2014 Half-yearly Results

Afren plc (AFR LN)

2014 Half-yearly Results

London, 29 August 2014 - Afren plc ("Afren" or the "Group"), (LSE: AFR, FTSE 250 index), announces its Half-yearly Results for the six months ended 30 June 2014 and an update on its operations year-to-date 2014, in accordance with the reporting requirements of the EU Transparency Directive. Information contained within this release is un-audited and is subject to further review.

2014 Half-yearly Results Highlights

· 1H 2014 net production of 33,488 bopd; Full year production guidance revised to 32,000 to 36,000 bopd, removing Barda Rash, due to temporary suspension of activities

· Two rigs on location and drilling ahead offshore Nigeria on the Ebok and Okoro fields; Central Fault Block Extension platform to be installed in Q3 2014

· Approval received from the Department of Petroleum Resources for the initial five well development of the Ogini Field. Rig on location and development drilling well underway

· 3D seismic acquisition on OPL 310 complete and interpretation ongoing; further drilling to commence in Q4 2014

· Profit after tax of US$160 million (1H 2013: US$62 million) reflects tax exemption at Ebok offsetting reduction in pre-tax profit and revenue

· The balance sheet remained strong with net assets of US$1,972 million(1H 2013: US$1,498 million)

Outlook - Targeting 5-year double digit production growth

· Production ramp up starts in 2H 2014

₋ Ebok - 6 new producers planned

₋ Okoro - 1 infill well and 1 side-track well

₋ OML 26 - 3 new producers planned, currently logging while drilling (LWD) on first well

₋ Okwok - commence fast-track development drilling

· Ebok deep exploration tail to spud in Q4 2014, targeting 50 mmbbls

· Transformational reserves potential

₋ Only 26% of total discovered 2P/2C barrels in production or under development

Toby Hayward, Interim CEO of Afren plc, said:

"Despite recent challenges Afren is totally committed to delivering on our work programme across the portfolio. With numerous growth opportunities expected to drive a step-up in near-term production, cash flow and reserves, we remain in a strong position to deliver shareholder value in 2014 and beyond. We believe we will come out stronger from the ongoing issues and I would like to thank all our shareholders for their continued support. "

Financial highlights

(1) From continuing operations, for further details see Note 8 of the condensed financial statements

(2) See Note 4 of the condensed financial statements

(3) Operating cash flow before movements in working capital

Review Update

· On 31 July 2014, the Company announced the temporary suspension of the CEO, Osman Shahenshah and the COO, Shahid Ullah following the Board engaging lawyers Willkie Farr & Gallagher (UK) LLP (WFG) to carry out an independent review.

· The original scope of the review was to determine whether three transactions that took place in 2012 and 2013 should have been classified as class 2 transactions under the Listing Rules and disclosed as such to the market at the time of the transactions.

· During this review Willkie Farr & Gallagher identified evidence of the receipt of unauthorised payments made by a third party for the benefit of the CEO and COO, which led to their suspension. On 28 August 2014, the Company announced the temporary suspension of Iain Wright and Galib Virani, associate directors of the Company, who had also received unauthorised payments made by a third party. The review is ongoing and expected to conclude in September 2014. In addition, WFG have engaged KPMG, at the request of Afren, to undertake an independent review of the accounting for the three transactions. This investigation is also expected to conclude in September 2014. 

· At this stage no misstatements have been identified. Furthermore, the Board's assessment is that based on facts to date the existing carrying values of the relevant assets in the balance sheet are unimpaired. Further details are given in Note 10.

Analyst Presentation

There will be a presentation today to analysts at 09:00 BST at the Lincoln Centre, 18 Lincoln's Inn Fields, London, WC2A 3ED.

The presentation will also be broadcast live at www.afren.com where the accompanying presentation will be available, and on playback from 14:30 BST.

Operations Update

(1) Afren's net production includes its 50% economic interest plus additional barrels to recover costs of capital investment funded by Afren.

