30th Mar 2006 07:02
Afren PLC30 March 2006 Afren plc (AIM: AFR) Preliminary Results for the Year Ended 31 December 2005 Afren PLC ("Afren" or "the Company"), an independent oil and gas company focusedon establishing itself as the leading pan-African exploration and productioncompany, today announces its maiden preliminary results for the year ended 31December 2005. HIGHLIGHTS Financial • Successful Initial Public Offering ("IPO") on AIM in March 2005 • £31.2 million raised through IPO and two subsequent equity placements in July and December 2005 • Acquisition of 7.5 per cent. shareholding in Afren by the International Finance Corporation, ("IFC"), a member of the World Bank Group • Agreement in principle by the IFC for the provision of a US$50 million revolving credit facility for Afren Energy Resources Ltd, the Company's Nigerian subsidiary • Net cash balance of £17.2 million • Loss of £4.6 million for period to 31 December 2005 Operational • Diversified portfolio built of high impact exploration, near term development and low cost exploration • High impact exploration: • Effective 4.41 per cent. interest in Block 1 of the Nigeria Sao Tome & Principe Joint Development Zone ("JDZ") • Initial drilling of exploratory well, Obo-1 has been completed and the results are currently being evaluated • Near term development: • Negotiated interests in two proven undeveloped discoveries in OML 90, offshore Nigeria • Low cost exploration: • Acquired participating interests in Iris Marin and Themis Marin blocks and Technical Evaluation Agreement over the Ibekelia license area, offshore Gabon Corporate • Wholly-owned Nigerian subsidiary, Afren Energy Resources Ltd, established in June 2005 • Management team and board appointments with significant African Oil & Gas experience: • Charles Jamieson, Non-Executive Chairman, formerly Chief Executive of Premier Oil plc • Brian O'Cathain, Chief Executive, formerly Head of International Business at Tullow Oil plc • Dr. Rilwanu Lukman, non-executive Director, formerly Nigerian Minister of Petroleum Resources and Secretary General and President of OPEC • Osman Shahenshah, Chief Financial Officer, formerly with the World Bank's IFC division • Egbert Imomoh, executive director and Managing Director of Afren Energy Resources, formerly deputy Managing Director of Shell Petroleum Development Company in Nigeria • Peter Bingham, non-executive Director, formerly Head of Banking at BZW • Robert Cathery, non-executive Director, formerly Head of Oil & Gas at Canaccord • Nick Johnson, Head of Exploration and Production, formerly Head of Global Exploration and Reservoir Management at OMV • Constantine Ogunbiyi, Head of Corporate Affairs and General Counsel, formerly deputy head at Cadwalader's African Project Finance practice • Graham Ross, Drilling Manager, formerly Group Drilling Manager at Enterprise Oil Outlook • Following yesterday's announcement, a rig has been secured for two wells to be drilled on development assets offshore Nigeria in 2006 • Decision on further exploration on Block 1 of the JDZ pending review of exploration results • Targeting first oil production in H2 2007 • 3D seismic reprocessing in Gabon. Exploration well expected late 2006 / early 2007 • Strong acquisition deal flow focused on near term development, production and high impact exploration Brian O'Cathain, Chief Executive, commented: "Afren has built a strong foundation since listing a year ago and is well placedgoing forward as the Company targets continued rapid portfolio expansion andaims to achieve 15,000 - 20,000 bopd of production by the end of 2007. Afren has built a strong management team with a successful track record inAfrica and is committed to increasing value for our shareholders, throughpartnering with African national oil companies and indigenous upstreamparticipants." 