Preliminary Results

6th Apr 2009 07:00



Afren plc (AFR LN)

Preliminary Results for the year ended 31 December 2008

London, 6 April, 2009. Afren plc ("Afren" or "the Company"), the African oil and gas Independent, announces its unaudited preliminary results for the year ended 31 December 2008. 

Highlights

Operational achievements

First organic production, with Okoro Setu successfully brought onstream

Current profitable and stable production base of over 26,000 working interest boepd (all Afren operated)

Outperforming asset base, with Okoro producing circa 47% above guidance and increase in CI-11 production by 10% since Afren assumed operatorship

Outcome of Ebok field appraisal (post year-end) transformational; a material 52 mmbbls oil development, with upside to 106 mmbbls and field production of up to 50,000 bopd, subject to financing, expected by end 2010 

Financial

Total annual production of 1.3 mmboe (delay in Terminal Establishment Order for Okoro) 

Revenue of US$42.5 million net of royalties (average oil price of US$48.1 per barrel before royalties)

Pre tax loss of US$56.0 million (2007: US$39.0 million)

100% take up of early Convertible Bonds conversion offer, removed US$70.9 million of debt from balance sheet

Total gross and net debt of US$405.2 million and US$287.4 million respectively

Balance of debt amortising, with US$86.1 million remaining to be repaid during 2009 

Fully funded through current firm work programme 

US$117.7 million cash on the balance sheet at year-end (subject to short term restrictions in Nigeria and Ghana)

 Corporate 

Strategic alliance with Sojitz Corporation to pursue joint acquisitions of scale

Partnerships established with the national oil companies of Côte d'Ivoire and Ghana

Continued progress on gas monetisation strategy; co-operation agreement entered into with E.ON Ruhrgas, Memorandum of Understanding with Electricité de France and two licences in Anambra Basin, Nigeria

Significant portfolio growth - completed the acquisition of seven assets across Nigeria and Côte d'Ivoire / Ghana (new country entries)

Outlook

Strongly cash generative production base with 43% operating netback at asset level at US$40 per barrel

Significant production hedged (100% of oil production from CI-11 at an average US$85 per barrel to mid 2012 and 14% of Okoro production at an average US$54 per barrel to end 2010)

Continue drive to identify cost efficiencies, with early evidence encouraging, including  10% headcount efficiencies post-period end

Fully funded through 2009 budgeted firm expenditure

Visible exit production of 65,000 boepd by end 2010, with material Ebok development

Active on-going discussions to further grow and diversify the portfolio, capitalising on established indigenous identity and adherence to Founders' strategy

Osman Shahenshah, Chief Executive of Afren Plc, commented:

"Throughout 2008 we have continued on the consistent growth trajectory set in previous years. Operationally, we achieved the important First Oil milestone and we are currently outperforming on our Okoro and CI-11 production expectations by over 47% and 10% respectively. We have responded proactively to the current environment with early encouraging signs from the cost deflation initiative. Afren is cash generative at the current low oil prices and is rapidly reducing its existing debt. Strategically, we have adhered to the Founders' strategy, continuing the partnership-based, acquisition led growth with the addition of seven assets in three countries and of these, two new country entries. Following the exceptional Ebok appraisal drilling results, 2009 is set to mark a new paradigm for Afren, with a visible 2010 exit production rate of over 65,000 barrels of oil equivalent per day."

Enquiries:

Afren plc		+44 20 7451 9700
Osman Shahenshah	Chief Executive
Galib Virani	Investor Relations
Pelham Public Relations		+44 20 7337 1500
James Henderson
Mark Antelme

  Chairman and Chief Executive Statement

Consistent Delivery on a clear and differentiated strategy

2008 has been a turning point in the history of Afren, a year in which operational delivery and expansion has been a key theme with First Oil achieved at the Okoro Setu Project in Nigeria, the acquisition of Devon Energy's assets in Côte d'Ivoire and Ghana completed and the farm in and successful appraisal of the Ebok field in Nigeria. Consistent delivery against a clear and differentiated strategy has transformed Afren into the leading pure play African Independent E&P company and a partner of choice:

In 2007, Afren put in place the drilling capability, financing structure, development plan and the production capacity for the Okoro Setu Project. 2008 saw our team deliver the Project efficiently and to the highest level of operational and safety standards. This dedication, hard work and operational expertise has paid dividends as the field is now outperforming our internal expectations by +47%. With additional production from our assets in Côte d'Ivoire and development planning underway at Ebok and CI-01, the Company has significant visible production growth up to 65,000 boepd from its existing asset base alone by end 2010.

Such tremendous progress and growth, in the space of just four years since IPO, is an exceptional achievement and testament to our ability across all disciplines and consistent delivery against a resilient and differentiated strategy.

Responding To The Current Environment

Our main focus and priority is to ensure that the momentum gathered by the Company throughout 2008 is maintained in 2009 and beyond. Oil prices reached record highs and in a period of unprecedented volatility fell by approximately 80% in the six months from July to December 2008. Oil prices over the short term will be driven by a number of key factors, including demand for oil, OPEC behaviour and the state of the global economy and credit markets in particular.

In response to this challenging set of circumstances, we are actively seeking to reduce Afren's cost base across all parts of the business, with a major focus on driving greater efficiency in all of our operating activities. We will take full advantage of the current situation and seek to drive cost deflation in order to reduce our production and development costs to ensure margins are robust.

Whilst making appropriate plans to deal with near term oil prices weakness and increased volatility, we observe that the medium term prospects for oil price remain strong. We must keep an eye on the future and recognise the potential for growth once the turbulence in the global economy subsides. In addition to continuing our successful investment in the existing portfolio, we will also continue to seek to grow the Company opportunistically, and on a selective basis whilst maintaining the fundamentals of the Founding strategy.

Africa: A World Class Opportunity Set

Africa remains the fastest-growing global resource-base, with reserves having doubled over the last two decades.  Currently, 15% of oil and gas supplied to the US originates from West Africa, and this is projected to rise to 30% over the next decade.  The Nigerian Government has set ambitious targets for realising value from its significant energy resources, and is looking to more than double production from 2.1 million to 5 million barrels per day.  The Government's ambitious production targets continue to lead to a sharp focus on undeveloped assets, the majority of which are still owned by the major international oil companies.  We continue to see evidence of an emerging secondary market, similar to that previously seen in the North Sea and the Gulf of Mexico.  Additionally, acreage is being increasingly awarded to indigenous companies who, in turn, are looking to partner with independents who can offer a combination of technical expertise and/or financial resources.  This presents a compelling opportunity for Afren to make a significant contribution to the Country's production ambitions, through its partnership approach. With our credentials in Africa now well established, Afren is a more attractive partner than ever before.

