Annual General Meeting - Chairman's statement

Afren plc (AFR LN)

Annual General Meeting - Chairman's statement

London, 6 June 2012 - At today's AGM the Chairman, Egbert Imomoh, opened the meeting with the following statement.

2011 was another defining year in the growth and evolution of Afren - a period in which we delivered on all of our strategic objectives and outperformed our key performance indicators, by which we measure our progress. Net average daily production during the period was increased by 34% year-on-year to 19,154 boepd and we exited the year ahead of guidance. We will continue to grow our year-on-year production base, and expect to achieve an average daily rate of between 42,000 boped to 46,000 boepd net to Afren in 2012, which we are firmly on track for. We achieved a 2P reserves replacement ratio of 997% and increased our net 2P and 2C reserves and resources by 633% to 995 million barrels of oil equivalent, of which 185 mmboe is booked 2P reserves. This represents a year-on-year growth of 136%, net of production; unparalled growth in comparison to the established independent oil and gas peer group. We achieved this growth in our 2P and 2C reserves base at a cost of less than US$1 per barrel, far exceeding comparable industry benchmarks and reinforcing our unique ability to acquire accretive barrels at very low cost. Our operating cashflow increased by 62% year-on-year to US$338 million, emphasising the strongly cash generative asset base that underpins the Company today, which is expected to significantly increase again in 2012, and at the same time we controlled our cost base to achieve a reduction in normalised operating expenditures. Importantly, this was all achieved with a significant emphasis on exceptional health and safety performance, with a Lost Time Incident Frequency of 0.22 over the period, against the OGP benchmark of 0.42.

Undoubtedly, the operational highlight of 2011 was delivering First Oil at the major Ebok field development offshore Nigeria. Following the successful appraisal drilling in December 2009, after which independently estimated gross 2P reserves were quadrupled to 105.3 mmbbls, the Company and our partner Oriental Energy Resources fast-tracked the development with First Oil achieved in record time in March 2011 (a lead time of less than two and a half years). Comparable development lead times for offshore Nigeria are shown in the table on page 74 of the 2011 Annual Report, showing a mean range of four to six years. This value creation at Ebok has occurred over the full cycle of appraisal, resulting in a significant increase in reserves, through development, production and ultimately cash flow generation. 

At the same time, we have successfully maintained oil production at the Okoro field at levels still in excess of pre start-up expectations, with good reservoir and production management helping us to push recovery factor progressively higher. Onshore Nigeria, First Hydrocarbon Nigeria (FHN) successfully completed the acquisition of OML 26 from the SPDC Joint Venture and in partnership with operator NPDC had, by year end, almost doubled output at the producing Ogini and Isoko fields. The partnership will continue the re-development of the Ogini and Isoko fields, while continuing to review options to explore and appraise over 750 million barrels of oil equivalent.

Our most significant strategic move in 2011 was Afren's expansion into the Kurdistan region of Iraq, where we acquired interests in two assets that are of world class potential and scale in Barda Rash and Ain Sifni. A hallmark of our success to date has been that of strategic foresight - a willingness to move ahead of our peers for the right opportunities. As a result of this foresight, Afren today is well positioned in two of the world's top ten largest oil plays, Nigeria and Iraq, and through early entry into East Africa in 2010 has a complementary and high quality portfolio in a global exploration hot-spot.

I am delighted to say that Afren has carried the strong operational momentum forwards and we have made an excellent start to our 2012 drilling campaign. We have accumulated three significant discoveries so far this year at Okoro East and Ebok North Fault Block in Nigeria and the Simrit-2 exploration well in the Kurdistan region of Iraq. On Okoro East and the Ebok North Fault Block, we encountered 549 and 370 feet of pay respectively in excellent quality reservoir sands, both well ahead of expectations. This supports a combined STOIIP in excess of 250 mmbbls. Together with our partner Amni International Petroleum Development Ltd., we have already started the development drilling on Okoro East to monetise the discovery, less than four months following the discovery. This again demonstrates Afren's ability to fast track projects.

At the Simrit-2 well, together with the operator Hunt Oil Middle East we have unlocked a prolific oil play, with 409 metres of net oil pay encountered in Cretaceous, Jurassic and Triassic reservoirs. This suggests a discovery of transformational scale and we are continuing to drill ahead to test new zones of prospectivity. Also in Kurdistan, we are making good progress at the Barda Rash field development where we are on track to deliver first oil by August, and by year end plan to have three wells onstream producing at a rate of 10,000 bopd to 15,000 bopd.

The remainder of 2012 will see the Company participate in several more exploration wells, in Nigeria, Kurdistan and East Africa.

Financially, we are in a strong position. We have continued to increase the profitability of the business as we move through 2012, reporting Q1 net profit of US$53.2 million and cashflow of US$300.2 million at 31 March with cash at bank of US$399 million. Our capital structure has evolved, and having been the first UK listed independent E&P Company to access the international bond market, the majority of our debt is now long dated to 2016 - 2019 and we have eliminated any over-reliance going forward on European lending banks, in these times of economic uncertainty. With cashflows well in excess of forward capex, the Company has never been better positioned to realise the vast organic growth potential within our portfolio.

At this point I would like to acknowledge the tremendous commitment and hard work of our employees that has enabled the business to enjoy continued growth and success. During 2011 and to date in 2012 the team has raised the performance bar once again. Their efforts may sometimes pass without comment but they are always appreciated, so on behalf of the Board I would like to offer them our sincere thanks and appreciation. Our people really are our most prized asset.

Finally, I would like to take this opportunity to welcome Patrick Obath as non-executive director to the Board of Afren plc. Patrick, an East African national and senior energy industry practitioner, brings a wealth of expertise of over 36 years in corporate health, safety and environmental management, combined with significant East African experience. These attributes will prove invaluable as we move into an active operational phase across our exploration portfolio in Kenya, Tanzania, Madagascar, Ethiopia and Seychelles.

Ends.

Notes to Editors

Afren plc

Afren is an independent upstream oil and gas exploration and production company listed on the main market of the London Stock Exchange and constituent of the Financial Times Stock Exchange Index of the leading 250 UK listed companies. Afren has a portfolio of 29 assets across 12 countries spanning the full cycle E&P value chain. Afren is currently producing from its assets offshore Nigeria and Côte d'Ivoire and holds further interests in the Kurdistan region of Iraq, Ghana, Nigeria, Côte d'Ivoire, Congo Brazzaville, the Joint Development Zone of Nigeria - São Tomé & Príncipe, Kenya, Ethiopia, Madagascar, Seychelles, Tanzania and South Africa. For more information please refer to www.afren.com.