Afren PLC Completion of interim funding (9210L)

TIDMAFR

RNS Number : 9210L

Afren PLC

30 April 2015

THIS ANNOUNCEMENT IS NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION IN WHOLE OR IN PART IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DISTRIBUTE THIS ANNOUNCEMENT.

THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS AND INVESTORS MUST ONLY SUBSCRIBE FOR OR PURCHASE ANY SECURITIES REFERRED TO IN THIS ANNOUNCEMENT ON THE BASIS OF THE INFORMATION CONTAINED IN A PROSPECTUS AND NOT IN RELIANCE ON ANY INFORMATION IN THIS ANNOUNCEMENT.

Completion of interim funding, appointment of new CEO and update on reserves

London, 30 April 2015

Afren plc ("Afren", the "Company" or the "Group"), (LSE: AFR) announces that, further to its announcements of 13 March and 1 April 2015, it has successfully completed key steps in its recapitalisation plan to address its funding requirements and operational repositioning which will allow it to succeed in the current oil price environment:

-- US$255 million of net total funding to be provided by bondholders as part of the recapitalisation, with the ability to increase such net funding to US$305 million

-- Arrangements for the provision of US$200 million in net interim funding provided by bondholders have been completed, the remaining committed US$55 million will be provided at closing which is expected to be in July 2015

-- Alan Linn has been appointed as Afren's new CEO bringing to 'New Afren' 35 years' of industry experience and a successful track record implementing strategic change within established businesses

-- The recapitalisation and investment demonstrates the ongoing commitment to invest in Nigeria

These steps set 'New Afren' on a decisive path to address the operational and governance issues it has faced and ensure it can successfully reposition itself focused on its core Nigerian producing assets.

Commenting today, Alan Linn, new CEO of Afren plc, said:

"I am looking forward to working with the Afren team and its partners to deliver a lean and effective business with an oil production and development focus. The strong support shown by key stakeholders ensures we can now progress a number of important development projects in Nigeria which will contribute early production and revenue to the business and support our aim to be profitable in a lower oil environment.

There is a lot to do. However, the core assets and the quality of people and partners I've met give me the confidence to say that Afren has an attractive future and I am pleased to have the opportunity to contribute to this future success."

Commenting today, Egbert Imomoh, Chairman of Afren plc, said:

"I am very happy we have reached agreement on our recapitalisation which will allow us to create a 'New Afren'.

I am also delighted to welcome Alan Linn as CEO to drive the future redevelopment of Afren. He comes with deep industry experience and a strong track record of success. We are fortunate to have attracted such an outstanding CEO to lead the 'New Afren'. I would like to thank Toby Hayward for stepping into the role of Interim CEO at a very difficult time in the Company's history."

Completion of Interim Funding

Afren is pleased to announce that it has satisfied the conditions precedent to the funding agreement with certain holders of its 2016 Notes, 2019 Notes and 2020 Notes (the "Participating Noteholders") for the provision of US$200 million in net interim funding (the "Interim Funding"). The Interim Funding is being provided in the form of super senior private placement notes ("PPNs") which have been issued to the Participating Noteholders on the terms disclosed in the announcement of 13 March 2015. These funds will be used to funding our core Nigerian producing assets, as well as paying existing creditors built up during the Group's liquidity squeeze.

Appointment of new CEO

The Board is delighted to confirm the appointment of Alan Linn as the new Chief Executive Officer and executive director of Afren with immediate effect.

Alan has 35 years of international experience in the oil and gas industry developing and restructuring businesses in challenging and diverse environments. He has been successful in implementing strategic change within established businesses and has over 12 years' experience working with executive teams and boards in companies listed in the UK and Australia. He has a strong track record of delivering sound commercial and operational results within both large and small oil and gas companies.

Following Alan Linn's appointment as CEO, Toby Hayward will be stepping down as interim CEO with immediate effect and will continue as an independent non-executive director of the Company. In addition, the Board will be further strengthened with the appointment of new directors to broaden its expertise in due course and an executive search firm is being retained to assist with this process.

Update on Reserves

The Company announces an update on its reserves as at 31 December 2014 as audited by NSAI. A summary of such 2P reserves is set out below.

