25th Sep 2007 07:03
Afren PLC25 September 2007 Afren plc Interim Results Afren plc ("Afren" or the "Company") (AIM:AFR), the independent oil and gasexploration and development company, announces its interim results for the sixmonths ended 30 June 2007. Highlights Operations • Okoro Setu development, offshore Nigeria, on track for first oil in early 2008, with the following key milestones achieved: - Field Development Plan approved by the Government - FPSO contract secured; all major contracts are in place for development drilling • 2D seismic acquisition completed and processing on-going on La Noumbi permit in Congo (Brazzaville) • Ofa-1 well test on Ofa field, offshore Nigeria completed after the period-end and results under analysis Acquisitions • Continued expansion of the Nigerian portfolio, offering near-term development upside - Agreement signed, after the period end, with Excel Exploration & Production Limited for the development of the Eremor field - Agreement signed with Independent Energy Limited for the development of the Ofa field Financial • Over US$300 million of financing secured in the year to date: - Closure of syndication on US$200 million debt facility (over-subscribed) to finance the Okoro Setu Project - Completion of US$65 million (before expenses) equity fund raising (over-subscribed), following earlier US$15 million strategic equity investment from Standard Bank and BNP Paribas - Closed US$50 million unsecured acquisition facility with First City Monument Bank in Nigeria, after the period-end - Cash balances at 30 June 2007 of US$96.2 million • Net loss of US$10.2 million (1H 2006: US$5.2 million) for the period, due to increased operational and business development activities Outlook • Development drilling on Okoro Setu commencing at year end with a target of first oil in early 2008 and production of 15,000 to 20,000 bopd by mid 2008 • Preparatory work for the Eremor development on-going (Field Development Plan has been approved) • Drilling on Doungou prospect in La Noumbi, Congo • Exploration drilling on Themis Marin in Gabon scheduled for Q4 2007 • Proceeds of US$50 million FCMB loan to be used primarily to finance the Company's pipeline of acquisition opportunities Osman Shahenshah, Chief Executive of Afren plc, commented: "The first half of 2007 has been a period of tremendous progress for Afren.Operationally, the Company received Government approval on the Okoro Setudevelopment within four months of appraisal drilling and all contracts have beensecured to support the start of development drilling this year. Afren receivedstrong financial support across the capital structure and continues to grow theportfolio, having formed another two partnerships with established indigenousoperators in Nigeria. We expect further corporate development in the second half of the year andnotably development drilling on our flagship Okoro Setu Project, in Nigeria,ahead of first oil in early 2008, with production of 15,000 - 20,000 barrelstargeted for mid 2008." 24 September 2007 Enquiries: Afren plc +44 20 7182 1800Osman Shahenshah Chief ExecutiveEvert Jan Mulder Chief Operating OfficerGalib Virani Investor Relations Jefferies International Limited +44 20 7618 3500Toby HaywardOliver Griffiths Tristone Capital Limited +44 20 7355 5800Simon Ashby-RuddMajid Shafiq Pelham Public Relations +44 20 7743 6673James HendersonAlisdair Haythornthwaite Chairman and Chief Executive Statement Portfolio build up continues and development activities continue to intensify. The first half of 2007 has been a period of intense activity and preparation forAfren, as we position ourselves to commence production from the Okoro SetuProject in early 2008; less than a year since announcing involvement in theproject. We have also grown our portfolio of assets with the addition of twoNigerian near term development opportunities. During the first half of the year, Afren accomplished the Okoro Setu Projectoperational milestones - a testament to the strength of the Group's managementand technical team, and its close working relationship with AMNI, its indigenouspartner. First, in April, the Nigerian Government approved the FieldDevelopment Plan, shortly thereafter the contract for the Armada PerkasaFloating Production Storage and Offloading vessel (FPSO) was secured and in Junea fully underwritten US$200 million debt facility to finance the