30 March 2006 Enquiries: Afren +44 20 7182 1800Brian O'CathainOsman Shahenshah Pelham Public Relations +44 020 7743 6673James Henderson [email protected] Haythornthwaite [email protected] Afren is an independent oil and gas exploration, development and productioncompany, established in 2004 to build an attractive, diversified and balancedportfolio of African assets. Afren's corporate objective is "The creation ofsubstantial shareholder value through preferential access to oil and gasproduction and exploration acreage acquisition, production growth, deal flow andexploration drilling in Africa." CHAIRMAN & CHIEF EXECUTIVE REVIEW We are delighted to announce Afren plc's maiden results for 2005. It has been aparticularly rewarding year with significant progress made in securing valuableassets and creating a solid platform for future growth. Afren was established in 2004 by a founding team including Dr Rilwanu Lukman,the former secretary general and president of OPEC, to build an attractive,diversified and balanced portfolio of African upstream oil and gas assets, withan initial focus on the Gulf of Guinea. Following a successful Initial Public Offering ("IPO") on the AIM market of theLondon Stock Exchange on 14 March 2005, Afren has rapidly expanded itsportfolio, gaining access to assets in the Nigeria Sao Tome & Principe JointDevelopment Zone ("JDZ"), Nigeria and Gabon. These include a combination ofexploration and near term development opportunities. Over the coming twelve months we intend to continue to build on Afren's balancedand diversified portfolio, while staying focused on accessing opportunities toincrease value for our shareholders. Strategy Afren aims to become the premier African independent Oil and Gas exploration andproduction company through preferential and rapid access to Africanopportunities. Our strong African orientation in management and stakeholdersprovides excellent local knowledge and access to attractive deal flow. We arefocused on partnering with African governments, national oil companies,indigenous exploration and production and service companies to provide auniquely African approach in accessing deal flow and growing shareholder value.We will continue to build a diversified portfolio with a focus on near termdevelopment and high impact exploration. The initial geographical focus hasbeen on West Africa, particularly in the Gulf of Guinea, capitalising on Afren'slocal knowledge and expertise. Other African opportunities will continue to beexamined and will be pursued if the technical and commercial potential isattractive. Afren is willing to explore in the full range of basins and playsthat are known to exist in Africa from deep water, through shallow water toonshore. In time, Afren's portfolio is expected to include assets through thefull investment cycle from high impact exploration to stable and long termproduction. In Nigeria, Afren intends to continue to exploit the development of provenundeveloped fields with our indigenous partners and to capitalise on there-activation of the major international oil companies' ("Major") peripheralonshore and shallow offshore assets. Management and Board We are proud to have a management team and board with significant experience inthe African Oil & Gas sector. Dr Rilwanu Lukman KBE, Legion d'honneur, non-executive Director and the formerNigerian Minister of Petroleum Resources, Special Advisor to the NigerianPresident for Oil and Gas and Nigerian Minister of Foreign Affairs, has apre-eminent presence in Nigeria and the wider Gulf of Guinea region. Mr Egbert Imomoh, Managing Director of Afren Nigeria, formerly served as DeputyManaging Director of Shell Petroleum Development Company (Nigeria), and is awell-known and respected figure in the Nigerian oil industry. Guido Pas, non-executive Director, was a founding partner of Addax, the largestindependent oil producer in Nigeria. Dr Osman Shahenshah, Chief Financial Officer formerly worked for the WorldBank's IFC division with a focus on the Natural Resources sector in West Africa. In addition, Mr Peter Bingham, non-executive Director and former Head of Bankingat BZW, and Mr Robert Cathery, non-executive Director and former Head of Oil andGas at Canaccord Europe, are well known in the European Capital Markets. Afren Nigeria Afren established its wholly-owned subsidiary in Nigeria, Afren Energy Resources("AER"), during 2005. AER operates from an office in Lagos which is entirelystaffed by Nigerian professionals. Members of the business development andtechnical team - led by Mr Egbert Imomoh - have previously held senior positionswith major international oil companies operating in Nigeria. This presenceallows Afren to take full advantage of local opportunities. We will continue touse our local expertise to develop partnerships on proven undeveloped fieldsformerly held by Majors and awarded to indigenous operators as part of theMarginal Field Development Programme. Under the programme, which was introducedby the Nigerian Government in 1996, a total of 116 proven but undeveloped fieldswere designated as marginal, which have significant quantities of hydrocarbons,but were considered too small to be commercially exploitable by the Majors underhistorical fiscal regimes. Afren plans to work with the Majors in the re-activation of their mature assets,both onshore and in the shallow water offshore and will continue to participatein license rounds and farm-ins for exploration. 