Nigeria and other West Africa

Nigeria

Okoro

Production operations continue to run smoothly at the Okoro field. Gross production averaged 16,270 bopd at the field for the period and included planned downtime associated with riser re-termination work carried out in January and February. The Okoro-14 well, the early production well brought on-stream from the Okoro East discovery in 2012, continues to produce at stabilised rates of circa 5,600 bopd. In order to optimise production at the Okoro main field to the full Floating Production Storage and Offloading vessel (FPSO) processing capacity of circa 22,000 bopd, the Adriatic-I rig was moved to the Okoro Main Well Head Platform (WHP) and is currently drilling the Okoro-15 production well. A second production well, Okoro-12 ST1, is planned post completion of Okoro-15.

The Partners expect the Front End Engineering Design (FEED) for the Okoro Further Field development to be completed shortly and for the project to be sanctioned in Q3 2014. The wellhead platform will be installed during Q2 2015 with development drilling commencing shortly thereafter.

Ebok

Gross production at the Ebok field averaged 29,300 bopd in the period. In Q2 2014, the Partners commenced drilling on four additional North Fault Block (NFB) wells from the West Fault Block (WFB) platform, three producers and one dual-zone water injector, which are expected to complete in 2014. Production will be achieved through the existing Mobile Offshore Platform Unit (MOPU). The Central Fault Block (CFB) Extension platform is expected to be installed in Q3 2014 with development drilling commencing thereafter, targeting the additional reservoirs in the CFB. The Partners expect three producers to be brought on-stream from the CFB during the second half of this year.

In addition, the Partners expect to spud the Ebok deep exploration tail from the West Fault Block (WFB) platform in Q4 2014 to test deeper Qua Iboe and Biafra targets, below the currently producing reservoirs. The exploration tail will be targeting gross Pmean resources of 50 mmbbls.

Okwok

In January 2014, the Partners received Field Development Plan (FDP) approval for the Okwok field development from the Nigerian authorities. Consequently, Okwok has now been reclassified as reserves, a strong endorsement of the successful appraisal work undertaken by the Partners since acquisition. Okwok now has 2P reserves of 46.6 mmbbls.

The development plan for Okwok comprises the installation of a separate dedicated production facility and WHP with an export pipeline for stabilised crude oil tied back to, and sharing, the Ebok Floating Storage and Offloading vessel (FSO) located approximately 13 km to the west. The work programme for 2014 includes the finalisation of detailed reservoir models and detailed development well planning and optimisation. The Well Head jacket has been fabricated and is currently in the Okwok field awaiting installation which is currently scheduled for Q3 2014. Development drilling will commence following the completion of the platform installation.

OML 115

Following the completion of the Ocean Bottom Cable 3D Seismic over the whole Ebok/Okwok/OML 115 area, Afren and its Partner, Oriental, will commence drilling the Ameena East well, the first exploration well on the block in Q4 2014. The Ameena East prospect has been prioritised and will be targeting gross Pmean resources of 65 mmbbls. Additional leads are being pursued with new seismic and advanced reprocessing projects underway.

OML 26

Gross average production from the Ogini and Isoko fields during the period was 3,764 bopd. Production was impacted during the period by the declaration of Force Majeure by Shell, the operator of the Forcados Terminal, in March 2014 due to the challenges experienced in carrying out repairs on the 48" Export Line leak. The repairs were completed in early April and the Flow station has been brought back on-stream.

A Lease Automatic Custody Transfer (LACT) unit was installed at the Eriemu Pigging Manifold during the period in order to provide better measurement of the quality and quantity of production offtake. The LACT unit is currently undergoing commissioning and systems calibration prior to site acceptance testing. Estimated volumes delivered prior to commissioning and acceptance of the LACT unit are subject to reconciliation and agreement with Shell which is expected in 2H 2014.

On 24 June 2014, the Partners received approval from the Department of Petroleum Resources for the initial phase of the Ogini FDP, comprising a five well development. The Ogini FDP consists of drilling 37 production wells, executing 13 short-to-medium-term work-overs, installing a new 18" delivery line, two 50,000 bbl/d 3-phase separators, as well as water treatment and disposal facilities. The first of the five new wells was spudded in late July 2014 with the Durga-2 rig.

The Isoko FDP is in progress and is expected to be submitted by the end of Q1 2015 following the completion of the Integrated Reservoir Studies which commenced earlier this year.