development ofthe Okoro Setu Project was successfully syndicated. Afren continued with its strategy of partnering with well established indigenousoil and gas companies, with the announcement of a Farm-In Agreement withIndependent Energy Limited ("IEL") for the participation in the Ofa Field, andthe signing of a Financing and Technical Services Agreement with ExcelExploration & Production Limited ("Excel") for the development of the EremorField. This further underpins Afren's commitment and strong competitiveposition to develop fields that can provide early cash flow and add to ourgrowing reserve base. On the exploration front, the Doungou well in Congo (Brazzaville) was spudded on13 August 2007. Afren has a 14% working interest and the operator is Maurel etProm. In Gabon, the Admiral prospect on the Themis Marin licence is scheduledto be drilled in the fourth quarter of 2007. Afren has a 12.86% stake and theoperator is Sterling Energy. In the year to date, Afren has secured over US$300 million of equity and debtfinance, demonstrating strong institutional support for the Company's asset baseand management team. Notably, Afren received a strong endorsement in itsprincipal operating region from First City Monument Bank and Guarantee TrustBank in Nigeria. In addition to realising our near-term target of 15,000 - 20,000 bopd ofproduction, we aim to continue to rapidly build the portfolio through partneringwith indigenous companies, National Oil Companies and Governments across theregion. We will continue to focus on near term development and producingopportunities in Nigeria and build on the strategic entries into Angola, Congo(Brazzaville) and Gabon. OPERATIONAL REVIEW Nigeria Afren is partnered with indigenous companies on all four assets in Nigeria.This is consistent with the strategy and commitment of partnering withindigenous companies to target low cost development options that yield near-termproduction. Okoro Setu development Following the successful appraisal drilling programme, completed in December2006, Afren has put in place the drilling capability, financing structure,development plan and production capacity for the Okoro Setu Project. All majorcontracts have been awarded including the drilling rig, Floating ProductionStorage and Offloading vessel ("FPSO"), drilling consumables, the well headdecks and flexible flow lines. The FPSO vessel, the Armada Perkasa, is currently moored in Keppel Shipyard inSingapore and is undergoing a planned systems upgrade to meet projectrequirements, including the addition of a test separator and gas liftcompressor. It is expected that the FPSO will arrive on location in January2008. Afren is therefore on track to achieve its target of first oil in early2008 and production of 15,000 - 20,000 barrels per day in mid 2008. Ofa development The Ofa field was discovered by Shell in 1970. Afren and its partner,Independent Energy Limited, recently completed testing operations on theoriginal Ofa-1 discovery well after the period end and analysis of the resultsis ongoing. Eremor development Afren recently signed an agreement with the indigenous company Excel, for thedevelopment of the Eremor Field. Phase I of the Field Development Plan includesre-entry and completion of the existing well and construction of a 7 kilometreoil evacuation line to the nearest flow station. The Field Development Plan andEnvironmental Impact Assessment have been approved and development work willcommence in the near term. Ogedeh development Afren is in partnership with Bicta - a well established indigenous oil company.The Ogedeh discovery was made by Chevron in 1993 in an area lying close toexisting infrastructure. A number of development options are currently underreview. The Republic of Congo The acquisition, from Heritage Oil Corporation, of a 14% stake in the La Noumbipermit in 2006 provided Afren with entry into a growing oil province andexposure to exciting high impact exploration acreage with several provenpetroleum plays. The first well on the Doungou prospect was spudded on 13August 2007. In addition, a 200 kilometre, 2D seismic acquisition programme hasbeen completed over the North West section of the permit. The processing ison-going and should be completed by year-end. Gabon Afren currently holds interests in three permits, Themis Marin, Iris Marin andthe Ibekelia Study Area, in the shallow water Gabon Coastal