---------------------------------------------------------------------


    8.  BANK LOAN

        During the third quarter of 2007, Arrow re-negotiated its loan
        facility from $4,200,00 to $3,500,000 with an institutional bank. The
        formal agreement has recently been executed. However, the agreement
        is subject to immediate review based on Arrow's new reserves
        evaluated following its recent acquisitions. The facility bears
        interest at the bank's prime lending rate plus 50 basis points,
        payable monthly and is secured by a fixed and floating charge on the
        assets of the Company. The credit facility is subject to annual
        review. As at November 28, 2007, the Company has approximately $2.5
        million drawn on its demand loan facility.

    9.  INCOME TAXES

        The major components of the future income tax liability at
        September 30, 2007 and December 31, 2006 are as follows:

                                                  ---------------------------
                                                       2007          2006
                                                        $             $
                                                  ---------------------------
        Property and equipment                      (1,165,124)   (1,647,682)
        Share issue costs deductible for tax
         purposes                                       75,778        59,117
        Asset retirement obligation                    140,134        73,660
        Cumulative eligible capital                     73,703        76,218
        Non-capital losses carried forward             198,227       194,227
                                                  ---------------------------
                                                      (677,282)   (1,244,460)
                                                  ---------------------------
                                                  ---------------------------

    10. COMMITMENTS AND CONTINGENCIES

        (a)   The Company has remaining lease commitments for office space of
              $33,750, $179,143 and 721,639 expiring in December 31, 2007,
              August 31, 2008 and July 1, 2012 respectively.

        (b)   The Company is involved in a legal claim associated with the
              normal course of business. At this time, in the opinion of
              management, this matter is not reasonably expected to result in
              a material adverse effect on the Company's financial position.

    11. SUPPLEMENTARY CASH FLOW INFORMATION

        The following table details the components of non-cash working
        capital provided by (used in) operations.

        ---------------------------------------------------------------------
                                                  Three Months   Nine Months
                                                     September     September
                                                      30, 2007      30, 2007
        ---------------------------------------------------------------------
        Accounts receivable                           (569,712)   (1,006,436)
        ---------------------------------------------------------------------
        Prepaid expenses                               (57,775)      (20,608)
        ---------------------------------------------------------------------
        Accounts payable and accrued liabilities      (756,520)     (189,810)
        ---------------------------------------------------------------------
                                                    (1,555,295)   (1,216,854)
        ---------------------------------------------------------------------
        Operating                                   (1,304,776)   (1,027,044)
        ---------------------------------------------------------------------
        Investing                                     (250,516)     (189,810)
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
                                                  Three Months   Nine Months
                                                     September     September
                                                      30, 2006      30, 2006
        ---------------------------------------------------------------------
        Accounts receivable                             14,932       742,894
        ---------------------------------------------------------------------
        Prepaid expenses                               (13,640)      (30,699)
        ---------------------------------------------------------------------
        Accounts payable and accrued liabilities       241,732    (1,306,013)
        ---------------------------------------------------------------------
                                                       243,024      (593,818)
        ---------------------------------------------------------------------
        Operating                                       46,774       284,862
        ---------------------------------------------------------------------
        Investing                                      196,250      (878,680)
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
                                                  Three Months   Nine Months
                                                     September     September
                                                      30, 2007      30, 2007
        ---------------------------------------------------------------------
        Interest expense                                60,880       150,433
        ---------------------------------------------------------------------
        Interest revenue                                   270         1,852
        ---------------------------------------------------------------------
        Current tax                                          -             -
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
                                                  Three Months   Nine Months
                                                     September     September
                                                      30, 2006      30, 2006
        ---------------------------------------------------------------------
        Interest expense                                23,509        41,949
        ---------------------------------------------------------------------
        Interest revenue                                     -         4.782
        ---------------------------------------------------------------------
        Current tax                                          -             -
        ---------------------------------------------------------------------

    12. RELATED-PARTY TRANSACTION

        For the three month and nine months ended September 30, 2007, the
        Company has $ 27,910 and $168,823 (September 30, 2006 nil and nil)
        included in legal fees and accounts payable to a law firm of which a
        director of Arrow is a partner. Transactions in the normal course of
        operations are measured at the exchange amount, which is the amount
        of consideration established and agreed to by the related parties.

        At September 30, 2007 the Company has $162,166 (September 30, 2006
        nil) included in accounts payable due to a major shareholder.

    13. SUBSEQUENT EVENTS

        Arrow has entered into an agreement whereby Arrow will acquire from
        two private vendors (the "Vendors") 100% of their jointly owned
        petroleum and natural gas interests in the vicinity of Carstairs,
        Alberta. In consideration for this acquisition, Arrow will pay to the
        Vendors a total of $1,800,000 as follows: (a) $700,000 paid by cash
        ($350,000 on closing and $350,000 plus interest at 8% six months from
        closing); and (b) $1,100,000 by issuance of 2,000,000 units of Arrow
        at a price of $0.55 per unit. Each unit is comprised of one (1)
        common share and one (1) warrant entitling the holder to purchase one
        flow through common share at a price of $0.70 per common share
        exercisable until June 30, 2008.

    14. COMPARATIVE NUMBERS

        Certain prior-period numbers have been re-classified to conform to
        the current presentation.
    


    Additional Information

    Additional information relating to Arrow, including an Annual Information
Form, can also be found on SEDAR at www.sedar.com.

    THE TSX VENTURE EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT
    RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

    %SEDAR: 00017135E




For further information:

For further information: Chris Tesarski, President & CEO, Phone: (403)
237-9996, Email: chris.tesarski@arrow-energy.com

Organization Profile

ARROW ENERGY LTD.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890