OPL 310

In May 2014, Afren and its partners completed an extensive 2,716 km2 marine 3D seismic acquisition programme across OPL 310 and the neighbouring OML 113 licence. The objectives of the seismic programme were to establish the full extent of the syn-rift play and further dip-closed structures on the acreage post the Ogo-1 discovery. Processing of the seismic data is ongoing with fast-track and time-migrated seismic volumes expected in Q3 and Q4 2014, which will be followed by further drilling. Detailed well planning and engineering studies are underway in support of the drilling timeline.

OML 113

In January 2014, the JV Partners submitted the FDP for the Aje field to the Nigerian Department of Petroleum Resources. The FDP was approved in March 2014 and is primarily focused on the development of the Cenomanian oil reservoir. The first phase of development includes two subsea production wells, tied back to a leased FPSO. These wells will most likely comprise the recompletion of the existing Aje-4 well, and a new well drilled close to the Aje-2 subsurface location. The FDP envisages first oil commencing in late 2015 with mid-case reserves of 32.4 mmbbls, a Final Investment Decision is expected to be taken by the JV Partners shortly.

In addition, further potential on the block is being defined, following the 3D seismic acquisition across both OPL 310 and OML113.

Rest of the region

Côte d'Ivoire

CI - 523 and CI -525

The 2014 work programme includes an extensive 3D seismic acquisition campaign, followed by the drilling of an exploration well on each block in 2015.

Ghana

Keta Block

The Partners are nearing completion in their interpretation of the 1,582 km2 3D seismic survey acquired in December 2012. The data from the two Keta Block 3D seismic surveys and a regional review of the margin are being used to define prospectivity at several stratigraphic intervals. The future work programme will be decided based on the results of the ongoing seismic interpretation and commercial evaluation.

South Africa

Block 2B

In January 2014, Afren completed the conventional processing of the 686 km2 of 3D seismic data acquired. The data has now been interpreted and an application to enter the next phase of the license period was submitted to the Petroleum Agency South Africa (PASA) in April 2014.

Kurdistan region of Iraq

Barda Rash

Post period end on 8 August 2014, Afren announced that it had taken the precautionary step to temporarily suspend operations at the Barda Rash field in light of heightened regional security related issues. Working with our local security advisors, Afren implemented a phased withdrawal of non-essential personnel from the field. Afren will continue to closely monitor events on the ground in consultation with our security team and the relevant authorities. It is expected that Afren will return to field operations as soon as it is prudent to do so. Given the relatively low production to date, the suspension is not expected to have a significant impact on the Group's cash flow.

During 1H 2014, gross production at the field averaged 536 bopd. As part of the second phase of development of the field, the BR-4 well tested at a combined rate for 7,850 bopd from two zones in the Triassic Kurra Chine formation. The BR-5 well, which reached total depth (TD) of 14,787 ft, is expected to demonstrate similar production capacity from the Kurra Chine reservoir as soon as drilling operations recommence. Multiple dispersion studies of the flared gas during testing of the BR-4 well indicated high levels of Sulphur Dioxide (SO2) would be released into the atmosphere at the planned sustained rates of 5,000 to 6,000 bopd. As a result, Afren has elected to limit production to circa 1,000 bopd whilst working with the Ministry of Natural Resources (MNR) to put an interim gas solution in place that will allow the production capacity of the wells to be fully utilised.

Ain Sifni

The heightened security issues in the region have also led operator, Hunt Oil, to temporarily suspend operations on the Ain Sifni block. Hunt is monitoring events in order to determine when it will be able to restart operations at Simrit and Maqlub.

In November 2013 Hunt Oil declared commerciality on the Ain Sifni block and has submitted an FDP which is pending approval by the MNR. The Maqlub-1 well spudded by Hunt Oil in June 2013 has been drilled to TD in the Triassic and a testing programme is awaiting MNR approval.

Simrit-4 was spudded in early 2014 and to date has successfully tested 14 deg API quality crude oil from the Sargelu and Naokelekan formations using downhole pumps at rates of 6,200 bopd and 5,000 bopd respectively. This well has been drilling ahead to test deeper Jurassic and Triassic objectives, drilling will continue as soon as operations recommence.