Basin. The permitsare contiguous and the primary target across the area is the pre-salt Gambasandstone formation which is the main reservoir for Gabon's oil resources,including the giant Rabi-Kounga field and the adjacent Etame field to the south. Afren's co-venturers in the permits are Sterling Energy plc, Addax Petroleumand Premier Oil plc. One exploration well is scheduled for Q4 2007 on the Admiral prospect which ison the Themis Marin permit. In addition, technical work is ongoing on the IrisMarin and Ibekelia permits ahead of a drilling campaign in 2008. Nigeria - Sao Tome & Principe Joint Development Zone Afren's 4.41% interest in Block 1 of the JDZ offers exposure to world classexploration acreage. In March 2006, Chevron made the Obo-1 discovery whichcontained 150 feet of net pay and proved a working oil and gas system in theJDZ. A detailed technical evaluation of the data gathered from the Obo-1 wellis currently ongoing. FINANCIAL REVIEW Afren is presenting its financial statements in US dollars for the first time.This followed determination that the US dollar is now the Group's primaryeconomic currency as the vast majority of the Group's expenditure and financingare US dollars denominated. As such, Afren plc and its subsidiaries havechanged their functional currencies to US dollar. Additionally, the Group haselected to change its presentational currency to US dollar. This change isexplained further in Note 1. Afren reported a net loss of US$10.2 million (1H 2006: US$5.2 million) for theperiod. The main reasons for the increase are the following: • Administrative expenses have increased by US$0.8 million compared withthe same period for 2006, largely due to a significant increase in staff numberswhich averaged 32 compared with 18 for the first halves of 2007 and 2006respectively. However, a significantly greater proportion of the focus has beenon operational work, and approximately US$2.7 million of the overheadexpenditure has been capitalised (1H 2006: US$0.4 million). • Finance costs attributable to the convertible bonds (issued in thesecond half of 2006) and bank loans, amounted to US$5.9 million of which US$2.7million was capitalised in respect of the Okoro development. • A loss of US$1.1 million arising from derivative financialinstruments. Afren has entered into swaps and call options to hedge some of theproduction against exposures to variability in the price of Okoro crude oil for2008, 2009 and 2010. The loss has arisen due to movements in the forward marketprice for oil between the time of entering into the arrangement and the periodend. The arrangement is explained further in Note 1. Following the approval of the Okoro Field Development Plan by the NigeriaGovernment at the end of March 2007, Okoro field costs, which were previouslyincluded under intangible assets, have been transferred to the property, plantand equipment category of the balance sheet. The amount capitalised as at 30June 2007 was US$74.5 million. The Company remains well funded with net cash resources of US$96.2 million as at30 June 2007, which excludes proceeds from the US$50 million unsecured loan withFirst City Monument Bank plc ("FCMB") in Nigeria that closed after the periodend. During the period under review, the Company made the first draw-down fromthe US$200 million Okoro Development Facility. The amount, included innon-current liabilities in the balance sheet, relating to this draw-down isUS$30.1 million. The FCMB US$50 million loan provides further flexibility in the continuedbuild-up of Afren's West African portfolio. FCMB's strong local backing ofAfren is a testament to the Company's existing portfolio and potential pipelineof acquisition opportunities. The continued support by Nigerian financialinstitutions, including Guarantee Trust Bank plc's participation in the US$200million Okoro Development Facility, is both a strong endorsement to Afren'sestablished credibility in its principal operating region and to the maturityand funding capacity of the regional financial sector, as a supplement toAfren's traditional support base in North American and European capital markets. Such local participation from the growing African capital markets basecomplements Afren's focus on partnering with indigenous companies in developinga pan-African portfolio of oil & gas upstream assets. CORPORATE We were delighted to announce the appointment