 
                Proved and Probable Oil and Gas reserves statement by asset 
                                   as at 31 December 2014 
                                      Working Interest basis before royalties 
                                                                   Aje (OML 
                           Okoro         Ebok          Okwok          113)         OML26 
                        Oil (mmbbl)   Oil (mmbbl)   Oil (mmbbl)   Oil (mmbbl)   Oil (mmbbl) 
 
 At 31 December 
  2013                     27.7          58.0          26.4            -           60.0 
 Revisions of 
  previous estimates       (2.5)         (0.7)          3.5            -           (3.6) 
 Discoveries 
  and extensions             -             -             -            4.4            - 
 Production                (3.0)         (8.2)           -             -           (0.5) 
 At 31 December 
  2014                     22.2          49.1          29.9           4.4          55.9 
=====================  ============  ============  ============  ============  ============ 
 

Next steps for the Recapitalisation

Afren is now proceeding to implement the next steps for the completion of its previously announced financial and capital restructuring. The Company has entered into a conditional subscription agreement with the Participating Noteholders in respect of the issue of US$274 million in principal amount of high yield notes (the "New Senior Notes") which will be used to refinance the PPNs and provide an additional US$55 million in net cash proceeds to the Group. In accordance with the provisions of the subscription agreement, the Company is seeking additional commitments from other holders of the 2016 Notes, 2019 Notes and 2020 Notes (the "Existing Noteholders") to subscribe for additional New Senior Notes so as to increase the principal amount of the New Senior Notes to up to US$325 million in order to be able to receive up to US$305 million in net cash proceeds as originally proposed.

In conjunction with such agreement, the lenders under the Group's existing US$300 million Ebok credit facility have agreed to the deferral of the US$50 million amortisation payments due on 31 January 2015 and 30 April 2015 until the completion of the implementation of the Recapitalisation (at which point it is expected that the amortisation payments will be further deferred until after the repayment of the New Senior Notes).

It is anticipated that the Recapitalisation will now be completed by the end of July 2015. The implementation of the Recapitalisation is subject to entry into and completion of further documentation and formal approval by the Participating Noteholders and each of the lenders under the Group's US$300 million secured facility in respect of Ebok. Shareholders will also be asked to approve the issue of new shares in connection with the Recapitalisation; if shareholders do not approve the relevant resolution at the general meeting to be convened in due course, the Recapitalisation will still proceed, but on amended terms as outlined in the announcement of 13 March 2015.

Further details regarding the Recapitalisation will be announced in due course.

For further information contact:

Afren plc Tel: [phone]

Simon Hawkins, Group Head of Investor Relations

Bell Pottinger (public relations adviser to Afren plc) Tel: [phone]

Gavin Davis

Henry Lerwill

APPENDIX

Interim Funding

Afren is pleased to announce that it has satisfied the conditions precedent to the funding agreement with noteholders representing approximately 50% of the outstanding principal amount due under its 2016 Notes, 2019 Notes and 2020 Notes (the "Ad Hoc Committee") for the provision of US$200 million in net interim funding (the "Interim Funding"). The Interim Funding is being provided in the form of super senior private placement notes ("PPNs") which have been pre-placed with the Participating Noteholders who comprise some of the members of the Ad Hoc Committee.

Pursuant to a note purchase agreement dated 30 April 2015 between the Company and the Participating Noteholders, the Company will issue US$211.6 million of PPNs with a maturity date of 25 April 2016 bearing interest of 15% per annum (payable in kind). It is expected that the PPNs will be repaid out of the proceeds of new high yield notes and the issue of new ordinary shares in the capital of the Company to be issued in connection with the Recapitalisation (as defined below).

The Participating Noteholders may in their discretion, if requested by the Company, increase the size of the issue of the PPNs to result in up to an additional US$50 million in net interim funding.

Recapitalisation

Further to the announcement of 13 March 2015 (the "13 March Announcement"), the Company is continuing to work with the Ad Hoc Committee and the lenders (the "Ebok Lenders") under its existing US$300 million Ebok credit facility (the "Ebok Facility") towards the implementation of a financial and capital restructuring of the Group (the "Recapitalisation"). The Interim Funding will provide immediate liquidity to the Group and provide time to implement the required steps towards the completion of the recapitalisation transaction that has been agreed between the Ad Hoc Committee and the Ebok Lenders.

In connection with the Recapitalisation, the Company has entered into a conditional subscription agreement (the "Subscription Agreement") with the Participating Noteholders in respect of the issue of US$274 million high yield notes (the "New Senior Notes") which will be used to refinance the PPNs and provide an additional US$55 million in net cash proceeds to the Group.