2005 Operations Review The Company has made an excellent start in building a diverse and high qualityportfolio, which is essential to the future growth and success of the business.Assets have already been secured in Nigeria, Gabon and the Joint DevelopmentZone, situated between Nigeria and Sao Tome & Principe and in addition, thecompany has reviewed numerous other opportunities across West Africa. The company participated in its first exploration well, drilled on the IrisMarin permit in Gabon in August 2005, and in March 2006 the company's secondwell, in the JDZ was completed. The company is planning to start appraisal anddevelopment drilling in Nigeria during the second half of 2006. Nigeria Sao Tome & Principe Joint Development Zone JDZ Block-1 is located approximately 190 miles (300 kilometers) north of thecity of Sao Tome and approximately 125 miles (200 kilometers) from the cityof Port Harcourt in Nigeria. Block 1 was awarded in April 2004 to a consortiumof ChevronTexaco JDZ Limited (51% and Operator); Esso Exploration and ProductionNigeria - Sao Tome "One" Limited (40%) and Dangote Energy Equity ResourcesLimited ("DEER") (9%). The Consortium members paid a signature bonus of US$123million for the right to develop Block 1 under a long-term Production SharingAgreement, which was signed on 1 February 2005, and became effective on 22 March2005. Afren holds a 4.41 per cent. indirect net working interest in the JDZ Block 1through a 49 per cent. equity interest in DEER, which was acquired on 29 March2005. The potential of the area lies in the extension of the proven andprolific deep water plays discovered to the north and West in Nigeria. Thenearest of these is the Akpo and surrounding complex which is reported tocontain in excess of 1 billion boe and is currently being developed. Chevron, the Operator of Block 1 commenced drilling of the first explorationwell on this license on 14 January 2006. The Obo-1 well is located inapproximately 1,750m of water (5,750 ft) and is being drilled by the DeepwaterDiscovery Drillship, which is contracted to Chevron by Transocean. Initialdrilling of the well has been completed and the results are currently beingevaluated. Nigeria Afren has secured interests in two proven undeveloped discoveries in OML 90,including the Ogedeh field that completed in August 2005, located in shallowwater in the Western part of the prolific Niger Delta region. The fields wereoriginally discovered by Chevron in 1993 and were awarded to indigenous Nigeriancompanies in the Nigeria Marginal Field Round in 2003. Afren will act astechnical service provider to our indigenous co-venturers and has contracted theSeadrill-7 jack-up drilling rig to drill the first appraisal / development wellin the area. This is expected to take place later in 2006. Afren will carry100 per cent. of the appraisal and initial development costs. Subject to theresults of the well, it is anticipated that first oil could be produced by late2007. Afren is currently reviewing several other existing discoveries in Nigeria withthe objective of funding a fast track appraisal and development programme todeliver early oil and gas production. Gabon In Gabon, Afren holds an interest in the Iris Marin and Themis Marin explorationpermits and additionally in the Technical Evaluation Agreement over the Ibekelialicense area. Afren acquired a 12.86 per cent. interest in the Themis Marin andIris Marin exploration permits in 2005 from Ascent Resources, through anacquisition of the companies which held those licences. The Iris Iboga Marin-1 well was drilled in the Iris Marin licence in August 2005and reached a total depth of 2,035m. The main target sandstone was encounteredwith excellent reservoir properties which were water bearing, but not acommercial success. Further 3D seismic re-processing is ongoing to identifyfurther drillable prospects on the permit. This work is expected to becompleted by end 2006 when a decision on further drilling on Iris Marin can betaken. 