Key Partner Relationships

At the heart of Afren's growing success continues to be our ability to attract partners of the highest calibre, whether they be indigenous companies, national oil companies, or major utility and oil and gas companies.  The following key partnerships were formed in 2008:

 

Afren and Sojitz Corporation: Strategic alliance

We announced in October 2008 the formation of a strategic alliance with Sojitz to jointly pursue significant acquisition opportunities in Africa. The alliance is highly complementary, with Sojitz's financial strength and desire to expand its access to strategic oil and gas reserves and production in Africa and Afren's unparalleled access to opportunities in the region.

Under the agreement, and as appropriate, Sojitz will provide financial support to the alliance for the purpose of funding material joint acquisitions, among other things, including by securing funding and credit support from Japanese Governmental funds. The strategic alliance will run for an initial period of (i) 3 years from the signing date or (ii) the date upon which Sojitz has invested a total of US$500 million in the joint acquisitions.

 In order to solidify and further align the strategic relationship, Sojitz made a direct investment in Afren in the form of the loan notes, with an initial US$45 million nominal value.

As part of the agreement, the parties have established a joint working group and the Board of Afren welcomed Hiroshi Kanematsu to Afren's International Advisory Board. Mr Kanematsu is President of the Energy & Mineral Resources Division at Sojitz Corporation and Senior Managing Executive Officer of Sojitz. Mr Kanematsu has been involved in international energy and mining projects for over 25 years.

 

Afren and PETROCI: Strategic entry into Côte d'Ivoire

In September 2008 we completed the acquisition of Devon Energy's interests in Côte d'Ivoire, comprising a 47.96% working interest and operatorship of the producing Block CI-11; a direct 65% interest and operatorship with rights over an additional 15% interest in the undeveloped Block CI-01; and a 100% interest in the onshore Lion Gas Plant.

This offered a clear strategic fit with Afren's existing portfolio, and the Company has both acquired a fully functioning business in Côte d'Ivoire, with around 100 experienced staff, and established a strategic partnership with PETROCI (the national oil company of Côte d'Ivoire). The acquisition offers a combination of production, near-term development, appraisal and exploration upside, as well as midstream interests and a full local workforce.

Afren, Electricité de France and Gasol plc

In September 2008, we announced that we had signed a Memorandum of Understanding (MoU) with EdF and Gasol plc ("Gasol") to examine establishing a gas aggregation joint venture to identify and develop stranded gas assets in certain identified West African countries.

Afren and Oriental Energy Limited

Through a Joint Venture with Oriental Energy Resources, a leading Nigerian-based international oil and gas company active across the Gulf of Guinea, Afren signed a farm-in agreement in April 2008 to appraise and develop the Ebok field.

Ebok is an undeveloped oil field, 50 km offshore in 135 ft of water in Nigeria's prolific south eastern producing area. The field is located close to several producing NNPC / Mobil JV fields and 55 km south-east of Mobil's onshore QIT Terminal. The field was discovered by the NNPC / Mobil JV in 1968 (M-QQ1 (Ebok-1)), and two subsequent appraisal wells were drilled in 1970 (Ebok-2 and Ebok-3) leading to a P50 STOIIP estimate of 118 mmbbls.

The Ebok-4 appraisal well was drilled by the Afren - Oriental partners in November 2008. An independent assessment of the in place and recoverable oil reserves by Netherland, Sewell & Associates, Inc. ("NSAI") confirm a P50 STOIIP of 148 mmbbls. Recognising amplitude conformance indicating oil in the D2 reservoir extending south as a most likely scenario, Afren's Management Case comprises a STOIIP of 178 mmbbls with recoverable reserves of 52 mmbbls, a 100% increase versus pre drill recoverable estimates of 25 mmbbls. An additional 21 mmbbls of contingent resources and 33 mmbbls prospective resources have been assigned to the Ebok West and Ebok North Fault Blocks offering upside potential to 106 mmbbls.   

Following the exceptional success of the appraisal drilling the Field Development Plan will shortly be submitted for approvals, and encompasses a fast track early production system ("EPS") that will deliver up to 25,000 bopd in early 2010 with a full field development achieving up to 50,000 bopd by end 2010.

As we look beyond First Oil, this unique collaboration coupled with our other indigenous partnerships with Amni International Petroleum Development Company, Global Energy Company Limited, Bicta Energy, Excel Exploration & Production Limited and Independent Energy Limited, form an integral part of our growth strategy as we seek to further expand our portfolio through the development of other potential assets from the Majors in Nigeria.

Operations Update

Near term development and production expectation

Nigeria:

Ebok

Ebok-4, drilled by the Transocean Trident IV jack up drilling unit, was spudded on 24 November 2008. The well reached a Total Depth of 3,838 ft measured depth ("md") on 17 December 2008.

The well encountered a total gross oil column of 284 ft in high quality reservoir sands ranging in depth from 2,560 ft to 3,718 ft. Of these gross pay intervals, 274 ft is calculated as net oil pay. After an extensive logging and sampling programme, drill stem testing delivered a rate of 1,450 bopd of 20° to 25° API crude oil. Well test analysis indicates that high skin conditions, which restricts oil flow into the well bore were prevailing over the test interval and as such constrained the surface flow rates. Well test analysis and dynamic reservoir simulation modelling confirms that flow-rates of circa 3,500 bopd per well in a production scenario will be achieved which is also consistent with offset production data from analogous fields in the area.

An independent assessment of the in place oil and recoverable oil reserves from the Ebok field by NSAI, post drilling of the Ebok-4 appraisal well has preliminarily confirmed a P50 STOIIP of 148 mmbbls oil for the FB-1 and FB-2 areas of the field. Recoverable reserves have been calculated at 41.2 mmbbls oil. NSAI has further assigned 14 mmbbls oil of resources to the FB-1 and FB-2 field area. 

An additional 21 mmbbls oil of contingent reserves and 33 mmbbls prospective resources have been assigned to other areas of the field including the Ebok West and Ebok North Fault Blocks.

Afren's Management Case comprises a STOIIP of 178 mmbbls with recoverable reserves of 52 mmbbls for the FB-1 and FB-2 on Ebok, recognising amplitude conformance indicating oil in the D2 reservoir extending further south as a most likely scenario. 

Successful appraisal of the Ebok West fault block and Northern area closures plus down flank potential in the FB-1/FB-2 areas, during the initial development phase of the field is expected to lead to increased field production and a potential reserves upgrade in line with the resource assessment outlined by NSAI.

Based on these substantially better than expected results and the upgrade to the resource base established with the Ebok-4 well, it was decided that the Ebok-5 well (designated to test the Ebok West Fault Block) would be deferred and drilled as part of the phased development.

Afren and its partner Oriental are currently defining the field development scenario which includes the potential to install an Early Production System ("EPS") at the field (subject to all necessary approvals in country) that could deliver production of 15,000 - 25,000 bopd from the field in early 2010 from five or more horizontal production wells and one water injection well drilled in the FB-1 and FB-2 areas of the field and tied back to a Floating Production Storage Offloading ("FPSO") vessel moored at the field. A second development phase on the FB-1 and FB-2 area of the field would entail the drilling of a further eight or more development wells and increase full field production to between 35,000 to 50,000 bopd by end 2010. 