Afren East Africa Exploration

Kenya

Block 1

Following the final processed products from 1,900 km of 2D seismic data acquired by Afren in 2013, six leads and prospects were identified as well as a number of new play concepts. The largest of these leads (covering in excess of 350 km2) will be the target of a 290 line km 2D seismic programme expected to commence in 2H 2014. The decision on where to drill will be made following the interpretation of this new dataset which is expected to conclude in early 2015.

Blocks L17 & L18

Preparations are underway for the 2015 two well drilling campaign on the Mombasa High anticline which extends over 80 km from Mombasa to the Shimoni Peninsular. This giant structure sits on the western margin of the Tembo Trough which has recently been tested by BG Group on the Sunbird-1 oil discovery, Block L10A. The Sunbird-1 well encountered a 14m oil column in a Miocene reef and is the first oil discovery offshore Kenya. The confirmation of an oil prone petroleum system within the Tembo Trough has significantly derisked Afren's prospects on the flanks of this basin. An airborne gravity and magnetic survey was acquired over the Mombasa High structure in Q2 2014 to allow the optimal positioning of a 250 line km 2D seismic survey which will be acquired later in the year. The seismic survey will be used to define the location of the exploration wells.

Tanzania

Tanga Block

Environmental Impact Assessment (EIA) surveys and drilling prognosis have been have completed for several prospective wells on the Tanga Block and are proceeding to ready-to-drill status. Further interpretation work has elevated the Nanasi prospect to the forefront of the drilling opportunities in the Tanga Block and is now likely to be the target of the first well. Drilling preparations are underway to test this combined structural and stratigraphic prospect with gross Pmean resources of 577 mmbbls.

Seychelles

Areas A & B

Evaluation of the northern deepwater 3D seismic acquired in 2013 has been completed and an economic study of the licence prospectivity has begun. This will aid in ranking the prospects and determining which of the prospects to target as the first exploration well. Further 3D seismic acquisition in the shallow water areas of the licence is planned in 2015.  

Madagascar

Block 1101

A shallow borehole coring programme is planned for 2014 to enhance the subsurface understanding ahead of exploration drilling in 2015. Additional prospectivity is being defined in the Majunga Basin in the south of the block where numerous natural oil seeps occur at surface. The Bandrany Prospect on the Ampasindava Penisular in the north of the Majunga Basin is a surface anticline covering 850 km2 and is currently the subject of detailed structural and stratigraphic analysis.

The shallow borehole coring programme has recently commenced and will include the re-drill of a previously reported oil discovery.

Ethiopia

Blocks 7 & 8

The El Kuran-3 well was spudded on 13 October 2013 using the Sakson 501 drilling rig and reached a total depth of 11,575 ft. Oil and gas was penetrated in several intervals and commerciality studies have commenced in order to assess the optimal way of developing these reservoirs. The Ethiopian ministry has granted the Joint Venture an 18 month period to carry out these studies with the study area limited to Block 8. Block 7 has therefore been relinquished.

Finance Review

1. Results for the period

Profit after tax from continuing activities increased in the period to US$160 million (1H 2013: US$62 million). This was a consequence of various factors:

Revenue

Revenue for the period was US$565 million (1H 2013: US$797 million). This reflects a decrease in sales volumes offset by an increase in the average realised oil price.

Total working interest production from continuing operations for the period decreased from 44,712 boepd in 1H 2013 to 33,488 bopd during 1H 2014. This was primarily due to a reduced share of production and liftings from the Ebok field following the achievement of cost recovery in the period. Post cost recovery, Afren continues to fund 100% of the capital expenditure at Ebok and recovers this from field revenues.

The fall in sales volume was partially offset by a 4% increase in the average realised oil price to US$107.6/bbl (1H 2013: US$103.6/bbl). The average Brent price for the period was US$109.0/bbl (1H 2013: US$110.0/bbl).

Cost of sales

Cost of sales for the period was 12% lower at US$371 million (1H 2013: US$420 million). The decrease was largely due to lower net working interest production, partly offset by higher depreciation cost per barrel driven by recent investment in the Group's producing fields to progress their development.