3D seismic was acquired in the southern part of the Themis Marin permit in 2005and is currently being processed, following which the remaining firm commitmentwell will be drilled. This is expected to take place later in 2006 / early2007, subject to rig availability. The primary target is expected to be in thesub-salt Gamba sandstone play which has been proven as a reservoir in theadjacent acreage. Afren has a 10 per cent. interest in the Ibekelia Technical Evaluation Agreement("TEA") area, which is adjacent to the Gamba and Olowi oilfields. The group,operated by Sterling Energy, has agreed an exclusive 12 month TEA, exerciseableupon receipt of the data from the Government, which is expected shortly. Thearea may then be converted to an exploration permit, subject to approval by theGovernment. Financial Results Afren made a loss of £4.6 million for the year to 31 December 2005. Thiscomprised written off exploration costs of £1.2 million in respect of the IrisIboga Marin-1 well and conservative management of the administrative expenses of£3.7 million, including the start up costs associated with establishing theCompany. Afren has raised a total of £31.2 million (net) in 2005 through theIPO (at 20 pence per share) in March and two subsequent equity placements inJuly and December (at 35 pence per share and 45 pence per share respectively). Afren had a positive cash balance of £17.2 million as at 31 December 2005 and istherefore in a good position to execute the 2006 work programme. In addition, the IFC has agreed in principle to provide a US$50 millionrevolving credit facility for Afren Energy Resources Ltd, in respect of theNigerian fields. The facility would be elegible for drawing down once thedevelopment plan has been approved and the reserves independently certified. Corporate Social Responsibility Afren's Corporate and Social Responsibility principles and processes cover ourresponsibilities to all our stakeholders. We are committed to the higheststandards of corporate governance, transparency and fair dealing and will complywith all relevant laws and rules. Responsible and decisive management of the Environmental, Health, Safety andSocial (EHSS) aspects inherent in Afren's business activities are recognised asbeing critical to success. Afren strives to meet the key goals of: - Protecting people in terms of both their safety and health;- Protecting the environment; and- Fulfilling social commitments. As well as the more traditional management of risks associated with safety,health and the environment, Afren will actively promote indigenous participationand contribute to the development of local oil and gas industries, indigenouscapacity and enhancement of the local community quality of life. To enable these goals to be met Afren has established an EHSS Policy and adopteda dedicated Environmental, Health, Safety and Social Management System ("EHSS-MS"). Afren's EHSS-MS is designed to enable challenges to be effectivelyidentified and addressed and, where possible, to be turned into opportunities tofurther business excellence and stakeholder confidence. We will continue tounderstand and respect the norms of the communities in the areas we willoperate. We will communicate our principles and work programmes on a regularbasis and actively seek solutions and practices through which they can benefitdirectly from our presence and activities in their community. Outlook 2005 has been a year of rapid development for the Company and we believe thatthe platform is in place for accelerated growth in 2006. After the successfulIPO, Afren set out to build a portfolio of investments in West Africa. Afrenhas delivered a well-balanced and diversified portfolio in Nigeria, Gabon andthe JDZ between Nigeria and Sao Tome & Principe. The Company has set anaggressive agenda for the upcoming year, with the objective of early productionin 2007 and potential acquisitions to increase its pan-African penetration andbuild a portfolio of deepwater, shallow water and onshore licences withappraisal and exploration upside. Management has set the following objectives: - Decision on further exploration on Block 1 of the JDZ pending thereview of exploration results to date; - Appraisal and development drilling will be carried out on Afren'sproved undeveloped fields in shallow water offshore Niger Delta; - 3D seismic re-processing in Gabon, with an exploration wellexpected in late 2006 / early 2007; - Preferential partnering with African National Oil Companies andlocal indigenous partners to gain accererated access to a diversified portfolioof opportunities; - Strong acquisition