 

Okoro Setu

In June 2008 the Okoro Setu field, Afren's first operated full field development, came onstream representing a lead time of two years from farm in to First Oil.

Seven horizontal production wells were successfully drilled, completed and connected via a well head platform and sub sea flowlines to the Armada Perkasa FPSO. The FPSO, which is operated by Bumi Armada, arrived on location in March 2008 and was spread-moored and made ready to receive oil from the Okoro field. Operating under a five-year contract the vessel has an oil storage capacity of 360,000 barrels and a processing capacity of up to 27,000 barrels of liquids a day. Her crew is made up mainly of Nigerian nationals, many of whom are from the local onshore community close to the Okoro Setu fields.

 

Production from the field was steadily ramped up through Q3 and Q4 2008 to deliver a stable production rate of circa 22,000 bopd with no water. This represents a circa +47% out performance of pre development expectations and the process uptime is currently running at  99%.

Côte d'Ivoire:

Block CI-11

The Lion and Panthére fields have been developed via a Mobile Offshore Production Platform ("MOPP") and four tethered caissons. Oil and gas is piped to Abidjan, where the oil is sold on the open market and gas is processed at the Lion Gas Plant and sold under two long term contracts to domestic end users. Afren's partners in the block are PETROCI (20.14%), International Finance Corporation (12.96%) and SK Energy Co Ltd (18.94%).

Production at Block CI-11 remains stable at rates of up to 38 mmcfd gas and 1,600 bopd oil (circa 8,000 boepd). Gas is sold to the local market where it is used for power generation and oil is sold on the international market.

A significant subsurface, production optimisation and maintenance programme is currently underway on Block CI-11 with the objective of safely delivering incremental production from the existing well base via wireline workovers whilst establishing the potential for a heavy workover/infill drilling programme in 2010.

Lion Gas Plant

The Lion Gas Plant ("LGP") was constructed by Ocean Energy in 1998 to improve margins by extracting and selling high value natural gas liquids ("NGLs") from gas produced at Block CI-11. Gas production from adjacent Blocks CI-26 and CI-40, operated by Canadian Natural Resources Limited ("CNRL"), was added to the process stream, providing third party tariff revenue from the use of the Block CI-11 pipeline infrastructure, and additional gasoline and butane sales revenue at the LGP.

The LGP has a total inlet capacity of 75 mmcfd and strips out gasoline and butane from the rich gas stream it receives, delivering dry gas to the power sector. Butane is sold into the local market, whilst the gasoline is sold on the international market. The LGP enjoys tax exempt status, providing high cash margins and attractive plant economics to Afren. Current NGL production at the 100% Afren owned and operated LGP is averaging circa 1,200 boepd.

Afren intends to investigate the feasibility of also extracting propane at the LGP, which could be used to meet domestic demand from the industrial sector in Côte d'Ivoire.

Block CI-01

Block CI-01 was awarded to United Meridian Corporation in 1994, and is located offshore in the easternmost part of Côte d'Ivoire, adjacent to the international border with Ghana. It extends from near the shoreline to 1,900 m water depth and is located approximately 52 km from Abidjan. Three separate significant hydrocarbon accumulations have been discovered by exploration drilling in the late 1970's through the mid 1980's by Esso and Agip. Afren's partners in the block are PETROCI (20%) and SK Energy Co Ltd. (15%).

Preparatory work is underway on Block CI-01 to evaluate options to develop the gas and oil reserves already defined on the block. The proposed concept is to develop the Kudu, Eland and Ibex fields with gas tied back via pipeline to the onshore Lion Gas Plant, where it will be treated and supplied to the local market. Produced oil will be sold on the international market.

Exploration

Afren participated in two exploration wells in 2008, one as a deepwater operator, drilling the Cuda prospect on the Keta block in Ghana and also participating on a non-operated basis in the ICM-1 well on the Iris Marin permit, offshore Gabon.  Additionally, the THAM-1 well on Themis Marin, also offshore Gabon, spudded in 2007 and was completed in early January 2008.

Ghana: Keta Block 

In May 2008, Afren signed an agreement to acquire a 95% operated interest in the Keta Block located offshore eastern Ghana in the Volta River Basin. The block covers a total area of  5,500 km2. The block is covered by 1,600 km2 of good quality 3D seismic data with the remainder of the block covered by propriety and non-propriety 2D seismic.

Afren successfully farmed out a portion of its interest in the block to Mitsui E&P Ghana Keta Limited ("Mitsui"), a subsidiary of Mitsui & Co. Ltd., in exchange for an agreed carry on exploration activities. Afren now holds a 68% operated interest.

The Cuda-1x exploration well, drilled by the Transocean Deepwater Discovery drillship was spudded in November 2008.  The well was targeting a Cretaceous structure expected to contain 325 mmbbls of mean prospective resources in a setting comparable to those successfully proven by the recent Jubilee and Odum discoveries in the country. Unfortunately operations were terminated due to abnormally high pressures that were encountered at the top of the Cretaceous.  The primary objective of the well remains untested and is still considered highly prospective.

A full technical evaluation incorporating the results of the Cuda-1x well is ongoing and will be incorporated in further prospect evaluation and future well planning on the Keta Block.

Congo: La Noumbi

Afren holds a 14% interest in this high-impact exploration licence, with multiple reservoir targets covering an area of 2,830 km2. Ongoing technical work has identified several attractive prospects mapped at several stratigraphic levels. The joint venture plans to drill the 'Up-dip Tie Tie' exploration well in the first half of 2009. 

Gabon: Themis Marin

The last remaining commitment well, THAM -1 was spudded on 30 December 2007 and drilled to a total depth of 4,362 ft.  The reservoir target was encountered low to prognosis, with limited hydrocarbon shows, and was subsequently plugged and abandoned. The licence period on Themis Marin expired in March 2008, and the partners have since relinquished the block.

Gabon: Iris Marin

Afren holds a 16.67% non-operated interest in the Iris Marin permit. The Charlie prospect was drilled in May 2008 by operator Addax and was estimated to have gross potential resources of 35 mmbbls. The well intersected high quality Gamba sands but failed to find a valid sub salt structure to trap hydrocarbons. The well was subsequently plugged and abandoned. 

Gabon: Ibekelia

Located adjacent to the Iris Marin permit, Afren and its co-venture partners are currently negotiating an Exploration and Production Sharing Contract with the Gabonese authorities for the Ibekelia licence.

Nigeria: OPL 907 and OPL 917

The two licences in the Anambra Basin cover an area totalling over 3,500 km2 and contain existing gas discoveries that require further appraisal. A number of additional leads and prospects have been identified. Currently the consortium is collecting and assessing the existing extensive 2D seismic coverage on the blocks with a view to reprocessing it to better define the existing discoveries. Afren also plans to augment this data with a further seismic acquisition programme.

Nigeria and São Tomé & Príncipe: JDZ Block 1

Further drilling on Block 1 is expected following the exploration wells to be drilled on the adjacent Blocks 2, 3 and 4 that are anticipated to commence in 2009 subject to rig availability.

