13th Mar 2015 07:49
LONDON (Alliance News) - Afren PLC Friday said it has reached an agreement in principle to address its short- and longer-term funding needs and recapitalise its capital structure, but also warned it will be making significant impairments in 2014 followed by significant budget cuts in 2015.
The oil company said it has entered into an agreement with some holders of its 2016, 2019 and 2020 notes, and with the majority of its lenders under the company's existing USD300 million Ebok credit facility, to secure interim funding and recapitalise the business.
The net funding of the agreement will total USD300 million if approved by shareholders, and Afren are hoping to secure the deal by the end of June.
"If shareholders do not approve the recapitalisation, it is expected that the amended economic terms of the new senior notes, and the amendment and reinstatement of the existing notes, together with the requirement to initiate a sale of the group's business, will mean that existing shareholders would be unlikely to see any return on their current investment," warned the company.
Afren said it has reached a preliminary agreement with noteholders representing around 42% of the outstanding amount due under the 2016, 2019 and 2020 notes, for the provision of USD200 million in funding in the form of super-senior private placement notes, which are expected to be issued by the end of March.
The company said the agreement will give it liquidity to give it more time to to "implement the required steps" to complete the recapitalisation with the Ad Hoc Committee and a majority of its lenders under its existing USD300 million Ebok facility. Afren said a deal has already been reached in principle.
The super-senior private placement notes have been pre-placed with certain members of the Ad Hoc Committee, it added.
The deal with the Ad Hoc Committee, together with the company's lenders, represent more than 67% by value of the lenders under the Ebok facility, it said.
Afren said it will refinance the super-senior private placement notes by issuing USD321 million new high-yield notes, which would provide an additional USD100 million in cash proceeds to Afren.
It also will conduct a debt for equity swap. Afren said 25% of the 2016, 2019 and 2020 notes will be converted into equity with the remaining notes being reinstated and extended to 2019 and 2020 at an annual coupon of 9.1%, it said.
The Ebok facility would be extended until 2019, and Afren said up to USD75 million of equity will be offered to all shareholders "to provide the opportunity to participate in the Recapitalisation and provide additional liquidity to the group", it said.
"The recapitalisation will result in substantial dilution for existing shareholders. Following completion of the recapitalisation and assuming that the equity offering is subscribed in full by existing shareholders only, existing shareholders will hold up to approximately 11% of the fully diluted share capital of the company," said Afren.
In addition Friday, Afren reported further woes for 2014, as revenue fell by more than USD700 million and production failed to hit the company's guidance. The company also warned of significant impairment charges for 2014, as well as announcing there will be substantial budget cuts in 2015.
"Afren faced several significant challenges during 2014, including the discovery of unauthorised payments to senior executives resulting in their dismissal, a significant reduction in reserves at Barda Rash in Kurdistan, the impact of a rapid decline in oil prices resulting in material impairments and a need to restructure the group's financing," said the company.
Revenue in 2014 totalled USD900 million, down from USD1.64 billion in 2013, partially caused by the slide in the oil price that hammered the company.
Production for the year reached 31,800 barrels of oil per day, which was "slightly below guidance" according to the company.
In 2015, Afren said it has set a production guidance of between 29,000 to 36,000 barrels of oil per day.
Significantly, the company will also be recording USD2 billion in post-tax impairment charges in 2014, in respect of production and development assets, including goodwill, due to the previously announced write-off of oil reserves at Barda Rash as well as the impact of lower oil prices on the reserves of producing assets in Nigeria and against exploration and evaluation assets.
In 2014, the company spent USD769 in capital expenditure, but Afren warned that both capital expenditure and operating expenditure will fall in 2015 due to the slide in the oil price and the company's financing constraints.
Capital expenditure will fall to around USD500 million in 2015, prioritised to the highest cash yielding near-term projects with focus towards existing Nigerian producing asset base, said Afren.
Afren also said it is on the verge of appointing a new Chief Executive, and said an announcement would be made shortly.
"We are confident that Afren will emerge from this difficult period as a financially stable company capable of delivering growth in 2015 and beyond. This has been made possible because of the constructive discussions we have had with the Ad Hoc Committee of our largest bond holders as well as the Group's senior lenders and operating Partners which has resulted in the funding announced today combined with a longer term focus on recapitalising the business," said Interim Chief Executive Toby Hayward.
By Joshua Warner; [email protected]; @JoshAlliance
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