deal flow focused on near term development,production and high impact exploration; - Demonstrate and build a track record of technical and operatedexpertise; - Continue to contribute to the development of African oil industryindigenous capacity; and - Work proactively with local organisations to contribute to theenhancement of local community quality of life. Afren will continue to build on its distinctive African character that makesAfren unique amongst the internationally listed independent oil and gascompanies participating in the region and we look forward to achieving ourambitious targets in the upcoming year. Charles JamiesonChairman Brian O'CathainChief Executive Group income statement (unaudited)For the year ended 31 December 2005 NOTES 2005 2004 £ 000's £ 000's Revenue - -Administrative expenses (3,685) -Other operating expenses (1,202) -Operating loss 3 (4,887) -Investment revenue 250 -Other gains and losses - foreign currency gains 82 -Loss before tax (4,555) -Income tax expense - -Loss after tax (4,555) - Loss per shareBasic and diluted 4 3.6 p 0.0 p Group balance sheet (unaudited) At 31 December 2005 NOTES 2005 2004 £ 000's £ 000'sASSETSNon-current assetsIntangible assets 5 9,348 -Property, plant and equipment 440 -Investments - - 9,788 -Current assetsTrade and other receivables 2,567 -Cash and cash equivalents 17,165 50 19,732 50 Total assets 3 29,520 50 LIABILITIESCurrent liabilitiesTrade and other payables 3 (1,310) - Net current assets 18,422 50 Net assets 28,210 50 EQUITY Share capital 1,890 50Share premium 29,465 -Other reserves 1,410 -Accumulated losses (4,555) -Total equity 28,210 50 Group cash flow statement (unaudited) For the year ended 31 December 2005 NOTES 2005 2004 £ 000's £ 000's Operating loss for the year (4,887) -Depreciation of property, plant and equipment 40 -Impairment of intangible assets 1,202 -Share based payments charge 6 904 -Operating cash flows before movements in working (2,741) -capitalIncrease in trade and other operating receivables (2,567) -Increase in trade and other operating payables 824 -Currency translation adjustments 82 -NET CASH USED IN OPERATING ACTIVITIES (4,402) - Purchases of property, plant and equipment (480) -Exploration expenditure (9,503) -Interest received 250 -NET CASH USED IN INVESTING ACTIVITIES (9,733) - Issues of ordinary shares 32,828 50Costs of share issues (1,674) -NET CASH INFLOW FROM FINANCING ACTIVITIES 31,154 50 NET INCREASE IN CASH AND CASH EQUIVALENTS 17,019 50 Cash and cash equivalents at beginning of year 50 -Effect of foreign exchange rate changes 96 - CASH AND CASH EQUIVALENTS AT END OF YEAR 17,165 50 Group statement of changes in equity (unaudited) For the year ended 31 December 2005 Share Share Share based Translation Accumulated Total capital premium payment reserve losses equity account reserve £ 000's £ 000's £ 000's £ 000's £ 000's £ 000's At 1 January 2004 - - - - - -Issue of share capital 50 - - - - 50 At 1 January 2005 50 - - - - 50 Issue of share capital 1,840 31,139 - - - 32,979Deductible costs of share issues - (1,674) - - - (1,674)Exchange differences arising on - - - 506 - 506translation of overseas operationsShare based payments charge - - 904 - - 904Net loss for the year - - - - (4,555) (4,555) Balance at 31 December 2005 1,890 29,465 904 506 (4,555) 28,210 Notes to the consolidated financial information 1. GENERAL INFORMATION The financial information set out in this announcement does not constitute thecompany's statutory accounts for the years ended 31 December 2005 or 2004. Thefinancial information for the year ended 31 December 2004 is derived from thestatutory accounts for that year which have been delivered to the Registrar ofCompanies. The auditors did not report on such accounts as the company wasentitled to the exemption under section 249a (1) of the Companies Act 1985relating to dormant companies. The statutory accounts for the year ended 31December 2005 will be finalised on the basis of the financial informationpresented by the directors in this preliminary announcement and will bedelivered to the Registrar of Companies following the company's annual generalmeeting. This preliminary announcement was approved by the Board on 29 March 2006. 