Nigeria: Marginal fields

Given the increasing scale of near term developments (e.g. the Ebok development), Afren is reviewing its options with respect to the marginal fields. In relation to Ogedeh, a series of standalone and clustered development scenarios with various export solutions have been investigated to optimise the project from both a technical and economic perspective. A cluster development is considered to be the most likely approach after appraisal drilling to define the potential reserve base on the field. In addition, Afren is in discussions with its partner, Excel, over the most optimal way forward for the Eremor Project.

Angola: Block 16

The Company opted not to complete the acquisition of a 15% working interest in Block 16 from Devon Energy. The net financial exposure to Afren had significantly increased from the time of announcing the transaction in November 2007. Given current market conditions and the Company's focus on production, near term development and high impact exploration prospects, it was felt that this was the most prudent approach.

Financial Review 

Financing

Afren raised significant funding during the year for the continued development of the Okoro field and the growth of the overall portfolio. In April, approximately US$235 million of equity funds were raised (before expenses) via a placement of 95 million shares.  A further borrowing of US$169 million was established in September to fund the acquisition of the Côte d'Ivoire business from Devon Energy. Afren drew down further funds from the US$230 million borrowing base rolling facility and letter of credit facility with BNP Paribas as lead bank to finance the Okoro Project and also raised US$45 million in a loan note from Sojitz as part of their long term strategic alliance. In July, an agreement was reached for early conversion of the £41.25 million Senior Unsecured Bonds. As a result, the Group's debt was reduced by approximately US$70.9 million and an additional 71.1 million shares were issued.

Cash reserves across the Group at the year end amounted to US$117.7 million. Having drawn down the majority of the Okoro facility, total debt at the year end amounts to US$405.2 million. Of this, it is expected that around US$111.2 million will be repayable during 2009.

At the year end there were significant remaining cash payments due on the Okoro development, the Ebok appraisal and the Cuda-1x drilling. In addition, the first repayment of debt relating to the Okoro facility (US$25.1 million) occurred at the end of February 2009, so there has been, as expected, a reduction in cash reserves in the first quarter of 2009. Going forward, the Group is required to make total remaining loan repayments of US$86.1 million in 2009. Cash flows generated from the Okoro field can only be utilised on field expenditure and to service and repay the Okoro loan until the completion of certain start up tests specified in the financing facility arrangements, which is expected to occur in the second quarter of 2009. We are monitoring our short term cash requirements with care and based on our latest forecasts and projections, we are confident that we have sufficient resources to cover expenditures as required utilising existing Group reserves and revenue generated in Côte d'Ivoire. Once "completion" of the existing Okoro facility is obtained, our cash flow is projected to be robust throughout the remainder of 2009, with the Okoro field cash generative at the operating level at relatively low oil prices.

Côte d'Ivoire acquisition

In September Afren announced the completion of the acquisition of the Côte d'Ivoire business from Devon Energy for an estimated total cost of US$184.3 million, prior to finalisation settlement. Further details of this acquisition are provided in note 7 to the financial information. 

Assets

Total non-current assets stood at US$705.5 million at the year end compared with US$193.6 million at the end of 2007. This reflects the development of Okoro where the carried value has grown from US$138.3 million to US$390.3 million and the acquisition of the Côte d'Ivoire assets with a net value at year end of US$175.9 million. The Ebok-4 appraisal well was spudded in November and total costs as at the year end (including signature bonuses paid) amounted to US$47.0 million. Other significant balances relate to La Noumbi (US$28.9 million), JDZ block 1 (US$17.2 million) and Keta, Ghana (US$13.2 million).

In addition, a non current asset of US$20.4 million was recognised as part of the mark to market of the hedging instruments - a further US$29.2 million related to the hedging has been recognised in current assets as relating to 2009 positions.

Liabilities

Total current liabilities were US$257.0 million at the year end, a significant increase on US$40.0 million in the prior year due both to the increase in activity levels and the short term portion of our bank debt. Non-current liabilities stood at US$314.2 million at year end, the increase of US$163.0 million in the last 12 months being due to a combination of additional loan draw downs and the recording, for the first time, of decommissioning provisions for Okoro and our operations in Côte d'Ivoire.

Net Income

2008 saw a reduced loss per share for the year of 15.1c compared with 2007 (16.5c). Although the total absolute loss of US$56.6 million was larger than 2007 (US$39.0 million loss) there was a significant increase in the issued shares following the placement in April and the conversion of the convertible bonds (see above). 

Production and revenue

Afren announced First Oil from Okoro in June 2008. However a delay on the Terminal Establishment Order resulted in the first lifting occurring in October 2008, significantly reducing the total production in the period. In total, production at Okoro reached 1.2 mmbbls with sales of just over 1.0 mmbbls at year end. Total revenue from Okoro was US$37.1 million net of royalties, achieving an average price of US$48.1 per barrel before royalties.

In Côte d'Ivoire, Block CI-11 production has been accounted for from the acquisition date. Total revenue relating to the Côte d'Ivoire assets amounted to US$5.4 million for the period.

Cost of Sales - Operating expenses

The FPSO facility for the Okoro field arrived on site in March 2008. Its certificate of readiness was signed in June 2008 and full operating costs related to this have been incurred since then. However, sales production was only available from October, resulting in a relatively high charge for the period. Additionally, the production was ramping up during the period while the majority of the operating costs are fixed. Total operating expenses for the Okoro field amounted to US$35.3 million after stock adjustments. Budgeted costs for 2009 are significantly lower per barrel as the benefits of full production are felt and given the strong impetus to drive cost efficiencies.

In Côte d'Ivoire, total operating costs came to US$3.5 million net to Afren.

Cost of Sales - Depreciation, Depletion and Amortisation ("DD&A")

Due to the nature of the development agreement for Okoro, where Afren funds the full field development cost which it then recovers out of net sales revenues, there is a relatively high depreciation rate on a net barrel. During 2008, this averaged US$19.9 per barrel (after stock adjustments). Block CI-11 also suffers a relatively high rate at US$25.0 per boe, due to the impact of the acquisition costs. In total, field depreciation amounts to US$27.0 million after stock adjustments. 

In addition, there was a one-off write down of oil inventories (US$5.2 million) relating to the movement in value of oil initially acquired in Côte d'Ivoire.

The combination of high DD&A rates with the additional opex burden on Okoro for the start up period has led to a gross loss of US$28.5 million for the year. 

Administrative expenses

Total administrative expenses increased from US$18.1 million to US$32.5 million. This again reflects the significant growth in the company as it moves into the production stage and operates both a full business in Côte d'Ivoire and a producing field in Nigeria. Total staff in company has grown from an average of 38 people to an average of 92 as Afren matures into a fully integrated upstream oil company.  The total cost includes a charge of US$6.9 million, net of time writing, relating to share-based payments. A reduction in administrative expenses is expected in 2009, as the first round of headcount efficiencies (post period end) come into effect.

