13th Sep 2005 07:01
Afren PLC13 September 2005 Afren plc Interim Results for six months ended 30 June 2005 Afren plc ("Afren" or "the Company") (AIM:AFR), the independent oil and gasexploration, development and production company, announces its maiden set ofinterim results. The interim half year results cover the trading of Afren plc from its initialformation as at 31 December 2004 for the six months to 30 June 2005. This periodincludes the raising of £13.3m of share capital through £5.3m of pre IPO fundingand AIM admission fundraising of £8m on 14 March 2005. Afren is an independent oil and gas exploration, development and productioncompany, established in 2004 to build an attractive, diversified and balancedportfolio of African assets, with an initial focus on the Gulf of Guinea region.Afren's corporate objective is "Capital appreciation for shareholders throughpreferential access to oil and gas production and exploration acreage,production growth, deal flow and exploration drilling in Africa." HIGHLIGHTS Financial • Raised a total of £21.3m: • Share capital of £13.3m raised pre IPO and March 2005 AIM IPO. • £7.5m (before expenses) in working capital raised through a placing of 21,400,000 shares at 35p with institutional investors in July 2005 • International Finance Corporation ("IFC") • Exercised warrants of £0.5m in full, post IPO, acquiring a 7.5% shareholding • Agreed provision of a proposed US$50 million debt facility for Afren Energy Resources Ltd, the Company's Nigerian subsidiary • Loss of £2.32m for the six month period ending 30 June 2005 Corporate • Listing on AIM in March 2005 • Wholly-owned Nigerian subsidiary, Afren Energy Resources Ltd, established June 2005 Exploration • Completion of deal to participate in Nigeria-Sao Tome & Principe Joint Development Zone (JDZ) Block 1 through acquisition of Energy Equity Resources AS for US$6.5m • Completion of deal to participate in Themis Marin and Iris Marin blocks offshore Gabon. • First well on Iris Marin finds good reservoir, but no hydrocarbons. • Application for a 10% interest in the Ibekelia Block Technical Evaluation Agreement Area offshore Gabon, where an exploration well is currently drilling Development • Heads of Agreement signed with two Nigerian indigenous oil companies in respect of undeveloped fields • Completed a Financing and Production Sharing Agreement for the development of the Ogedeh Field, offshore Nigeria, with development wells expected to produce at rates in excess of 2,500 barrels per day Management • Appointment of Charles Jamieson, Formerly Chief Executive of Premier Oil plc as Non-Executive Chairman • Appointment of the management team, including: • Chief Executive: Brian O'Cathain, formerly Head of International Business at Tullow Oil plc • Chief Financial Officer: Osman Shahenshah, former Investment Banker Head of Exploration and • Production: Nick Johnson, formerly Head of Global Exploration and Reservoir Management at OMV • Appointment of Egbert Imomoh, formerly deputy Managing Director of Shell Petroleum Development Company in Nigeria, as Managing Director of Afren Energy Resources Ltd., the Company's Nigerian subsidiary • Appointment of Constantine Ogunbiyi, formerly Deputy Head of Cadwalader, Wickersham & Taft LLP's Africa Practice, as Head of Corporate Affairs, and a director of Afren Energy Resources Ltd. Commenting on the results, Brian O'Cathain, Chief Executive of Afren plc, said: "I am delighted to report the maiden set of interim results for Afren. Oursuccess in identifying and securing opportunities to date coupled withinvestment in the senior management team will be beneficial as we look todevelop into a significant oil and gas player within Africa. We are especiallypleased to have Charles Jamieson join the Board as Non-Executive Chairman. The Group has made significant progress in its first six months on AIM, creatinga strong management team, beginning to establish a footprint within Africa withthe signing of the Group's first production sharing agreement and the formationof a strong exploration portfolio. With our portfolio development programme wellunderway and a number of potential opportunities under discussion we areconfident for the future." 