Finance charges and financial instruments

Finance costs for the period were in line with the corresponding period of the prior year at US$37 million (1H 2013: US$38 million). During the period, the Group recognised a loss of US$9 million (1H 2013: US$27 million) relating to crude oil hedging contracts and interest rate swaps.

Tax

An income tax credit of US$27 million occurred for the period whereas an income tax charge of US$198 million is shown for the corresponding period of 2013. This change is largely the consequence of the award during the second half of 2013 of a five-year tax exemption to the subsidiary holding the Ebok asset. This five-year tax exemption was back-dated to 2011 and will cease in May 2016.

2. Hedging and hedging strategy

At 30 June 2014, crude oil hedges covering approximately 4.8 million barrels are in place for the period 1 July 2014 to 31 December 2015, providing minimum floor prices on these volumes of between US$90-US$95/bbl before premiums.

As in prior periods, the policy of the Group is to protect its minimum cash flow requirement against a sustained downturn in oil prices. As such the maximum amount of working interest Afren would seek to protect with these arrangements is between 25-35% of estimated production for a rolling period of 18 to 24 months forward.

3. Cash flow, financing and capital structure

Operating cash flow before movements in working capital for the period was US$354 million (1H 2013: US$564 million). Of this, US$266 million (1H 2013: US$384 million) has been used to fund the Group's investment in development, appraisal and exploration activities.

Gross debt as at 30 June 2014 was US$1,153 million (30 June 2013: US$1,178 million) excluding finance leases. Cash at bank as at 30 June 2014 was US$433 million, resulting in net debt (excluding finance leases) of US$720 million (30 June 2013: cash of US$588 million; net debt of US$590 million).

4. Development, appraisal and exploration activities

The Group invested US$56 million in exploration and evaluation assets in 1H 2014 (1H 2013: US$166 million). Of this expenditure, US$21 million related to Nigeria and other West African assets (including US$11 million for a 3D seismic survey on OPL 310 covering 2,716km2), testing and drilling at Ain Sifni in the Kurdistan region of Iraq (US$18 million), and seismic and other pre-drilling activities in East Africa (total of US$17 million).

Additions to oil and gas assets, excluding transfers from Intangible exploration and evaluation assets, was US$271 million. This largely related to the continued development at Ebok (US$145 million).

In the context of the precautionary step taken to temporarily suspend operations at the Barda Rash project as described in the Operations Update, management has considered the carrying value of the Barda Rash field which is considered to be a cash generating unit ("CGU"). No impairment to the carrying value was identified; however the recoverable amount of the CGU remains sensitive to key assumptions including proven and probable reserves, realised oil price, delays in the capital programme and discount rate.

5. Related party transactions

There have been no material changes to the level or nature of related party transactions since the 2013 Annual Report and Accounts which is available at www.afren.com.

6. Principal risks to 2014 performance

The principal risks and uncertainties faced by the Group were documented in the Annual Report and Accounts for the year ended 31 December 2013. The Directors consider the risks the Group faces to remain the same for the remainder of 2014. Following the suspension of two principal executives and two associate directors, the Directors consider there is a heightened risk of disruption including due to possible loss of staff, potential difficulties in relationships with partners, providers of finance and other stakeholders.

7. Going concern

As stated in Note 1 to the condensed financial information, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, being a period of not less than twelve months from the date of this report. Accordingly, they continue to adopt the going concern assumption in preparing the condensed financial information.

8. Financial outlook and strategy

Afren's financial strategy continues to be to achieve a balance of operational cash flow with longer-term financing to support the Group's on-going appraisal and development activities.

Responsibility Statement

The Directors confirm that to the best of their knowledge:

a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c) the interim management report includes a fair review of the information required by DTR 4.2.8R.

By order of the Board,

Darra Comyn

Group Finance Director

29 August 2014

Independent review report to Afren plc

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 which comprises the statement of comprehensive income, the balance sheet, the cash flow statement, the statement of changes in equity, and related Notes 1 to 10. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

Except as explained in the paragraph below, we conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Basis for Qualified Conclusion

As described in Note 10, the Company suspended its CEO and COO, together with two associate directors, and the circumstances leading to these suspensions, including certain payments, are the subject of ongoing investigations led by lawyers engaged by the Company. The lawyers were initially focused on three transactions, and these transactions will also be the subject of an independent accounting review as part of completing these investigations. These investigations, which have been expanded from their original scope to include potentially additional related party transactions, are still ongoing. The full results will not be available until they are concluded, which is expected to be in September 2014, and therefore we were unable to complete our review in relation to the subject matter of the investigations.

