Afren PLC Interim Management Statement (5772O)

TIDMAFR

RNS Number : 5772O

Afren PLC

29 May 2015

Afren plc: Interim Management Statement

-- US$200 million interim funding provided by existing Noteholders by way of new private placement notes in April 2015; proceeds to be used for general corporate purposes and capex; wider recapitalisation programme to be completed by the end of July 2015

-- Nigeria projects progressing: Completion of top-side Ebok CFB extension; options for Okoro FFD with a low oil price under discussion; completion of first Okwok development well; fifth production well completed on OML 26

-- 2015 capex guidance US$0.4 billion expected to focus on existing producing assets in Nigeria; average production guidance expected to be 23,000 - 32,000 bopd, reflecting lower share of production from Ebok following end of cost recovery

-- Q1 2015 net production at 36,035 bopd, above FY guidance range but in line with expectations; Q1 2015 Revenue of US$130 million; Operating cash flow before movements in working capital of US$59 million; Capex US$212 million; Net Debt US$1,196 million

London, 29 May 2015 - Afren plc ("Afren" or the "Group"), (LSE: AFR), announces its Interim Management Statement ("IMS") and financial results for the three months ended 31 March 2015 and an update on its operations year-to-date 2015. Information contained within this release is unaudited and is subject to further review.

Operational Update

Afren delivered revenue of US$130.3 million (Q1 2014: US$269.0 million) and operating cash flows before movements in working capital of US$59.1 million (Q1 2014: US$169.1 million) in Q1 2015, driven by average net production at 36,035 bopd in line with expectations to meet our guidance range for 2015, averaging 23,000 - 32,000 bopd. The fall in revenue was due to lower realised oil prices and production liftings from Ebok utilised to settle a net profit interest (NPI) liability. NPI represents a contractual profit share payable to previous owners of the Ebok field for which liftings made in settlement are offset against cost of sales (NPI liftings commenced in Q4 2014).

Our 2015 production guidance range reflects a lower share of production following end of all cost recovery at Ebok. At Ebok, following completion of the installation of the CFB extension wellhead jacket in late Q4 2014, the Partners completed the top-side installation of the bridge and decks in March 2015 and are targeting hook-up and commissioning of the facilities by Q4 2015. Gross production at the Ebok field was 30,954 bopd. As previously announced, Afren and Oriental have reached an agreement to end cost recovery. Oriental will fund its share of expenditure from May 1 2015. As a result of the agreement, Afren will receive a lower share of production to reflect its share of working interest in Ebok.

At Okoro, gross production at the field was circa 15,073 bopd in the period, incorporating planned downtime. The Partners are currently in discussions on how to manage the Okoro Further Field Development Plan in line with the current low oil price environment with a view to re-engineering the forward work programme. At Okwok, Afren and its JV Partners Oriental and Addax Petroleum, have completed and flow tested a first development well, which was completed in April 2015 from the Okwok jacket having been drilled to a total measured depth of 9,202 ft and flow tested successfully at a maximum rate of 5,400 bopd (24.5 deg API oil).

At OML 26, following the receipt of Field Development Plan (FDP) approval by the Nigerian regulatory authorities in H1 2014, the Partners successfully drilled two producers in H2 2014. A third producer was spudded in December 2014 and completed in February 2015, a fourth producer was completed in March 2015 and a fifth producer has just been completed in May 2015. All five new wells have been drilled with the same rig and from the same location cluster. Two of the wells tested at over 2,000 bopd and a third around 1,000 bopd during post completion well tests without any gaslift. The new wells will undergo the statutory well tests and gaslifted to realise their full production potential in the coming months. Submission of the OML 26 FDP to the Nigerian authorities for Isoko is expected in Q2 2015.

At the Barda Rash field in Kurdistan, following a material reduction to previously published estimates of reserves and resources resulting from the reprocessing 3D seismic shot in 2012 and results from the Company's drilling campaign as well as the publication of an updated Competent Person's Report (CPR) on 12 January 2015, Afren is in discussions with the MNR regarding potential divestment opportunity options for the field.