13 September 2005 AfrenBrian O'Cathain [email protected] +44 20 7182 1800Osman Shahenshah [email protected] +44 20 7182 1800 Pelham Public RelationsJames Henderson [email protected] +44 020 7743 6674Charles Vivian [email protected] +44 020 7743 6672 Chairman and Chief Executive Joint Statement Introduction The six months to 30 June 2005 have proved to be an exciting period ofdevelopment in the Company's short history. Afren was created in 2004 to build an attractive, diversified and balancedportfolio of African assets, with an initial focus on the Gulf of Guinea region,and your Board took the decision in December 2004 to list the Company on AIM toraise its profile and to raise funds to accelerate expansion. The Companyappointed advisers early in the New Year and was admitted to trading on AIM on14 March 2005, having raised in excess of £13 million during this period, beforecosts. The funds raised will enable Afren to reach the next stage in itsdevelopment, expand into other African markets and consolidate on the Company'ssuccess to date. Strategy Afren's strong African orientation in stakeholders, skills and strategicparticipation means it has excellent local knowledge and is in a good positionto leverage off key strategic relationships. The Company intends to takeadvantage of its excellent access to attractive deal flow to continue to rapidlygrow its asset base and interests. As stated upon listing, Afren intends tofocus on exploration and production opportunities. In Nigeria Afren intends to pursue a combination of proven undeveloped fieldopportunities through indigenous companies and re-activation projects of matureMajors' assets. Across the Gulf of Guinea it also plans to build a diversifiedportfolio, with a balanced mix of development licences with significantappraisal upside and an exploration portfolio of licences with low riskexploration upside across deepwater, shallow water and onshore. Afren Nigeria Afren has established its wholly-owned subsidiary in Nigeria, Afren EnergyResources, which will allow the Company to take full advantage of theopportunities available in the country. This includes using our local expertiseto develop partnerships on clusters of proven undeveloped fields, formerly heldby Majors and awarded to indigenous operators in Q1 2003. This allows sharedfacilities, reducing development and operating costs, permits a common solutionto produced gas and extends the life of each field. Afren will also pursue otheropportunities in the country, particularly under-explored indigenous operators'fields and stranded or shut-in fields belonging to Majors, and will look toparticipate in Licence Rounds and farm-ins for exploration. The Company recently announced its first step under this strategy, with thesigning of a Financing and Production Sharing Agreement for participation in thedevelopment of the Ogedeh Field, offshore Nigeria. Afren are currently lookingto contract a rig to drill its first well on the Field, which will be tested andthen further development plans will be implemented. It is expected that thedevelopment wells will produce at rates in excess of 2,500 barrels per day, andso this opportunity offers the potential to generate early production andcashflow for the Company. Results Afren made a loss of £2.32 million for the 6 months ending 30 June 2005, due toa share of the losses of the associate company and the administrative andoperating expenses including start up costs associated with establishing theCompany. The Company had a positive cash balance of £4.61m at the close of theperiod. We are well placed to pursue our targets over the coming months tocontinue to capitalise on Afren's access and knowledge in Nigeria, to rapidlygrow the Company's portfolio in the Gulf of Guinea region and to accelerateproduction. Outlook We are excited about Afren's participation in Block 1 of the highly regardedNigeria-Sao Tome & Principe JDZ. This offshore Block is adjacent to the Nigeriandeepwater petroleum province, where more than 12 billion barrels of recoverableoil have been discovered since 1996, reflecting an exploration success rate ofgreater than 50 percent. The Company has an effective 4.41% interest in theBlock, through the acquisition of Energy Equity Resources AS, which owns 49% ofDangote Energy Equity Resources Ltd, which in turn has an interest of 9% in JDZBlock 1. The Company's partners in the consortium are ChevronTexaco JDZ Limited(51% and Operator) and Esso Exploration and Production Nigeria - Sao Tome "One"Limited (40%), which reflects Afren's strategy to work with high qualitypartners in exploiting prospective asset opportunities with proven pedigree. TheCompany expects the first exploration well to be drilled in early 2006. Afren are also pursuing licences with low risk exploration upside, which areclose to existing facilities, shown by the completion of a deal in July 2005 topurchase two companies which own a 12.86% participating interest in the ThemisMarin and Iris Marin Blocks Exploration and Production Sharing Contracts inshallow water offshore Gabon. The Themis and Iris permits are both operated bySterling Energy plc and the former concession covers 607 square kilometers andborders the northern edge of the Etame Marin permit, whilst the latter covers902 square kilometers and is situated along the Gabon coast adjacent to theShell operated Gamba field. Both the Themis and Iris concessions are surroundedby proven oilfields, and are close to pipelines and production infrastructure.The principal target on both the Iris and Themis blocks is the Gamba Sandstonereservoir, which is productive in the nearby Etame field. The first well on theIris Marin permit, the