of John St. John as aNon-executive Director to the Board. John is one of the most acclaimed names inEuropean equity capital markets and was formerly Global Head of Equity CapitalMarkets at Dresdner Kleinwort Wasserstein, Salomon Brothers, Lehman Brothers andCommerzbank. John's continuing advice on capital markets and strategicacquisitions will prove invaluable, as Afren continues to expand its portfolio.He currently serves as Chairman of Equity Capital Markets at NomuraInternational plc. OUTLOOK The next six months should be a very exciting period for Afren as we execute ourmain development programme on the Okoro Setu Project and continue withdevelopment and exploration activities across our diversified portfolio. Inaddition, the Company will actively pursue growth opportunities that offer acombination of reserves and production growth as well as continuing to establishstrong strategic regional partnerships with the overall aim of creatingsubstantial shareholder value. INDEPENDENT REVIEW REPORT TO THE SHAREHOLDERS OF AFREN PLC Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 June 2007 which comprises the Group income statement,the Group balance sheet, the Group cash flow statement, the Group statement ofchanges in equity and related notes 1 to 6. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. This report is made solely to the Company, in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare also responsible for ensuring that the accounting policies and presentationapplied to the interim figures are consistent with those applied in preparingthe preceding annual accounts except where any changes, and the reasons forthem, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. 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 2007. Deloitte & Touche LLPChartered AccountantsLondon24 September 2007 Afren PlcGroup Income Statement for the six months to 30 June 2007 Notes Six months to Six months to Year to 31 30 June 2007 30 June 2006 December 2006 Unaudited Unaudited Audited US$'000 US$'000 US$'000 Revenue - - - Administrative expenses (6,615) (5,774) (12,563)Other operating costs - derivative financial instruments losses (1,128) - - Operating loss 3 (7,743) (5,774) (12,563) Investment revenue 596 633 2,277Finance costs (3,165) - (5,155)Other gains and losses - foreign currency gains/(losses) 107 (67) (400) Loss before tax (10,205) (5,208) (15,841) Income tax expense - - - Loss after tax (10,205) (5,208) (15,841) Loss per share Basic and diluted 2 5.0c 2.7c 8.3c All operations were continuing throughout all periods. Afren PlcGroup Balance Sheet as at 30 June 2007 At 30 June At 30 June 2006 At 31 December 2007 Unaudited 2006 Unaudited Audited US$'000 US$'000 US$'000 ASSETSNon-current assetsIntangible assets 52,857 22,403 87,846Property, plant and equipment- oil and gas assets 74,527 - -- other 1,481 943 1,305Available for sale investments 1,127 - 1,224 129,992 23,346 90,375 Current assetsInventories 3,090 - 3,090Trade and other receivables 13,052 6,794 5,325Cash and cash equivalents 96,163 20,574 35,665 112,305 27,368 44,080 Total assets 242,297 50,714 134,455 LIABILITIESCurrent liabilitiesTrade and other payables (16,140) (4,378) (15,951)Net current assets 96,165 22,990 28,129 Non-current liabilities (96,329) - (64,540) Net assets 129,828 46,336 53,964 EQUITYShare capital 5,202 3,727 3,752Share premium 139,673 57,937 58,266Other reserves 17,802 (451) 16,042Accumulated losses (32,849) (14,877) (24,096)Total equity 129,828 46,336 53,964 Afren PlcGroup Cash Flow Statement for the six months to 30 June 2007 Six months to Six months to Year to 31 30 June 2007 30 June 2006 December 2006 Unaudited Unaudited Audited US$'000 US$'000 US$'000 Operating loss for the period (7,743) (5,774) (12,563) Depreciation of property, plant and 301 143 336equipmentDerivative financial instruments losses 1,128 - -Share based payments charge 868 1,167 1,764 Operating cash flows before movements (5,446) (4,464) (10,463)in working capital (Increase)/decrease in trade and other (3,546) 875 (381)operating receivablesIncrease/(decrease) in trade and other (1,559) (563) 75operating payablesCurrency translation adjustments 40 (34) (26) Net cash used in operating activities (10,511) (4,186) (10,795) Purchases of property, plant andequipment: - oil and gas assets (22,950) - - - other (471) (285) (740)Exploration and evaluation expenditure (5,690) (6,578) (58,433)Increase in inventories (spare parts) - - (2,889)Purchase of investments - - (916)Interest receipts 596 629 2,878 Net cash used in investing activities (28,515) (6,234) (60,100) Issues of ordinary shares 76,443 215 551Costs of share issues (2,767) - -Issue of convertible bonds - - 76,121Costs of convertible bonds - - (1,807)Net proceeds from borrowings 29,500 - - Interest paid (3,628) - - Net cash inflow from financing 99,548 215 74,865activities Net increase/(decrease) in cash and 60,522 (10,205) 3,970cash equivalents Cash and cash equivalents at beginning 35,665 29,539 29,539of periodEffect of foreign exchange rate changes (24) 1,240 2,156 Cash and cash equivalents at end of 96,163 20,574 35,665period Afren PlcGroup Statement of Changes in Equity for the six months ended 30 June 2007 Share capital Share premium Other Accumulated Total equity account reserves losses US$'000 US$'000 US$'000 US$'000 US$'000 At 1 January 2006 3,703 57,725 (2,212) (9,669) 49,547 Issue of share capital 24 212 - - 236Share based payments for services - - 1,440 - 1,440Exchange differences arising on - - 321 - 321translation of overseas operationsNet loss for the period - - - (5,208) (5,208) At 30 June 2006 3,727 57,937 (451) (14,877) 46,336 Issue of share capital 25 329 - - 354Share based payments for services - - 324 - 324Other share based payments - - 699 - 699Issue of convertible bonds - - 15,677 - 15,677Revaluation of available for sale - - 245 - 245investmentsReserves transfer relating to - - (1,414) 1,414 -convertible bondsExchange differences arising on - - 962 - 962translation of overseas operationsNet loss for the period - - - (10,633) (10,633) 3,752 58,266 16,042 (24,096) 53,964 At 1 January 2007 Issue of share capital 1,450 84,174 - - 85,624Deductible costs of share issues - (2,767) - - (2,767)Shares to be issued - - 2,496 - 2,496Share based payments for services - - 847 - 847Other share based payments - - 21 - 21Revaluation of available for sale - - (98) - (98)investmentsReserves transfer relating to - - (1,452) 1,452 -convertible bondsExchange differences arising on - - (54) - (54)translation of overseas operationsNet loss for period - - - (10,205) (10,205)At 30 June 2007 5,202 139,673 17,802 (32,849) 129,828 Afren Plc Notes to the interim financial statements (unaudited) 1. Basis of accounting and presentation of financialinformation These condensed interim consolidated financial statements are for the six monthsended 30 June 2007. The interim financial report, which is unaudited, has beenprepared in accordance with the recognition and measurement criteria ofInternational Financial Reporting Standards (IFRS) adopted for use in theEuropean Union. The accounting policies and methods of computation used areconsistent with those used in the Group annual report for the year ended 31December 2006 except for the change in functional/presentation currency and useof derivative financial instruments noted below. The financial information for the year ended 31 December 2006 does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. A copy of the statutory accounts for the year has been delivered to theRegistrar of Companies. The auditors report on these accounts was not qualifiedand did not contain statements under section 237(2) or (3) of the Companies Act1985. Functional and presentation currencies Afren plc, the Company, and its major subsidiaries changed their functionalcurrencies from local currency to US Dollar from 1 January 2007. Up to thesecond half of 2006 all funding and a majority of the expenditure was inSterling and hence it was Afren plc's functional currency. Similarly, themajority of the expenditure in Afren plc's major subsidiaries was in localcurrency. However, with the advent of the Okoro Setu appraisal wells and thesubsequent field development, the vast majority of expenditure for both thecompany and Group will now be in US Dollars. Additionally, the funding facilityfor the field development is a US Dollar facility, such that funding andexpenditure for both the Company and Group will both be primarily in US Dollars.When sales occur, currently expected to be in early 2008, these too will be inUS Dollars. Consequently, these companies have changed their functional currencies to USDollar. Additionally the Group has also elected to change its presentationalcurrency to US dollars. Prior period comparatives