27th Mar 2007 07:04
Afren PLC27 March 2007 Afren plc (AIM: AFR) Preliminary results for the year ended 31 December 2006 London, 27 March 2007 - Afren plc ("Afren" or the "Company") announces itspreliminary results for the year ended 31 December 2006. Highlights Operational • Successful appraisal programme on the Okoro Setu Project in Q3 2006 • Afren drilled two appraisal wells on the Okoro Field, on time and on budget • The successful results of the appraisal programme fulfilled all pre-drill objectives and have significantly delineated the development • Independent reserves report estimates 2P reserve level of 32mmbbls • The Obo-1 well on Block 1 of the Joint Development Zone of Nigeria Sao Tome & Principe logged a cumulative total of at least 150 feet (45 metres) of net hydrocarbon pay Corporate and Acquisitions • Agreement signed with Amni International Petroleum Development Company ("AMNI") for the development of the Okoro Setu Project in Nigeria • Strategic entry into the Republic of Congo (Brazzaville) through the acquisition of a 14% stake in the La Noumbi permit • Foothold in Angola established, through Heads of Agreement for a 5% stake in onshore Cabinda Block B • Appointment of Dr Rilwanu Lukman as Chairman • Osman Shahenshah appointed Chief Executive and Evert Jan Mulder joins as Chief Operating Officer • Dr Rilwanu Lukman establishes the International Advisory Board Financial • US$200 million fully underwritten Credit Facility secured post year-end, which will primarily be used to finance the development of the Okoro Setu Project • US$15 million equity placement post year end to BNP Paribas and Standard Bank, the Mandated Lead Arranger and Lead Syndicate Bank respectively for the Credit Facility • Successful convertible bond issue, upsized to US$75 million from US$50 million following strategic investment from the Heerema Group • Company well capitalised at year end with US$35.7 million net cash at year end exchange rates Outlook • Development drilling on Okoro Setu Project to commence in Q3 2007 • Rig contract for nine month programme secured for Global Santa Fe's Adriatic VI • Approval of the Field Development Plan is expected shortly from the Department of Petroleum Resources in Nigeria • Afren is in advanced stage discussions on securing an FPSO in Nigeria • High impact exploration drilling on the Doungou prospect in Republic of Congo (Brazzaville) in Q3 2007 • Drilling activity on the Admiral prospect in Gabon in Q3 2007 Osman Shahenshah, Chief Executive of Afren, commented: "During 2006, Afren made significant progress in the growth of its West Africanportfolio and has demonstrated its ability as technical operator through the twowell appraisal programme on the Okoro Field in Nigeria. "2007 marks an important year for Afren, as the Company enters the next phase ofits growth, focusing on the development of the Okoro Setu Project in Nigeria,while at the same time using its African relationships to continue to grow itsdiversified portfolio. With a strengthened operational team, Afren is wellplaced and on track for 15,000 to 20,000 bopd of production by early 2008." 27 March 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 HaywardJack Pryde Tristone Capital Limited +44 20 7399 2480Simon Ashby-RuddMajid Shafiq Pelham Public Relations +44 20 7743 6673James HendersonAlisdair Haythornthwaite Background information Afren (www.afren.com) was founded in December 2004 by a management teamincluding Dr Rilwanu Lukman, (current Chairman), Osman Shahenshah, (currentChief Executive) and Bert Cooper (Advisor to the Board), with the vision tobecome the premier pan African independent Exploration and Production company.Since its listing on the AIM market of the London Stock Exchange, Afren hasrapidly expanded its portfolio and the management team has delivered nine assetsin the Joint Development Zone of Nigeria Sao Tome and Principe, Nigeria,Gabon, Angola and Congo Brazzaville. Afren will continue to add to its diversified portfolio of near term developmentand high impact exploration, with the overall objective of creating substantialshareholder value. Chairman and Chief Executive Statement Afren continued the rapid expansion of its portfolio in 2006 with furtherpenetration in Nigeria and strategic entries into Congo Brazzaville and Angola.Today the Company has a diversified West African portfolio and is on tracktowards achieving its near term production target of 15,000 to 20,000 bopd fromthe existing portfolio. Afren has demonstrated its ability to fast track the development of provedundeveloped fields in Nigeria. Having announced an agreement with AmniInternational Petroleum Development Company ("AMNI") for the development of theOkoro Setu fields offshore in the Eastern Niger Delta in June 2006, Afren, asthe technical operator, successfully drilled two appraisal wells on time and onbudget in Q3 2006. Development drilling is due to start in Q3 2007 using GlobalSanta Fe's Adriatic VI, with first oil expected in early 2008. The acquisition of a 14 per cent. stake in the La Noumbi permit in CongoBrazzaville provides a strategic entry into a growing Gulf of Guinea oilprovince and exposure to an exciting high impact exploration play. The Heads ofAgreement with Gulf Energy Resources for a 5 per cent. stake in onshore CabindaBlock B establishes a foothold in Angola, a leading area for exploration insub-Saharan Africa with 11.4 billion barrels of proved undeveloped reserves incountry. In order to finance the continued growth of the portfolio and the appraisalprogramme on the Okoro Setu Project, Afren successfully placed a US$50 millionconvertible bond, which was subsequently upsized to US$75 million by the HeeremaGroup. Most significantly, subsequent to year end, the Company secured a US$200 millionCredit Facility, which will primarily be used to finance the development of theOkoro Setu Project. The Facility is fully underwritten by BNP Paribas asMandated Lead Arranger and has been secured against Afren assets, primarily theOkoro Setu Project reserves. BNP Paribas and Standard Bank (a lead syndicatebank) have also, subsequent to year end, taken a US$15 million position in thecompany representing a significant