Iboga Marin -1 well, has just been completed. The wellwas drilled to a sub-salt Gamba sandstone target where it penetrated over 30metres of excellent reservoir-quality sandstones but these were water bearing.The well is being plugged and abandoned as a dry hole; the well fulfils the workcommitment on the licence. A second exploration well is expected to be drilled on the nearby Themis Marinin early 2006. Additionally, Afren has agreed to acquire from Ascent GabonLimited (a wholly owned subsidiary of Ascent Resources plc) a 10% interest inthe newly awarded Ibekelia Permit Technical Evaluation Agreement. The IbekeliaPermit of 673 square kilometres lies between the Iris Marin and Themis Marin andis adjacent to the Olowi Marin oilfield with estimated recoverable reserves of180 million barrels. Management As well as our appointment, the Board has strengthened all areas of themanagement team, including the appointment of Osman Shahenshah as ChiefFinancial Officer and Egbert Imomoh as Managing Director of Afren EnergyResources Ltd, the Company's wholly owned Nigerian subsidiary. More recentlyAfren has moved to further strengthen its management team by appointing Dr. NickJohnson, former Head of Global Exploration and Reservoir Management at OMV inVienna, as Head of Exploration and Production. Dr. Johnson has had adistinguished career with over 20 years of experience at BP and OMV, inExploration, Business Development and New Ventures. He was involved in Oil & Gasexploration and development in the Middle East, North Africa, Asia, Europe andthe North Sea. Summary The Group has made significant progress in its first six months on AIM, creatinga strong management team, beginning to establish a footprint within Africa withthe signing of the Group's first production sharing agreement and the formationof a strong exploration portfolio. With our portfolio development programmealready well underway and a number of potential opportunities under discussionwe are confident for the future. The Company will retain its distinctive African character that makes Afrenunique amongst the internationally listed independent oil and gas companiesparticipating in the region and to this end we are currently recruiting tostrengthen our team in Nigeria. We are delighted that your Board invited us to be involved during such animportant period of development for the Company. Charles Jamieson Chairman Brian O'Cathain Chief Executive Half year unaudited results for the 6 month period ending 30 June 2005 £Profit and Loss Account Net Turnover 0 Administrative costs -1649358 Share of loss of associate -748348 Operating Loss -2397706 Interest payable less receivable -76,806 Loss before Tax & extraordinary items -2320900 Taxation 0 Loss after tax -2320900 Loss attributable to shareholders, beforeextraordinary -2320900items Exceptional items 0Loss attributable to shareholders -2320900 Dividends 0 Earnings per share -1.7p Balance Sheet Fixed assetsTangible assets 120243Investment in Associate 6332419 Current assetsDebtors 884772Cash 4,611,128Creditors -726831 Net current assets 4769069 Net assets 11221731 Capital & reservesShare capital 13,159,743Profit & loss reserve -2320900Share based payment reserve 382888 Shareholders funds 11221731 Cashflow StatementNet cash outflow from operating activities -2,538432 Returns on investments and servicing of finance 76,806Taxation 0Capital expenditure and financial investment -6,469,877Cash inflow before use of liquid resources & -8931503financingManagement of liquid resources 0Financing 13,492631Change in cash in the period 4,561,128 Opening Cash balance 50,000 Closing Cash balance 4,611,128 Reconciliation of Operating Profit to Net Cash Inflow fromOperating Activities Operating Loss -2397707Depreciation and amortisation 17,215Increase in debtors -884772Increase in creditors 726831Net cash inflow from operating activities -2,538432 Returns on investments and servicing of financeInterest received 76,806 Capital expenditure and financial investment -6,469,877Payments to acquire tangible fixed assets -120243Payments to acquire shares in associated company -6349634 Management of liquid resourcesNet increase in deposits 0 Financing 13,492631Issue of ordinary share capital 13,837,959Cost of financing to share premium account -728,216Cost of share base payments 382888 Approved by the Board12 September 2005 NOTES TO THE INTERIM RESULTS (UNAUDITED) INDEPENDENT REVIEW REPORT TO AFREN PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2005 which comprises the Profit and Loss Account,Balance Sheet, Cash Flow Statement, and the related notes 1 to 6. We have readthe other information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. This report is made solely to the company having regard to guidance contained inBulletin 1999/4 'Review of interim financial information' issued by the AuditingPractices Board. To the fullest extent permitted by the law, we do not accept orassume