Impairment of oil and gas assets

Between December 2007 and January 2008, the Admiral prospect in the Themis Marin licence in Gabon was drilled by the operator, Sterling Energy, with limited hydrocarbon shows. In July 2008 an exploration well (ICM-1) was drilled on the Charlie prospect at Iris Marin, also in Gabon.  The well encountered a thick reservoir section but was water bearing.  As such, Afren wrote down a total of US$5.2 million. 

In December 2009 Afren announced that the deep offshore Cuda-1 well on the Keta block in Ghana had been plugged and abandoned after encountering an unexpectedly severe high pressure zone. The well did not reach its intended target, so the prospect itself is still untested, but the costs of the well have been written off. The total cost to Afren was US$23.8 million.

Given the near term focus on the substantial Ebok development, Afren sees limited potential for the Eremor Project in the near term. As such, no value has been assigned to the discovery in the accounts, leading to a US$6.0 million writedown. Discussions are ongoing with Excel over the optimal way forward for the partnership.

Other individually immaterial items written off totalled US$3.2 million.

Hedging 

In May 2007, as part of the financing arrangements for the Okoro field, Afren entered into a series of swaps and call options to economically protect against exposure to the variability in the price of circa 14% of expected Okoro oil production through to end 2010. The arrangement protects the Group against the risk of a significant fall in the price of crude by establishing a minimum swap price with a call option set at a fixed level above the swap, for a proportion of the Okoro crude. In this way, no up front costs are payable and the Group enjoys the benefits of the majority of any oil price upside whilst there is only a cost to the Group if the oil price is sufficiently firm. In September 2008, a similar set of instruments were entered into in relation to the oil production from the Côte d'Ivoire assets.

These derivative instruments have to be marked to market for each period and the gains and losses arising out of the changes in fair value are accounted for in the income statement. During the second half of the year, there was a significant weakening in the oil price, with Brent moving from circa US$120 per barrel in June to nearer US$40 per barrel in December. The change in fair value of the instruments equates to a gain of US$13.4 million relating to Okoro and US$41.3 million relating to Côte d'Ivoire. This gain has had to be accounted for in the 2008 net income. These positions are likely to remain volatile as they are marked-to-market at each balance sheet date and their value will depend on both the spot price and the forward curve. For 2008, the first period to which the instruments relate, Afren made a cash gain of US$3.6 million. The cash gain relating to the remainder of these positions will be received over the period to mid 2012.

Net Interest and other gains and losses

Net interest, financing costs and other gains and losses for the Group in 2008 amounted to US$11.5 million (2007: US$2.9 million). Interest on the Okoro development was capitalised through to the end of the development. Total gross interest expense (including facility fees, amortisation of costs and unwinding of discount where applicable) amounted to US$33.0 million (2007: US$16.2 million), of which US$16.9 million was capitalised (2007: US$11.1 million). In addition, a one-off conversion incentive of US$9.3 million was paid to the holders of the convertible bonds in July. For the first time, Afren also incurred a small charge relating to the unwinding of discount from the abandonment provisions for the Okoro and CI-11 fields (US$0.4 million). Interest income came to US$5.3 million (2007: US$2.5 million), reflecting the higher average cash balances through the year.

Afren made a loss of US$15.4 million due to foreign exchange differences in the year. In July 2008, the sterling denominated convertible bond held by Afren plc converted into shares, as referred to above. Following this, Afren management reviewed the functional currency of the holding company and concluded that it should be changed from £ sterling to US dollars, aligning it with all the major subsidiaries in the group. The US dollar equivalent of the sterling balances fell with the change in the exchange rate from around US$1.98:£1.00 at the start of July to around US$1.44:£1.00 at the year end leading to the charge to the net income.

A secondary effect of the change in functional currency is a change in the accounting for warrants issued by Afren plc that are not related to contracts for work. As the warrants are no longer convertible at a fixed price in the company's functional currency (due to the fluctuation of the exchange rates from sterling to US dollar) the warrants have to be marked-to-market at each balance sheet date and the increase or decrease in the liability is taken to the net income. As Afren shares moved significantly between 1 July 2008 (when the revised functional currency was adopted) and the year end, there was a significant reduction in the value of the warrants to the warrant holder and hence the deemed liability to Afren. This led to a US$26.6 million gain in the income statement in Afren's books. As with the hedge, this is likely to remain volatile, with any increases in value of the share price creating a charge to the net income as the value of the warrants to the warrant holder increases. 

Tax

There is a small tax charge for the period relating to the CI-11 operations.

Outlook

The delays in both the finalisation of the Côte d'Ivoire acquisition and the Okoro Terminal Establishment Order combined with the fall in the oil price have led to a disappointing financial loss for the year in 2008. 2009 should benefit from both a full year's production from CI-11 and stable production from the Okoro field.

Risks and Responsibilities 

Afren has made a commitment to perform responsibly and positively towards its staff and contractors, the physical environments and the host communities that its business may affect. 

2008 saw the transformation of Afren into a producing upstream company with the successful start up of the Okoro Setu Project and the acquisition of Devon Energy's assets in Côte d'Ivoire. Hand in hand with this transition we have been strengthening our environmental, health, safety and social (EHSS) programmes in Nigeria and Côte d'Ivoire to meet the needs of long term production operations.

In Nigeria, we have a full team of EHSS professionals charged with supporting the Okoro Project in addition to working on our exploration assets. During 2008, the team was heavily involved with the Okoro Setu development drilling and the installation and commissioning of the wellhead platform, flowlines and the Armada Perkasa FPSO. By the end of 2008 over 800,000 man-hours had been expended on the project. Against this, there were three lost time accidents during the year. These incidents were fully investigated with the contractors concerned and remedial measures were put in place to prevent any recurrence.

On the Ebok appraisal drilling schedule, EHSS performance was exemplary with no safety or environmental incidents.

The acquisition of the assets in Côte d'Ivoire entailed a comprehensive due diligence review of operations both offshore on the Gulftide Platform and at the Lion Gas Plant. This review focused on the integrity of the facilities and the management systems that are in place to ensure safe operations. Since taking control Afren has been working closely with the operations team to integrate systems and to ensure that our EHSS standards are being applied. 

The Cuda exploration well in Ghana saw Afren's first operated deep water drilling operation and as with the Ebok appraisal drilling, EHSS performance was excellent with no injuries or environmental incidents occurring. 

2008: A Transformational year; robust platform established

Throughout 2008 we have continued on the consistent historic growth trajectory, demonstrating our competence across all disciplines. We have established ourselves as a fully fledged oil and gas operating company with production in two countries, and one capable of taking an asset through the appraisal and development phase to monetisation in the space of just two years. We will continue to ensure operational robustness and improve profitability at our existing producing assets and grow organically through monetisation of our high grade portfolio of development projects, the Ebok field in particular. 

