Afren PLC Interim Management Statement -4-

The US$200 million net cash proceeds from the issuance of the PPN has been deposited in escrow, to be drawn down by the Group over the coming months. Withdrawals from escrow are required to be applied broadly in accordance with agreed financial forecasts, and are subject to an agreed drawdown schedule and the Group's continuing compliance with certain default conditions. The PPN would be repayable by April 2016 if not refinanced through the Recapitalisation.

In order for the Recapitalisation to be implemented there are other conditions that need to be fulfilled, including obtaining (i) the approval of requisite majorities of holders of the Existing Notes in connection with a scheme of arrangement of such Existing Notes; (ii) approval from the relevant courts in the UK and the US as to such scheme of arrangement; and (iii) agreement from the Group's remaining lenders. The Company will also seek the approval of shareholders in general meeting to the terms of the Recapitalisation, which is required in order to issue the new ordinary shares in connection with the Recapitalisation. If shareholder approval is not received, the Recapitalisation will still proceed, but on amended terms for the New HY Notes (see below).

As at 29 May 2015 Afren is in default under the terms of its 2016 Notes due to the non-payment of interest. The Company has received assurances from the ad hoc committee of Noteholders (which members hold in aggregate approximately 63% of the principal face amount of the 2016 Notes and approximately 50% of the total principal face amount of the Existing Notes) (Ad Hoc Committee) that the Ad Hoc Committee has no current intention to take enforcement action with respect to the 2016 Notes held by its members as a result of the failure to make payment of interest due under the 2016 Notes, on the basis that agreement has been reached with the Company and its key stakeholders on the terms of a consensual (but conditional) restructuring.

As at 29 May 2015 Afren is in default under the terms of its 2019 Notes due to the non-payment of interest. The Company has received assurances from the Ad Hoc Committee (which members hold in aggregate approximately 35% of the principal face amount of the 2019 Notes) that it has no current intention to take enforcement action with respect to the 2019 Notes held by its members as a result of the failure to make payment of interest due under the 2019 Notes.

There is a risk that one or more of these Recapitalisation steps outlined above, may not be completed or satisfied and the Recapitalisation may not occur. If additional funds are not available to be drawn under the New HY Notes, and the Recapitalisation does not proceed, the Directors are of the opinion that the Group would become insolvent, absent an alternative proposal being received by the Company that is capable of being implemented.

If shareholder approval of the Recapitalisation is not received, the Ad Hoc Committee and the lenders under the Group's existing US$300 million Ebok credit facility have agreed to an alternative restructuring plan, whereby the economic terms of the New HY Notes will be amended, and the amendment and restatement of the Existing Notes will be revised (so that no new shares are issued). In addition, the New HY Notes will include a requirement for the Company to initiate a sale of the Group's business by the end of 2016, which together will mean that existing shareholders would be unlikely to see any return of their current investment.

On the basis that the Recapitalisation is successfully achieved as outlined above, the Group's financial footing and ability to continue in operation would be significantly strengthened. The Group's financial forecasts and projections for the next twelve months indicate that the Group would then be able to meet its obligations as they fall due, however, this assessment is sensitive to a number of downside risks such as any further significant deterioration in the outlook for oil prices, any significant disruption to the Group's production revenue stream due to operational or other factors, and the crystallisation of other risks such as those described in notes 10 and 13 to the financial statements for the year ended 31 December 2014 (which are available at www.afren.com), particularly if such downside risks were to materialise in combination. Therefore, the Group expects that it will still need to seek industry partnerships, strategic divestments and other fundraising transactions as necessary to build resilience against, or respond to, downside risks, capture the opportunity in the Group's portfolio and secure the Group's future.

The Directors recognise that the combination of the circumstances described above represents a material uncertainty that may cast significant doubt as to the Group's ability to continue as a going concern and that it may be unable to realise its assets in the normal course of business. Nevertheless, the Directors expect that the Recapitalisation will obtain all of the necessary approvals and consents as set out above and the Directors therefore have a reasonable expectation that the Group will be able to successfully navigate the present uncertainties and continue in operation. Accordingly the condensed interim financial statements have been prepared on a going concern basis and no break up adjustments have been made.

2. Operating segments

The Group currently operates in three geographical markets which form the basis of the information evaluated by the Group: Nigeria and other West Africa, East Africa and Kurdistan region of Iraq. Unallocated operating expenses, assets and liabilities relate to the general management, financing and administration of the Group.

 
                                         Nigeria                Kurdistan 
                                       and other                region of 
                                     West Africa  East Africa        Iraq  Unallocated  Consolidated 
                                            US$m         US$m        US$m         US$m          US$m 
==================================  ============  ===========  ==========  ===========  ============ 
Three months to 31 March 2015 
Revenue by origin                          130.3            -           -            -         130.3 
Operating gain/(loss) before 
 derivative financial instruments           19.1        (5.5)       (4.3)       (24.7)        (15.4) 
Derivative financial instruments 
 losses                                        -            -           -        (1.8)         (1.8) 
==================================  ============  ===========  ==========  ===========  ============ 
Segment result                              19.1        (5.5)       (4.3)       (26.5)        (17.2) 
Finance costs                                                                                 (34.2) 
Other gains and losses - forex 
 and finance income                                                                              3.3 
Loss before tax                                                                               (48.1) 
                                                                           ===========  ============ 
Income tax charge                                                                              (5.0) 
==================================  ============  ===========  ==========  ===========  ============ 
Loss after tax                                                                                (53.1) 
                                                                           ===========  ============ 
Loss for the period                                                                           (53.1) 
==================================  ============  ===========  ==========  ===========  ============ 
 
Segment assets - non-current             2,139.4          0.5         0.2          1.4       2,141.5 
Segment assets - current                   422.3            -           -         63.1         485.4 
Segment liabilities                    (1,370.7)        (9.5)      (36.0)    (1,043.6)     (2,459.8) 
Capital additions - oil and 
 gas assets                                290.7            -         3.1            -         293.8 
Capital additions - exploration 
 and evaluation                             19.7          4.9         4.1          0.1          28.8 
Capital additions - other                    0.2            -       (0.6)          0.1         (0.3) 
Depletion, depreciation and 
 amortisation                             (80.8)            -       (0.2)        (0.8)        (81.8) 
Impairment of exploration 
 and evaluation assets                    (17.5)        (4.9)       (4.0)        (0.1)        (26.5) 
==================================  ============  ===========  ==========  ===========  ============ 
 

2. Operating segments continued

 
                                           Nigeria                 Kurdistan 
                                         and other                    region 
                                       West Africa   East Africa     of Iraq   Unallocated   Consolidated 
                                              US$m          US$m        US$m          US$m           US$m 
===================================  =============  ============  ==========  ============  ============= 
 Year to 31 December 2014 
 Revenue by origin                           945.8             -           -             -          945.8 
 Operating gain/(loss) before 
  derivative financial instruments         (329.5)       (327.0)   (1,218.0)        (14.7)      (1,889.2) 
 Derivative financial instruments 
  gains/(losses)                               1.9             -           -        (10.8)          (8.9) 
===================================  =============  ============  ==========  ============  ============= 
 Segment result                            (327.6)       (327.0)   (1,218.0)        (25.5)      (1,898.1) 
 Finance costs                                                                                     (66.9)