In accordance with the provisions of the Subscription Agreement, the Company is seeking additional commitments from other holders of the 2016 Notes, 2019 Notes and 2020 Notes (the "Existing Noteholders") to subscribe for additional New Senior Notes so as to increase the principal amount of the New Senior Notes to US$325 million and thereby receive up to US$305 million of net cash proceeds.

As a result of the changes in the principal amount of New Senior Notes which has been committed by the Participating Noteholders and to reflect the fact that the Recapitalisation is now anticipated to complete by the end of July 2015 (as compared to the end of June 2015), the following amendments are being made to the key terms of the Recapitalisation set out in the 13 March Announcement:

-- The amount of principal and accrued but unpaid interest due on the 2016 Notes, 2019 Notes and 2020 Notes (the "Existing Notes") to be repaid is expected to be approximately US$934 million (as compared to US$920 million), which will be repayable as follows:

o 25% of such outstanding amount (approximately US$233 million) will be converted into ordinary shares of the Company (still representing 80% of the increased share capital of the Company immediately following such conversion (the "Debt for Equity Swap").

o The remaining Existing Notes (approximately US$700 million) will be reinstated into two equal tranches of approximately US$350 million with a maturity of December 2019 and December 2020, respectively (with the other terms of such notes unchanged).

-- To the extent the aggregate amount of New Senior Notes subscribed is less than US$320 million, the amount of new ordinary shares to be issued to subscribers of the New Senior Notes will be reduced pro rata from the previously announced 50% of the total issued share capital of the Company following the Debt for Equity Swap.

o For example, if the size of the New Senior Notes issue remains at US$274 million, the subscribers for such notes will receive new ordinary shares representing approximately 42.8% of the total issued share capital of the Company following the Debt for Equity Swap.

-- If the New Senior Notes are not issued by 22 July 2015, the number of new ordinary shares to be issued to subscribers for the New Senior Notes will increase by 0.1205% per day until the date of issue of the New Senior Notes (reflecting the per diem funding commitment risk for the Participating Noteholders).

o For example, if the New Senior Notes are issued on 27 July 2015 (a delay of 5 days), the total size of the New Senior Notes Share Issue will increase by 0.6025% of the total issued share capital of the Company following the Debt for Equity Swap.

-- The amortisation profile under the Ebok Facility (as defined in the 13 March Announcement) will be amended as follows:

o No amortisation payments will be made until the earlier of 30 September 2018 and the New Senior Notes being repaid.

o The fixed quarterly amortisation payments will be increased to US$15.6 million rising to US$27.2 million.

-- The lender under the US$50 million secured facility in respect of Okwok/OML 113 has agreed to extend the term of such facility until June 2018, with US$20 million of amortisation payments due by March 2016 and the balance being amortised through equal quarterly payments until June 2018. The interest rate under this facility will remain at 9.5% per annum, but the lender will receive a fee equal to 1.5% of the facility, payable in kind at the maturity of the facility.

-- If the Recapitalisation is not approved by shareholders at the general meeting of the Company to be convened in due course, the terms of the New Senior Notes will be revised as follows (as compared to the terms set out in the 13 March Announcement):

o The Existing Notes will be amended and reinstated into US$350 million notes due 2019, US$350 million notes due 2020 and US$233 million notes due 2021.

o The principal amount of the New Senior Notes issued to the Existing Noteholders who subscribe for such notes will be increased to US$302 million (assuming only US$274 million of New Senior Notes are subscribed).

o The interest payable on the New Senior PIK Notes (as defined in the 13 March Announcement) will be reduced from 2.7% to 2.5% per annum and the interest payable on the New Junior PIK Notes (as defined in the 13 March Announcement) will be increased from 26.8% to 26.9% per annum.

Accordingly, following completion of the Recapitalisation and assuming that the proposed open offer of new shares to shareholders (the "Open Offer") is subscribed in full by existing shareholders only, existing shareholders will hold up to approximately 14% of the fully diluted share capital of the Company (assuming the Open Offer is made at a 40% discount to the theoretical ex-rights price of the ordinary shares).

It is anticipated that the Recapitalisation will now be completed by the end of July 2015. The implementation of the Recapitalisation is subject to entry into and completion of further documentation and formal approval by the Participating Noteholders and each of the Ebok Lenders.