Financially, we remain in a relatively strong position with a cash balance of around US$60 million at the end of March with some restrictions in the near term, and will benefit during the course of 2009 from peak production at the Okoro field in Nigeria and stable revenues in Côte d'Ivoire. We have proved prudent in financing our expansion, accessing significant and unconventional capital in non-dilutive structures to our shareholders. The Company will continue to seek opportunities to further increase local participation from the growing African capital markets base and foster key strategic alliances as alternative sources of funding. We are already witnessing encouraging signs in our efforts to reduce costs and overheads, and will continue to focus on strict capital discipline and plan appropriately during these turbulent times. 

We believe that a platform is now in place, providing a robust and resilient basis upon which we can look to the future with great excitement and optimism. Having established a unique position in Africa through our focused and differentiated approach, coupled with our entrepreneurial culture and strong corporate governance principles, we will maximise value through indigenous identity and participation. We will continue to consolidate asset opportunities and, where appropriate, to create further shareholder value through participating in selective corporate consolidation.

It has been an honour to work closely with Dr. Rilwanu Lukman over the past few years, who resigned from the Board in 2008 to return to Government service. We thank him for his leadership during the nascent phase of Afren and wish him well in his future endeavours.

In summary, Afren has established a robust foundation and achieved unparalleled transformational growth to date. 2009 will be the year that takes the Company to a new paradigm with the near term Ebok development. With a full field development of Ebok expected to produce up to 50,000 bopd by end 2010, subject to financing, Afren has a visible exit production rate of 65,000 boepd by end 2010. This will firmly rank Afren at the top end of the London quoted established independent producers and a step closer to becoming a Super African Independent.

Egbert ImomohChairman & Founder

Osman ShahenshahChief Executive & Founder

 GROUP INCOME STATEMENT (unaudited)

For the year ended 31 December 2008
			2008	2007
	Notes		$000's	$000's
Revenue			42,501	-
Cost of sales			(70,980)	-
Gross loss			(28,479)	-
Administrative expenses			(32,491)	(18,100)
Other operating income / (expenses)
- Derivative financial instruments			54,682	(5,983)
- Impairment of oil and gas assets			(38,212)	(12,037)
Operating loss			(44,500)	(36,120)
Investment revenue			5,286	2,515
Finance costs			(25,760)	(5,171)
Other gains / (losses)
- Foreign currency losses			(15,382)	(263)
- Fair value of financial liabilities			26,607	-
- Impairment charge on available for sale investment			(2,296)	-
Loss before tax			(56,045)	(39,039)
Income tax expense			(520)	-
Loss after tax			(56,565)	(39,039)
Loss per share
Basic and diluted	3		15.1c	16.5c
All operations were continuing throughout both years.

GROUP BALANCE SHEET (unaudited)

As at  31 December 2008
			Notes	2008	2007
				$000's	$000's
Assets
Non-current assets
Intangible oil and gas assets			4	148,809	49,656
Property, plant and equipment
- Oil and gas assets			5	530,325	140,926
- Other				5,813	1,545
Derivative financial instruments				20,354	-
Available for sale investments				211	1,475
				705,512	193,602
Current assets
Inventories				13,276	3,090
Trade and other receivables				56,030	12,626
Derivative financial instruments				29,161	-
Cash and cash equivalents				117,719	91,783
				216,186	107,499
Total assets				921,698	301,101
Liabilities
Current liabilities
Trade and other payables				(145,755)	(40,019)
Borrowings			6	(111,218)	-
				(256,973)	(40,019)
Net current (liabilities)/ assets				(40,787)	67,480
Non-current liabilities
Provision for decommissioning				(20,276)	-
Borrowings			6	(293,946)	(146,691)
Derivative financial instruments				-	(4,575)
				(314,222)	(151,266)
Total liabilities				(571,195)	(191,285)
Net assets				350,503	109,816
Equity
Share capital				8,806	5,365
Share premium				446,958	146,245
Other reserves				18,173	16,872
Accumulated losses				(123,434)	(58,666)
Total equity				350,503	109,816

GROUP  CASHFLOW STATEMENT (unaudited)

For the year ended 31 December 2008

	Notes	2008	2007
		$000's	$000's
Operating loss for the year		(44,500)	(36,120)
Depletion, depreciation and amortisation		30,472	973
Derivative financial instruments		(54,682)	5,983
Impairment of oil and gas assets		38,212	12,037
Provision for inventories - spare parts		1,207	-
Share based payments charge		10,819	1,995
Operating cashflows before movements in working capital		(18,472)	(15,132)
Increase in trade and other operating receivables		(30,757)	(4,287)
Increase in trade and other operating payables		23,018	10,183
Derivative financial instruments realised losses		(817)	-
Corporation tax paid		(520)	-
Currency translation adjustments		737	(171)
Net cash used in operating activities		(26,811)	(9,407)
Purchases of property, plant and equipment:
- other		(5,115)	(1,216)
- oil and gas assets		(224,297)	(63,060)
Exploration and evaluation expenditure		(62,396)	(24,538)
Increase in inventories - spare parts		(2,709)	-
Purchase of investments		(1,501)	-
Investment Revenue		5,349	2,372
Acquisition of subsidiaries, net of cash acquired	7	(168,749)	-
Net cash used in investing activities		(459,418)	(86,442)
Issue of ordinary share capital		238,313	84,625
Costs of share issues		(7,663)	(3,219)
Proceeds from borrowings		362,502	84,000
Borrowing costs		(11,597)	(7,338)
Incentive paid on early conversion of bonds		(9,332)	-
Repayment of borrowings		(29,032)	-
Interest and financing fees paid		(16,282)	(6,855)
Net cash provided by financing activities		526,909	151,213
Net increase in cash and cash equivalents		40,680	55,364
Cash and cash equivalents at beginning of year		91,783	35,665
Effect of foreign exchange rate changes		(14,744)	754
Cash and cash equivalents at end of year		117,719	91,783
The

The cash and cash equivalents balance at 31 December 2008 includes US$58.9m to which the Group has restricted access, as discussed further in the Financial Review.