Following the play-opening Ogo discovery, offshore Nigeria, Afren completed the fast track 2,716 km(2) marine 3D seismic programme across OPL 310 and OML 113 to complement existing coverage on the two licences. Processing of 3D seismic data has been completed. The fast track post-stack time migration was delivered in August 2014 and the final production pre-stack time migration was delivered in late Q4 2014. The pre-stack depth migration was delivered in April 2015. The interpretation of these data sets will be used to finalise a well location. Afren has instructed NSAI to commence the preparation of a CPR for OPL 310 incorporating the new block wide seismic data.

Capex guidance for 2015 remains at US$0.4 billion, focussed on high margin Nigerian cash generating producing assets.

Commenting today, Alan Linn, Chief Executive Officer of Afren plc, said:

"Afren has delivered a solid first quarter result despite the continuing low oil price and additional NPI liftings from Ebok. We have already significantly curtailed immediate capital expenditure and are now working with our Partners to optimise forward investment in development projects in Nigeria. Business and process streamlining has commenced and we expect to begin seeing improved bottom line results from these efficiencies across the business as 2015 unfolds. Whilst interim funding is now in place, it will take time to work through historical issues and funding remains extremely tight. We will be working with shareholders in the coming weeks to explain the benefits of our proposed new funding structure and encourage them to support us in resolving our financing issues in order for Afren to deliver the long-term value and attractive future I see for the Company."

Production

 
                                                   Average gross   Average net 
 Production Q1 2015 (bopd)      Working interest     production     production 
===========================  ===================  ==============  ============ 
 Okoro                               50%              15,073          7,537 
 Ebok                               50%(1)            30,954         26,887 
 OML 26                              45%               3,580          1,611 
 Total                                                49,607         36,035 
===========================  ===================  ==============  ============ 
 

(1 ) (Afren's net production in 2015 includes its 50% working interest plus additional barrels to recover costs of capital investment funded by Afren. It includes any volumes provided to Partners to settle net profit interest liabilities.)

Financial Position

Revenue for the three months ended 31 March 2015 was US$130.3 million (Q1 2014: US$269.0 million). The 52% decrease in revenue is attributable to a significantly lower realised oil price of US$48.0/bbl (Q1 2014: US$ 106.5/bbl) and liftings of Ebok production being provided in settlement of the net profit interest liability (such amounts are therefore excluded from revenue and offset against cost of sales).

This fall in revenue, together with higher administrative costs incurred in relation to the Group's recapitalisation and the write-off of Q1 2015 expenditure on certain exploration and evaluation assets, resulted in a loss before tax for the period of US$48.1 million (Q1 2014: profit before tax of US$55.8 million). Although the Group continues to reflect the benefit of a five-year tax holiday at the Ebok field, a tax charge of US$5.0 million was recorded for Q1 2015 (Q1 2014: US$16.7 million credit). The tax charge for Q1 2015 principally relates to the current tax charge at Okoro. This resulted in a loss after tax of US$53.1 million (Q1 2014: US$72.5 million profit after tax).

Operating cash flow before movements in working capital for the three months to 31 March 2015 was US$59.1 million (Q1 2014: US$169.1 million). This decrease was primarily attributable to lower revenue. Net cash generated by operating activities was US$84.0 million (Q1 2014: US$114.2). The narrowing of the decrease compared to operating cash flow before movements in working capital reflects a reduction in the inventory of crude oil compared to the respective year-ends.

During the three months to 31 March 2015 the Group spent US$212.0 million developing its assets (US$209.7 million investment in producing and development assets and US$2.3 million on exploration and evaluation projects). The investment in producing and development assets included US$128.9 million in respect of various drilling and enhancement activities at Ebok.

Gross debt at 31 March 2015 was US$1,296.1 million, excluding finance leases. Cash at bank at 31 March 2015 was US$100.5 million, resulting in net debt (excluding finance leases) of US$1,195.6 million (31 December 2014: gross debt of US$1,304.0 million; cash of US$236.5 million; and net debt of US$1,067.5 million).

On 30 April 2015, the Group announced that, as part of its recapitalisation plan, it will be provided with US$200 million of net interim funding. For further details of this and the overall recapitalisation, please refer to our announcement on 30 April 2015 entitled "Completion of interim funding, appointment of new CEO and update of reserves".