Appointment of new CEO - further information

Prior to joining Afren, Alan was chief executive officer and executive director at ROC Oil, based in Australia and Malaysia from 2008 to date. Alan has held senior roles in operational, commercial and general management previously with African Arabian Petroleum, Tullow Oil, Cairn Energy, LASMO/ENI and ExxonMobil. He has direct experience of successfully managing complex partner and government relationships as well as leading operational and EHS excellence from boardroom to drill bit.

Alan has a BSc in Chemical Engineering from Strathclyde University in Glasgow and a Fellow of the Institute of Chemical Engineers.

The Company confirms that there are no further disclosures required in respect of LR 9.6.13.

Update on reserves

The Company announces an update on its reserves as at 31 December 2014 as audited by NSAI. A summary of such 2P reserves is set out below.

 
                Proved and Probable Oil and Gas reserves statement by asset 
                                   as at 31 December 2014 
                                      Working Interest basis before royalties 
                                                                   Aje (OML 
                           Okoro         Ebok          Okwok          113)         OML26 
                        Oil (mmbbl)   Oil (mmbbl)   Oil (mmbbl)   Oil (mmbbl)   Oil (mmbbl) 
 
 At 31 December 
  2013                     27.7          58.0          26.4            -           60.0 
 Revisions of 
  previous estimates       (2.5)         (0.7)          3.5            -           (3.6) 
 Discoveries 
  and extensions             -             -             -            4.4            - 
 Production                (3.0)         (8.2)           -             -           (0.5) 
 At 31 December 
  2014                     22.2          49.1          29.9           4.4          55.9 
=====================  ============  ============  ============  ============  ============ 
 

As previously announced in January 2015, the Company received an update on its reserves at Barda Rash (prepared by RPS Energy) which resulted in the elimination of the gross 2P reserves of 190 mmbbls at Barda Rash. Accordingly, the total 2P reserves for the Group (showing the change from 31 December 2013) by country is as follows:

 
                        Proved and Probable Oil and Gas reserves statement by country as 
                                               at 31 December 2014 
                                                         Kurdistan Region 
                              Nigeria                         of Iraq                       Total Group 
                      Oil                            Oil                             Oil 
                     (mmbbl)   Gas(bcf)   mmboe     (mmbbl)   Gas(bcf)    mmboe     (mmbbl)   Gas(bcf)    mmboe 
 
 At 31 December 
  2013                 172.1          -    172.1      113.9          -     113.9      286.0          -     286.0 
 Revisions 
  of previous 
  estimates            (3.4)          -    (3.4)    (113.8)          -   (113.8)    (117.2)          -   (117.2) 
 Discoveries 
  and extensions         4.4          -      4.4          -          -         -        4.4          -       4.4 
 Production           (11.7)          -   (11.7)      (0.1)          -     (0.1)     (11.8)          -    (11.8) 
 At 31 December 
  2014                 161.5          -    161.5        0.0          -       0.0      161.5          -     161.5 
=================  =========  =========  =======  =========  =========  ========  =========  =========  ======== 
 

In connection with the provision of the Interim Funding and the Recapitalisation, Ryder Scott Company L.P. ("Ryder Scott") was mandated in February 2015, at the request of the Ad Hoc Committee, to (i) review the results presented in "Estimates of Reserves and Future Revenue to the Afren plc Interest in Certain Oil and Gas Properties Located in Okoro, Ebok and Okwok Fields Offshore Nigeria as of December 31, 2013" published by NSAI (the "2013 Report") and commissioned by the Company and (ii) perform a cursory review of the 2013 Report, work process, data, and analysis for the specified properties and then provide the Ad Hoc Committee with an initial appraisal report opining on the work performed by NSAI.

Based on its review, Ryder Scott concluded that NSAI's methods and procedures are performed within generally accepted geological and engineering practices. NSAI followed standard practices and their approach was deemed appropriate given the timing of the review (year-end 2013). Ryder Scott highlighted that there were certain modifications and alternative methods which could potentially improve the NSAI analysis to provide a more integrated and robust evaluation of the reserves and economic analyses, however, without a more detailed analysis, they could not comment on the overall quantitative effect that those changes would have on the reserves reported by NSAI as of 31 December 2013. Given their review was on the historical 2013 Report, Ryder Scott noted that the Ad Hoc Committee should consider the new 2014 NSAI report and any updates to the Group's reserves referred to therein.