STATEMENT OF CHANGES IN EQUITY (unaudited)
For the year ended 31 December 2008
	Share capital	Share premium account	Other reserves	Accumulated losses	Total equity
	$000's	$000's	$000's	$000's	$000's
Group
At 1 January 2007	3,752	58,266	16,042	(24,096)	53,964
Issue of share capital	1,613	91,198	-	-	92,811
Deductable costs of share issues	-	(3,219)	-	-	(3,219)
Share based payments for services	-	-	1,936	-	1,936
Other share based payments	-	-	3,454	-	3,454
Reserves transfer relating to convertible bonds	-	-	(2,974)	2,974	-
Reserves transfer on exercise of options	-	-	(1,495)	1,495	-
Revaluation of available for sale investments	-	-	227	-	227
Translation differences	-	-	(318)	-	(318)
Net loss for the year	-	-	-	(39,039)	(39,039)
Balance at 31 December 2007	5,365	146,245	16,872	(58,666)	109,816
Issue of share capital	2,021	238,537	-	-	240,558
Deductible costs of share issues	-	(7,663)	-	-	(7,663)
Issue of loan notes, net of issue costs	-	-	7,350	-	7,350
Share based payments for services	-	-	10,701	-	10,701
Other share based payments	-	-	118	-	118
Reserves transfer relating to convertible bonds	-	-	(1,789)	1,789	-
Reserves transfer on exercise of options	-	-	(3,849)	3,849	-
Revaluation of available for sale investments	-	-	(1,119)	-	(1,119)
Conversion of bonds into shares	1,420	69,839	(9,500)	9,500	71,259
Redesignation of warrants as financial liabilities	-	-	(3,395)	(23,711)	(27,106)
Translation differences	-	-	2,188	-	2,188
Other movements	-	-	596	370	966
Net loss for the year	-	-	-	(56,565)	(56,565)
Balance at 31 December 2008	8,806	446,958	18,173	(123,434)	350,503

   Notes to the consolidated financial information (unaudited)

1 GENERAL INFORMATION

The financial information set out in this announcement does not constitute the company's statutory accounts for the years ended 31 December 2007 or 2008. The financial information for the year ended 31 December 2007 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors' report on the statutory accounts for the year ended 31 December 2007 was unqualified, did not include reference to any matters to which the auditors drew attention by way of emphasis of matter without qualifying the report and did not contain a statement under Sections 237 (2) or (3) of the Companies Act 1985. The audit of the statutory accounts for the year ended 31 December 2008 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements that comply with IFRS in April 2009.

The accounting policies applied are consistent with those adopted and disclosed in the Group's annual financial statements for the year ended 31 December 2007.

This preliminary announcement was approved by the Board on 3 April 2009.

The financial information has been prepared in accordance with the going concern basis of accounting. The use of this basis of accounting takes into consideration the Group's current and forecast financing position, additional details of which are provided in note 6 and the Financial Review.

2 Segmental reporting   Geographical segments The Group currently operates in three geographical markets: Nigeria, Côte d'Ivoire and Other West Africa. This is the basis on which the Group records its primary segment information. Unallocated operating expenses, assets and liabilities relate to the general management, financing and administration of the Group.
2008
		Nigeria	Côte d'Ivoire	Other West Africa		Unallocated	Consolidated
		$000's	$000's	$000's		$000's	$000's
Sales revenue by origin		37,117	5,384	-		-	42,501
Operating loss before derivative financial instruments		(33,458)	(7,888)	(29,013)		(28,823)	(99,182)
Derivative financial instruments gains		13,338	41,344	-		-	54,682
Segment result		(20,120)	33,456	(29,013)		(28,823)	(44,500)
Investment revenue							5,286
Finance costs							(25,760)
Other gains and losses - Impairment charge on available for sale investments							(2,296)
Other gains and losses - fair value of financial liabilities							26,607
Other gains and losses - foreign currency losses							(15,382)
Loss before tax							(56,045)
Segment assets		538,840	237,591	80,899		64,368	921,698
Segment liabilities		(351,655)	(160,628)	(18,008)		(40,904)	(571,195)
Capital additions - oil and gas assets		280,076	107	-		-	280,183
Capital additions - oil and gas assets (acquisition of subsidiaries)		-	144,428	-		-	144,428
Capital additions - exploration and evaluation		51,866	387	43,566		-	95,819
Capital additions - exploration and evaluation (acquisition of subsidiaries)		-	35,502	-		-	35,502
Capital additions - other		2,703	561	-		2,293	5,557
Depletion, depreciation and amortization		(25,295)	(4,535)	-		(642)	(30,472)
2007
		Nigeria	Côte d'Ivoire	Other West Africa		Unallocated	Consolidated
		$000's	$000's	$000's		$000's	$000's
Sales revenue by origin		-	-	-		-	-
Operating loss before derivative financial instruments		(10,109)	-	(4,906)		(15,122)	(30,137)
Derivative financial instruments losses		(5,983)	-	-		-	(5,983)
Segment result		(16,092)	-	(4,906)		(15,122)	(36,120)
Investment revenue							2,515
Finance costs							(5,171)
Other gains and losses - foreign currency losses							(263)
Loss before tax							(39,039)
Segment assets		210,254	-	45,993		44,854	301,101
Segment liabilities		(108,780)	-	(2,516)		(79,989)	(191,285)
Capital additions - oil and gas assets		92,450	-	-		-	92,450
Capital additions - exploration and evaluation		9,944	-	12,002		-	21,946
Capital additions - other		484	-	4		728	1,216
Depreciation		(298)	-	-		(675)	(973)
Business segments
The operations of the Group comprise one class of business, being oil and gas exploration, development and production.

3 Loss per ordinary share
The calculation of basic loss per share is based on the loss for the year after taxation of $56,565,000 (2007: $39,039,000) and 373,370,052 ordinary shares (2007: 236,862,944), being the weighted average number of shares in issue for the year. As there is a loss for the year, there is no difference between the basic and diluted earnings per share.
					2008	2007
Basic and diluted					15.1c	16.5c
4 Intangible oil and gas assets
Costs of exploration - pending determination
						$000's
At 1 January 2007						87,846
Additions						21,946
Transfer to tangible oil and gas assets						(48,476)
Amounts written off						(11,660)
At 1 January 2008						49,656
Additions						95,819
Acquisition of subsidiaries (see note 7)						35,502
Amounts written off						(32,168)
At 31 December 2008						148,809
The carrying value at 31 December 2008 includes US$28.9 million (2007: US$28.0 million) relating to the La Noumbi permit in Congo (Brazzaville) and US$17.2 million (2007: US$16.8 million) in respect of JDZ Block One of the Nigeria - São Tomé & Príncipe Joint Development Zone ('JDZ Block One'). The amounts written off during the year primarily relates to unsuccessful drilling costs of the Cuda-1 well on the Keta block in Ghana.
Additions in the year includes the Group's farm-in for the development of the Ebok field located offshore South East Nigeria. The carrying value at 31 December 2008 in respect of Ebok was US$47.0 million (2007: US$nil). In addition, the Group completed the acquisition of its interest in the Keta block, Ghana, and block CI-01, in Côte d'lvoire, during the year. The carrying value at 31 December 2008 was US$13.2 million and US$35.9 million respectively.

5 Property, plant and equipment
Oil and gas assets
							Production			Development		Gas plant				Total
							$000's			$000's		$000's				$000's
Cost
At 1 January 2007							-			-		-				-
Transfer from intangible assets							-			48,476		-				48,476
Additions							-			92,450		-				92,450
At 1 January 2008							-			140,926		-				140,926
Additions							125,221			154,855		107				280,183
Acquisition of subsidiaries (see note 7)							89,850			-		54,578				144,428
Transfers							289,737			(289,737)		-				-
At 31 December 2008							504,808			6,044		54,685				565,537
Depletion, depreciation and amortisation
At 1 January 2008						-				-		-				-
Charge for the year						27,804				-		1,364				29,168
Impairment charge						-				6,044		-				6,044
At 31 December 2008						27,804				6,044		1,364				35,212
Carrying amount
At 31 December 2007						-				140,926		-				140,926
At 31 December 2008						477,004				-		53,321				530,325

During the year, the carrying value of the Okoro field in Nigeria was transferred from Development to Production assets.