for the Group have beenrestated accordingly. Derivative financial instruments The Group has, for the first time, entered into swaps and call options toeconomically protect against exposures to variability in the price of Okorocrude oil production for 2008, 2009 and 2010. The Group will receive a minimumamount if the market falls, but will receive a set discount from the marketprice if the oil price is above that minimum. The arrangement protects theGroup against the risk of a significant fall in the price of crude oil byestablishing a minimum price for the Okoro crude. The gains and losses arisingout of changes in fair value of these derivative financial instruments areaccounted for in the income statement. 2. Loss per share The calculation of the basic loss per share is based on the loss for the periodafter taxation of US$10,205,000 (1H 2006 - US$5,208,000) and a weighted averagenumber of shares in issue of 203,315,123 (1H 2006 - 189,682,590). As there is aloss for all periods presented there is no difference between the basic anddiluted loss per share. Notes to the interim financial statements (unaudited) (cont) 3. Segmental reporting 6 months to June 2007 West Africa Unallocated Consolidated US$'000 US$'000 US$'000 Segment result (1,530) (6,213) (7,743) Investment revenue 596Finance costs (3,165)Other gains and losses 107Loss before and after tax (10,205) Segment assets 171,910 70,387 242,297Segment liabilities (37,553) (74,916) (112,469)Capital additions 39,563 151 39,714Depreciation 129 172 301 12 months to December 2006 Segment result (1,834) (10,729) (12,563) Investment revenue 2,277Finance costs (5,155)Other gains and losses (400)Loss before and after tax (15,841) Segment assets 91,710 42,745 134,455Segment liabilities (7,499) (72,992) (80,491)Capital additions 72,346 404 72,750Depreciation 96 240 336 6 months to June 2006 Segment result (800) (4,974) (5,774) Investment revenue 633Other gains and losses (67)Loss before and after tax (5,208) Segment assets 24,609 26,105 50,714Segment liabilities (456) (3,922) (4,378)Capital additions 5,364 226 5,590Depreciation 39 104 143 Notes to the interim financial statements (unaudited) (cont) 4. Post Balance Sheet events On 18 July 2007, Afren announced that it had entered into a financing andtechnical services agreement with Excel Exploration & Production Limited (''Excel'') for the development of the Eremor field in Nigeria. The field iscovered by 3D seismic data and is estimated to contain in place volumes of up to30 million barrels in the D3.0 reservoir, with a similar potential upside in theshallower D1.0 reservoir. Recoverable reserves are estimated at up to 10 millionbarrels from the D3.0 reservoir. The agreement signed between Afren and Exceldefines the commercial terms under which Afren will participate with Excel inthe development of Eremor. Under the agreement Afren will be responsible forfinancing phase-1 of the Field Development plan, and will initially recover theinvestment from 90 per cent of net field revenues. Following cost recovery,Afren and Excel will share production revenue and costs. On 24 July 2007, Afren was notified that Dr Lukman, non-executive Chairman, hadsold 1,437,000 ordinary shares of 1p each at a price of 70.359 pence per share.Following this disposal, Dr Lukman remains beneficially interested in 6,000,000ordinary shares which represent 2.24 per cent of the issued share capital of thecompany. On 3 August 2007, Afren announced that Dr Lukman had been appointed HonoraryAdvisor on Energy and Strategic Matters to the President of Nigeria. The role isone of a number of advisory appointments in other sectors of Governmentactivities made by the President, is an honorary role, and does not include apaid office. On 21 August 2007, Afren announced the closing of the US$50 million unsecuredloan with First City Monument Bank plc (''FCMB''). The loan has a five-yearterm, with interest payable semi-annually at LIBOR plus 4.45 per cent andprincipal repayments commencing after 30 months. The loan is accompanied by 12million detachable warrants over the company's ordinary shares, exercisable overa five-year period. 5. Dividend The directors do not recommend the payment of a dividend. 6. Approval of Accounts These interim accounts (unaudited) were approved by the Board of Directors on 24September 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
AFR.L