A copy of NSAI's report entitled "Estimates of Reserves and Future Revenue to the Afren plc Interest in Certain Oil and Gas Properties Located in Okoro, Ebok and Okwok Fields Offshore Nigeria as of December 31, 2014" is available on the Company's website www.afren.com.

FHN

The Company has reached agreement with Earl-Act Global Investments Limited ("EAG") and CSL Trustees Limited ("CSL") to acquire the 22% of shares in First Hydrocarbon Nigeria Company Limited ("FHN") that the Company does not currently own. Afren has amended the terms of the put/call option with EAG announced on 5 July 2013 in respect of 18,299,993 shares in FHN to be acquired at US$3.32 per share and has also agreed to purchase the 13,780,008 FHN shares owned by CSL at US$2.80 per share. In each case such shares will now be acquired and the purchase price will be payable in equal quarterly instalments from 30 June 2017 to 30 September 2019 (together with annual interest of LIBOR + 6.5% payable in cash and 2.5% payable in kind payable in respect of the purchase price).

The Company has also successfully re-scheduled the payment terms in respect of 11,322,111 shares in FHN acquired from Capital Alliance Energy Nigeria Limited (as previously announced on 5 July 2013) such that the outstanding purchase price of US$22.3 million will now be payable in instalments between July and December 2015 (rather than in full in July 2015).

Notes

This announcement is for information purposes only and does not constitute an invitation or offer to buy, sell, issue, underwrite, acquire or subscribe for, or the solicitation of an offer to buy, sell, issue, acquire or subscribe for any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. Any failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdictions.

In particular, this announcement does not constitute or form part of any offer to buy, sell, issue, acquire or subscribe for, or the solicitation of an offer to buy, sell, issue, acquire, or subscribe for, any securities in Australia, Canada, Japan, the Republic of South Africa or any other jurisdiction into which such offer or solicitation would be unlawful. No public offering of the securities referred to herein is being made in the United Kingdom, Australia, Canada, Japan, the Republic of South Africa or any other jurisdiction.

This announcement is not an offer of securities for sale in the United States. The securities referred to above have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the "US Securities Act"), and may not be offered or sold in the United States absent registration or an exemption from registration as provided in the US Securities Act and the rules and regulations thereunder. There has not been and will not be a public offer of the securities in the United States.

The distribution of this announcement in certain jurisdictions may be restricted by law. No action has been taken that would permit an offering of any securities or possession or distribution of this announcement or any other offering or publicity material relating to such securities in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes are required to inform themselves about, and to observe, such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

Disclaimer and cautionary note on forward looking statements and notes on certain other matters

Certain statements in this announcement are not historical facts and are or are deemed to be "forward-looking". The Company's prospects, plans, financial position and business strategy, and statements pertaining to the capital resources, future expenditure for development projects and results of operations, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology including, but not limited to; "may", "expect", "intend", "estimate", "anticipate", "plan", "foresee", "will", "could", "may", "might", "believe" or "continue" or the negatives of these terms or variations of them or similar terminology. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. These forward-looking statements involve a number of risks, uncertainties and other facts that may cause actual results to be materially different from those expressed or implied in these forward-looking statements because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond Afren's ability to control or predict. Forward-looking statements are not guarantees of future performances.

Factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected include, but are not limited to, the following: risks relating to changes in political, economic and social conditions in the countries in which Afren operates; future prices and demand for the Company's products; global oil production; trends in the oil & gas industry and domestic and international oil & gas market conditions; risks in oil & gas operations; future expansion plans and capital expenditures; the Company's relationship with, and conditions affecting, the Company's partners and regulators; competition; weather conditions or catastrophic damage; risks relating to law, regulations and taxation in the countries in which Afren operates, including laws, regulations, decrees and decisions governing the oil & gas industry, the environment and currency and exchange controls and their official interpretation by governmental and other regulatory bodies and by the courts; and risks relating to global economic conditions and the global economic environment. Additional risk factors are as described in the Company's annual report.

Forward-looking statements are made only as of the date of this announcement. The Company expressly disclaims any obligation or undertaking to release, publicly or otherwise, any updates or revisions to any forward-looking statement contained in this announcement to reflect any change in its expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based unless so required by applicable law.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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