responsibility to anyone other than the company, for our work, for thisreport, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report as required by the AIM Rulesissued by the London Stock Exchange. Review work performed We conducted our review having regard to the guidance contained in Bulletin 1999/4 'Review of interim financial information' issued by the Auditing PracticesBoard for use in the United Kingdom. A review consists principally of makingenquiries of management and applying analytical procedures to the financialinformation and underlying financial data, and based thereon, assessing whetherthe accounting policies and presentation have been consistently applied, unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance with UnitedKingdom Auditing Standards and therefore provides a lower level of assurancethan an audit. Accordingly we do not express an audit opinion on the financialinformation. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2005. Ernst & Young LLP London Date 12 September 2005 1. Basis of preparation The results for the six months ended 30 June 2005 are unaudited. They have beenprepared on accounting bases and policies that are consistent with those in theoil and gas exploration industry. The financial information contained in this report does not constitute statutoryaccounts within the meaning of Section 240 of the Companies Act 1985 (asamended) . Afren is adopting early the new IFRS 6 Exploration for and Evaluation of MineralResources and has applied IFRS 2 in respect of financial instruments. The Company will report in full its policy on accounting for Explorationexpenses under IFRS 6, and will announce its policy with the first full year'sresults. In these interim results it has expensed initial early stage workingcapital payments of £692,150. The carrying value of intangible assets is reviewed for impairment if events orchanges in circumstances indicate the carrying value may not be recoverable. No Statement of Total Recognised Gains and Losses is presented as all the gainsand losses are within the Profit and Loss account for the period. 2. Basis of Consolidation The unaudited accounts of Afren PLC incorporate the results of Afren EnergyResources Ltd and Afren Block One Ltd. Afren Energy Resources Ltd is a 99.9% owned subsidiary incorporated in Nigeria 2June 2005, its registered address is Foreshore Towers, 2 Osborne Road, Ikoyi,Lagos.Its authorised share capital is 10 million shares with a par value of N1;and it has 2,500,001 shares in issue. This subsidiary was dormant for theperiod to 30 June 2005. Afren Block One Ltd (previously called Energy Equity Partners Ltd) is a whollyowned subsidiary. Afren Block One Ltd owns 100% of EER AS a companyincorporated in Norway which in turn owns 49% of Dangote Energy Equity ResourcesLtd which in turn owns 9% of JDZ Block 1. Dangote Energy Equity Resources Ltd is treated as an associate. In the groupfinancial statements, this associate is accounted for using the equity method. 3. Earnings per Share Losses per share for the six months to 30 June 2005 of 1.7p have been calculatedon the basis of loss after taxation of £2,320,900 and the average number ofshares in issue of 140,290,705. 4. Senior Management and Director Share Incentive Plans The Company has approved employee and senior director share incentive plansincluding plans for the non executive directors. During the period ended 30 June 2005, the Group had two share-based paymentagreements which are described below. Type of arrangement Employee Scheme Non-Executive Scheme Date of grant 28 June 2005 28 June 2005Number granted 13,673,151 765,000Contractual life Maximum 2 years Maximum 2 yearsVesting conditions None None The estimated fair value of the 20p share options granted in the employee schemeis 16.0p for those vesting immediately, 16.6p for those vesting on 1 March 2006and 17.5p for those vesting on 1 March 2007. This was calculated by applying aBlack-Scholes option pricing model. The model inputs were the share price atgrant date of 36p, exercise price of 20p, expected volatility of 73 per cent, noexpected dividends, contractual life of 0 years, 9 months and 21 months and arisk free interest rate of 4.5 per cent. It was assumed that all options wouldbe exercised at the vesting date. Historical volatility was calculated based onthe share price of Afren's closest three competitors, as Afren has insufficientpast trading history. Further details of the two share option plans are as follows: Number of options Weighted average exercise priceOutstanding at start of year 0 -Granted 14,438,151 49pForfeited 0 -Exercised 0 -Outstanding at end of year 14,438,151 49pExercisable at end of year 5,625,226 49p The options outstanding at 30 June 2005 had an exercise price of 20p, 50p or £1,and a weighted average remaining contractual life of 8.6 months. The impact to the Profit and Loss Account in this period is £382,888. A summaryof the options is presented: Unapproved Options with an Exercise Price of 20p per Share Total No. of Vesting Dates No.of Shares Shares VestingOsmanShahenshah 1,150,000 28 June 2005 383,334 1March 2006 383,333 1March 2007 383,333Ethelbert J LCooper* 1,500,000 28 June 2005 500,000 1March 2006 500,000 1March 2007 500,000BrianO'Cathain 3,000,000 28 June 2005 1,000,000 1March 2006 1,000,000 1March 2007 1,000,000Egbert Imomoh 400,000 28 June 2005 133,334 1March 2006 133,333 1March 2007 133,333Constantine LOgunbiyi 100,000 28 June 2005 33,334 1 March 2006 33,333 1 March 2007 33,333 Unapproved Options with an Exercise Price of 50p per Share Total No. of Vesting Dates No.of Shares Shares VestingOsmanShahenshah 850,000 28 June 2005 425,001 1March 2006 424,999Ethelbert J LCooper * 1,000,000 28 June 2005 500,001 1March 2006 499,999BrianO'Cathain 2,000,000 28 June 2005 1,000,000 1March 2006 1,000,000Egbert Imomoh 500,000 28 June 2005 250,000 1March 2006 250,000Constantine LOgunbiyi 150,000 28 June 2005 75,000 1 March 2006 75,000 Unapproved Options with an Exercise Price of £1 per Share Total No. of Vesting Dates No.of Shares Shares VestingOsmanShahenshah 550,000 28 June 2005 183,334 1 March 2006 183,333 1 March 2007 183,333Ethelbert J LCooper* 500,000 28 June 2005 166,667 1 March 2006 166,667 1 March 2007 166,666BrianO'Cathain 1,253,152 28 June 2005 417,718 1 March 2006 417,717 1 March 2007 417,717Egbert Imomoh 500,000 28 June 2005 166,667 1 March 2006 166,666 1 March 2007 166,666Constantine LOgunbiyi 250,000 28 June 2005 73,334 1 March 2006 73,333 1 March 2007 73,333 OPTIONS UNDER NON-EXECUTIVE SCHEME Unapproved Options with an Exercise Price of 50p per Share Total No. of Vesting Dates No.of Shares Shares VestingGuido Pas 125,000 28 June 2005 62,500 1March 2006 62,500Peter Bingham 125,000 28 June 2005 62,500 1March 2006 62,500Rilwanu Lukman 125,000 28 June 2005 62,500 1March 2006 62,500 Unapproved Options with an Exercise Price of £1 per Share Total No. of Vesting Dates No.of Shares Shares VestingGuido Pas 130,000 28 June 2005 43,334 1March 2006 43,333 1March 2007 43,333Peter Bingham 130,000 28 June 2005 43,334 1March 2006 43,333 1March 2007 43,333Rilwanu Lukman 130,000 28 June 2005 43,334 1March 2006 43,333 1March 2007 43,333 * Note: Ethelbert J L Cooper, a founder of the Company, was an employee duringthe period but has subsequently changed his role to that of a Special Advisor tothe Board of Directors. 5. Outstanding Warrants and Options The following had options and warrants outstanding at 30 June 2005 as advised inthe listing prospectus: SECP* 2,000,000 warrants at an exercise price of 10p per ordinary share exercisable within 18 months of 14 March 2005 being the date of IPO. Canaccord* 2,500,000 warrants at an exercise price of 20p per ordinary share exercisable within 24 months of 14 March 2005 being the date of IPO. EER* 500,000 warrants at an exercise price of 20p per ordinary share exercisable within 12 months of 14 March 2005 being the date of IPO. All these options and warrants were issued at a price greater than the marketprice at time of grant and there is no profit and loss impact under IFRS 20. * SECP is Synergy Energy Capital Partners Ltd, Canaccord is Canaccord Capital(Europe) Ltd and EER is Energy Equity Resources Limited 6. Post Balance Sheet Events • Afren PLC completed a placing on 1 July 2005 and issued 21,400,000 shares at 35p with institutional investors raising proceeds of £7.5m, before costs. • On 20 July 2005 Afren PLC announced the acquisition of two licence interests in Gabon. Afren has entered into an agreement with Ascent Resources plc ("Ascent") toacquire two wholly owned subsidiaries, Gabon Investments (Iris Marin) Pty Ltdand Gabon Investments (Themis Marin) Pty Ltd. These companies hold a 12.86%Participating Interest in the Iris Marin Exploration and Production SharingContract ("EPSC") and in the Themis Marin EPSC respectively. Under the terms of the agreement Afren will issue 404,350 new ordinary shares inAfren to Ascent in return for its 12.86% interest in Themis Marin and Iris Marinblocks. Afren will also reimburse Ascent for £684,000 of past costs. Inaddition, Ascent will be granted a net profit interest of 1.75% of any profitgenerated under the EPSCs. The cost of the investment in Ascent is carried in the balance sheet at £835,631using a market value of Afren shares of 37.5p on 20th July 2005. • Board changes - Mr Charles Jamieson was appointed to the Board as non-executive Chairman on 25 July 2005. Mr Guy Pas, the acting Non-Executive Chairman, will continue as a Non-Executive Director of Afren. • Exercise of Warrants - on 6 September 2005 notice was given by warrant holders to exercise warrants over 2,500,000 ordinary shares. COPIES OF THE INTERIM REPORT Copies of this Interim Report will be posted to shareholders and further copieswill be available from the Company's office and downloadable from www.afren.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
AFR.L