Further information about these circumstances and the investigations is provided in Note 10, including details of the carrying amounts on the Group's balance sheet arising from the three transactions, and information relevant to the completeness and accuracy of disclosures regarding related parties, contingent assets and contingent liabilities. Had these investigations been completed and the full results available such that we could complete our review, we may have become aware of adjustments or amendments to disclosures that might be necessary.

Qualified Conclusion

Except for potential amendments to the half-yearly financial report that we might have become aware of following the conclusion of the on-going investigations noted above, based on our review work nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

29 August 2014

Condensed consolidated statement of comprehensive income

Six months ended 30 June 2014

Condensed consolidated balance sheet

As at 30 June 2014

Condensed consolidated cash flow statement

Six months ended 30 June 2014

Condensed consolidated statement of changes in equity

As at 30 June 2014

Notes to the condensed consolidated financial statements

Six months ended 30 June 2014

1. Basis of accounting and presentation of financial information

The condensed Group interim financial statements, comprised of Afren plc (''Afren'') and its subsidiaries (together, ''the Group''), have been prepared in accordance with International Accounting Standards ("IAS") 34, 'Interim Financial Reporting', as adopted by the International Accounting Standards Board ("IASB"). Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the IASB, have been omitted or condensed as is normal practice for interim reporting periods. The condensed Group interim financial statements are unaudited, and do not constitute statutory accounts as defined in sections 435(1) and (2) of the Companies Act 2006. Statutory accounts for the year ended 31 December 2013 were published and copies of which have been delivered to Companies House. The report of the auditors on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not contain any statement under sections 498(2) or (3) of the Companies Act 2006.

Going concern

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

2. Finance costs and income

Notes to the condensed consolidated financial statements

Six months ended 30 June 2014

3. Earnings per share

Notes to the condensed consolidated financial statements

Six months ended 30 June 2014

4. Reconciliation of profit before tax to normalised profit before tax

Normalised profit before tax is a non-IFRS measure of financial performance of the Group, which in management's view provides a better understanding of the Group's underlying financial performance. This may not be comparable to similarly titled measures reported by other companies.

5. Taxation

The Group's effective tax rate has decreased as a result of now being in a five-year tax exemption period in the Ebok field.

Notes to the condensed consolidated financial statements

Six months ended 30 June 2014

6. 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.

Assets in Cote d'Ivoire which have been classified as discontinued operations are included in the Nigeria and other West Africa segment for management purposes but have been deducted in a separate column to enable reconciliation to the income statement and balance sheet.

Notes to the condensed consolidated financial statements

Six months ended 30 June 2014

6. Operating segments continued

Notes to the condensed consolidated financial statements

Six months ended 30 June 2014

6. Operating segments continued

Notes to the condensed consolidated financial statements

Six months ended 30 June 2014

7. Fair values

The financial instruments on the Afren balance sheet are measured at either fair value or amortised cost. The following table provides an analysis of carrying amounts and fair values of the Group's financial instruments. Cash and cash equivalents, trade and other receivables, trade creditors, other creditors, finance leases and accruals and deferred consideration and payables on acquisitions have been excluded from this analysis as their fair values are approximately equal to the carrying values.

The financial instruments in the table are grouped into Levels 1 to 3 based on the degree to which the inputs used to calculate the fair value are observable:

· Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets and liabilities;

· Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

· Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Notes:

(1) Carried at fair value.

(2) Carried at amortised cost.

(3) Fair values determined by reference to LIBOR forward curves and by discounting future cash outflows at 10%.

(4) Relates to FHN options. As they are classified at Level 3, their valuation requires assumptions regarding FHN's share price which is not readily available. These options were therefore valued using a Black Scholes model for which changing certain inputs to reflect reasonable possible alternative assumptions does not change fair value significantly.