2. BASIS OF PREPARATION The preliminary financial information has been prepared in accordance withInternational Financial Reporting Standards (IFRS), as issued by theInternational Accounting Standards Board (IASB), for the first time. Theimplementation of IFRS had no impact on the equity or results of the group forthe period ended 31 December 2004. Full details of the Group's accountingpolicies under IFRS, under which this financial information has been prepared,have been published on the Company's website (www.afren.com). The preliminary financial information has also been prepared in accordance withIFRS adopted for use in the European Union and therefore complies with Article 4of the EU IAS Regulation. The financial statements have been prepared under thehistoric cost basis. While the financial information included in this preliminary announcement hasbeen computed in accordance with IFRS, this announcement does not itself containsufficient information to comply with IFRS. IFRS 6 Exploration for and Evaluation of Mineral Resources has been adoptedearly for 2005. At the date of authorisation of this preliminary announcement,the following Standards and Interpretations which have not been applied in thisfinancial information were in issue but not yet effective: IFRS 7 Financial instruments: Disclosures; and the relatedamendment to IAS 1 on capital disclosures IFRIC 4 Determining whether an Arrangement contains a Lease IFRIC 5 Right to Interests Arising from Decommissioning,Restoration and Environmental Rehabilitation Funds IFRIC 8 Scope of IFRS 2 Share-based Payments The adoption of these Standards and Interpretations in future periods is notexpected to have a material impact on the financial position of the Group. 3. SEGMENTAL REPORTING Geographical segments The Group currently operates in only one geographical market: West Africa. Thisis the basis on which the Group records its primary segment information.Unallocated operating expenses, assets and liabilities relate to the generalmanagement, financing and administration of the Group. West Africa Unallocated Consolidated £ 000's £ 000's £ 000's Segment result (1,305) (3,582) (4,887) Investment revenue 250Other gains and losses 82 Loss before and after tax (4,555) Segment assets 12,571 16,949 29,520Segment liabilities (676) (634) (1,310) Capital additions 10,240 380 10,620Depreciation 7 33 40 None of the Group figures for 2004 relates to the West Africa segment. Business segments The operations of the Group comprise one class of business, being oil and gasexploration, development and production. 4. LOSS PER ORDINARY SHARE The calculation of basic loss per share is based on the loss for the year aftertaxation of £4,555,000 (2004: £nil) and 127,628,963 ordinary shares, being theweighted average number of shares in issue for the year. As there is a loss forthe year, there is no difference between the basic and diluted earnings pershare. 2005 2004 Basic and diluted 3.6p nil 5. INTANGIBLE ASSETS Costs of exploration - pending determination £ 000's At 1 January 2005 -Additions 10,140Amounts written off (1,202)Foreign exchange differences 410 At 31 December 2005 9,348 Capitalised costs at 31 December 2005 principally relate to the Group's interestin Block 1 of the Nigeria - Sso Tome & Principe Joint Development Zone("Block 1"), the Ogedeh field in Nigeria and the Themis Marin licence in Gabon.The total carrying value shown above includes £7,864,000 in respect of Block 1. 6. SHARE BASED PAYMENTS The Company initiated a share option scheme for all senior employees of theGroup during 2005 and has issued 17.5 million options under this scheme duringthe year. The Group's policy is to award options to senior employees andofficers on appointment and periodically thereafter. The initial tranche ofoptions were issued at 20p, 50p and £1.00. Since then all options have beenissued at market price at the grant date. The initial tranche of options hadvesting periods between nil and 1.75 years; all subsequent options have hadvesting periods between 1 and 3 years. The options expire after 10 years ifthey remain unexercised and are forfeited if the employee leaves the Groupbefore the options vest. The aggregate of the fair value, by reference to a Black-Scholes optionvaluation model, of the options granted during 2005 was £2.1 million, of which£904,000 has been recorded in the 2005 results within administrative expensesand the balance will be expensed over the remaining vesting period. 7. POST BALANCE SHEET EVENTS On 24 January 2006 warrants over 400,000 ordinary shares were exercised. Tradingin these shares commenced 3 February 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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