6 Borrowings
				Group
			2008					2007
			Current	Non-current				Current		Non-current
			$000's	$000's				$000's		$000's
Convertible bond			-	-				-		69,206
Loan notes			-	33,205				-		-
Bank borrowings			111,218	260,741				-		77,485
			111,218	293,946				-		146,691

Bank borrowings at the year end included US$191.6 million (2007: US$32.4 million) relating to the US$230 million Okoro Development facility from BNP Paribas. Interest on the loan is based on LIBOR plus a margin of between 4.5% and 5.75% as at 31 December 2008. The facility is repayable in semi-annual instalments of approximately US$30.0 million ending in 2011. The loan is secured by the assets of the Okoro field. The repayment profile is impacted by borrowing base calculations linked to the certified reserves of the Okoro field.

In addition, the acquisition of operations in Côte d'lvoire were financed by a financing package arranged through BNP Paribas. The outstanding balance on the financing package was US$139.6 million (US$133.9 million net of financing arrangement costs) as at 31 December 2008. Repayment instalments for US$72.9 million (senior debt) of the facility amount are determined by borrowing base calculations linked to the certified reserves of the Côte d'lvoire operations whilst US$66.7 million (subordinate debt) of the facility is repayable in semi-annual instalments of US$6.7 million commencing January 2010. Interest on the senior debt is based on LIBOR plus a margin of between 3.25% and 3.5% as at 31 December 2008. Interest on the subordinate debt is based on LIBOR plus a margin of 4.25%. The senior debt includes certain financial covenants, which are assessed on a quarterly basis.

 

6 Borrowings (continued)

Borrowings also include a balance of US$46.5 million (2007: US$45.1 million) relating to an unsecured loan facility from First City Monument Bank plc. Interest on the loan is based on LIBOR plus a margin of 4.45%. The loan is repayable in six equal semi-annual instalments commencing 2010 and ending in 2012.

On 9 October 2008 Afren entered into a strategic alliance with Sojitz, a Japanese investment and industrial conglomerate, to jointly pursue acquisition opportunities of scale in Africa. Sojitz invested US$45 million in the form of loan notes in Afren which become convertible bonds at the time of entering into or announcing joint acquisitions. The net proceeds from the issue of the loan notes were split between a liability component and an equity component at the date of issue. The liability component of the loan notes was US$33.2 million as at 31 December 2008.

7 Acquisition of subsidiaries
On 25 September 2008, Afren announced that it had completed the acquisition of Devon Energy Corporation's interests in Côte d'Ivoire, comprising a 47.96% working interest and operatorship of the producing Block C1-11, a direct 80% interest and operatorship in the undeveloped Block C1-01 and a 100% interest in the onshore Lion Gas Plant, effective 30 June 2007. The adjusted consideration for the acquisition, including transaction costs and working capital adjustments was US$184.3 million funded through a financing package arranged by BNP Paribas. The transaction took the form of an acquisition of 100% of the Ordinary Shares of Devon Côte d'Ivoire Ltd (CI-11), Devon CI One Corporation (CI-01) and Lion G.P.L., S.A. (Lion GPL).
The fair value of net assets acquired was as follows:
			CI-11	CI-01		Lion GPL	Total
			$000's	$000's		$000's	$000's
Oil and gas assets			89,850	35,502		54,578	179,930
Other property, plant and equipment			399	-		162	561
Inventories			7,093	-		1,591	8,684
Trade and other receivables			8,077	-		1,929	10,006
Cash and cash equivalents			285	-		238	523
Trade and other payables			(5,275)	-		(344)	(5,619)
Provision for decommissioning			(9,831)	-		-	(9,831)
			90,598	35,502		58,154	184,254
Total consideration							184,254
Total consideration							184,254
Less cash and cash equivalents acquired							(523)
Less accrued consideration							(12,735)
Less non- cash costs of acquisition (i)							(2,247)
Cash outflow on acquisition							168,749
(i) Non- cash costs of acquisition relates to shares issued to satisfy professional fees payable in respect of the acquisition.

 

7 Acquisition of subsidiaries (continued)
The book values of identifiable assets and liabilities acquired and their fair value to the Group is as follows:
		CI-11				CI-01
		Book value	Fair value	Fair value		Book value	Fair value	Fair value
			adjustments	to the Group			Adjustments	to the Group
		$000's	$000's	$000's		$000's	$000's	$000's
Oil and gas assets		16,083	73,767	89,850		57,189	(21,687)	35,502
Other property, plant and equipment		648	(249)	399		160	(160)	-
Inventories		4,994	2,099	7,093		-	-	-
Trade and other receivables		73,081	(65,004)	8,077		-	-	-
Cash and cash equivalents		285	-	285		-	-	-
Trade and other payables		(6,128)	853	(5,275)		(98,766)	98,766	-
Deferred tax balances		(425)	425	-		-	-	-
Investment in subsidiaries		-	-	-		(2,165)	2,165	-
Provision for decommissioning		(933)	(8,898)	(9,831)		-	-	-
		87,605	2,993	90,598		(43,582)	79,084	35,502
		Lion GPL
		Book value	Fair value	Fair value
			adjustments	to the Group
		$000's	$000's	$000's
Oil and gas assets		19,606	34,972	54,578
Other property, plant and equipment		87	75	162
Inventories		163	1,428	1,591
Trade and other receivables		35,968	(34,039)	1,929
Cash and cash equivalents		238	-	238
Trade and other payables		(386)	42	(344)
		55,676	2,478	58,154
CI-11 recorded a profit after taxation of US$46.3 million in the year ended 31 December 2008 of which US$14.8 million was made during the period from the beginning of the year to the acquisition date and a US$31.5 million profit was recorded after acquisition, which included a hedging gain of US$41.3 million. The revenue for the year ended 31 December 2008 was US$27.4 million.
Lion GPL recorded a profit of US$8.3 million in 2008 of which US$7.2 million arose during the period from the beginning of the year to the date of acquisition and US$1.1 million was recorded after acquisition. The revenue for the year ended 31 December 2008 was US$20.9 million.

8 Post balance sheet events
On 23 January 2009, Afren announced the Board of directors had approved 6.5 million share options awards over the ordinary shares of 1p each in the company to executive directors of the company.
On 12 February 2009, Gasol plc announced that it had successfully placed 200 million shares with Afren plc at 0.5 pence raising £1 million and increasing Afren's ownership to 21.3%.
On 26 March 2009, Afren announced the results of an independent assessment of the in place oil and recoverable reserves from the Ebok field in Nigeria by Netherland, Sewell & Associates Inc. (NSAI) together with details of future development scenarios for the field.

 

ENDFR UUUQGCUPBPGA

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