vote of confidence in both the Project andCompany. Management We are delighted to welcome Evert Jan Mulder to the Executive team as ChiefOperating Officer. Evert Jan has worked within the international Oil & Gasindustry for almost 25 years, including positions within Addax Petroleum, Shell,Weatherford and Halliburton. Evert Jan has significant Nigerian experience,having worked with both Addax Petroleum and Shell in Nigeria. He was mostrecently the Chief Operating Officer of Addax Petroleum, Nigeria's largestindependent oil producer. Whilst at Addax Petroleum, he was responsible forincreasing the daily average oil production from 30,000 bopd to 75,000 bopd in24 months, while maintaining reserves. He coordinated the planning andimplementation of Okwori, Addax's first green field development using an FPSOand new subsea well technology. The Company has also established an International Advisory Board to assist andadvise the Board in its objective to grow the Company into the leading panAfrican independent Exploration and Production Company. The InternationalAdvisory Board is a consultative body with a strong orientation to Africa, theoil and gas industry and the international capital markets. The foundingmembers of the International Advisory Board are Brian Ward and Ennio Sganzerla,two senior oil industry practitioners with significant African experience.Brian Ward was formerly the Regional Chief Executive for Shell E&P Africa andwas responsible for Shell's Upstream African operations and relationships withHost Governments. Ennio Sganzerla was until recently Senior Vice President (E&P) at ENI, having joined the group in 1971. Ennio was instrumental inestablishing and building ENI's presence in Congo, and played an active role inincreasing ENI's position in Nigeria, Gabon and Egypt as Regional VP for Africa.Ennio was also active in leading the group's M&A activities, including theacquisition of Lasmo plc, British Borneo and others. We were also delighted to announce the appointment of John St. John as StrategicFinancial Advisor 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. He has been advisor on over €100 billion of equity andequity-linked issuance in all major markets worldwide. He currently serves asChairman of Equity Capital Markets at Nomura International plc. In February 2007, Osman Shahenshah was appointed as Chief Executive of Afren.On behalf of Afren's Board and shareholders, we would like to thank BrianO'Cathain for his significant contribution over the last two years to thedevelopment of Afren. The Next Phase of Growth - An Exciting Year Ahead Afren aims to continue its development into a leading pan African Oil & GasExploration, Development and Production Company by partnering with indigenouscompanies, African National Oil Companies and Governments. The Company willcontinue to focus on near term development and producing opportunities, whilecarefully reviewing high impact exploration prospects. The Company intends tofurther exploit the development of proven undeveloped fields in Nigeria andbuild on the strategic entries into Congo Brazzaville, Angola and Gabon. Most importantly, the Company is now entering a second phase of its growthstrategy, the actual development and production of proven oil & gas fields. Themanagement team - with a strengthened development and production focus - is wellplaced for this next phase and to realise Afren's near term target of15,000-20,000 bopd of production. 2006 Operations Review Nigeria - Fast Track Development Afren announced the Production Sharing and Technical Services Agreement withAMNI in June 2006 to appraise and develop the Okoro and Setu oil discoverieslocated in OML 112 in the shallow waters of the eastern Niger Delta. Within six months of announcing the agreement, Afren, as Technical ServiceProvider, successfully drilled two appraisal wells, Okoro-3 and Okoro-3ST,between September and December 2006. The successful results of the appraisalprogramme fulfilled all pre-drill objectives and have significantly delineatedthe development. The independent reserves verification completed by NetherlandSewell & Associates Inc - prior to any reservoir modelling studies - estimates1P oil reserves of 25 mmbbls for the Okoro and Setu Fields and a 2P reservelevel of 32 mmbbls gross. The Field Development Plan for the initial development of the Okoro Field, whichwas recently submitted to the Department of Petroleum Resources in Nigeria, isexpected to be approved shortly. Development drilling will commence in Q3 2007using Global Santa Fe's Adriatic VI drilling unit. Afren is in advanced stagediscussions to secure the FPSO, which will be contracted for an initialfive-year term. Target for first oil is on schedule, with peak productionexpected to reach 15,000 to 20,000 bopd by early 2008. Congo - High Impact Drilling Afren completed its acquisition of a 14 per cent. share of the La Noumbi permit,which covers 2,830 km(2) and lies adjacent to - and on trend with - the worldclass M'Boundi field. Seven prospects and leads have been identified. TheDoungou prospect is planned to be drilled in Q3 2007. Seismic processing iscurrently underway, based on 712km of recently acquired 2D seismic. In additionto an exploration well on the Doungou prospect, six contingent wells are stillunder consideration for drilling in 2007/08. Nigeria Sao Tome and Principe - A Proven Hydrocarbon Play Chevron, the Operator of Block 1 of the Joint Development Zone, commenceddrilling of the first exploration well on 14 January 2006. The drillingoperation was completed in 63 days, was drilled under budget and the Operatorconfirmed that it had discovered hydrocarbons. The Obo-1 well logged acumulative total of at least 150 feet (45 metres) of net hydrocarbon pay inmultiple reservoirs and provided important reservoir rock and liquid samples.The exploration well data is being analysed with a view to determining thefuture exploration programme. Gabon - Low Cost Exploration 3D seismic reprocessing is on-going on the Iris and Themis Marin permits. Anexploration well on the Admiral prospect in Themis Marin is expected to bedrilled in Q3 2007, by Global Santa Fe's Adriatic VI, prior to developmentdrilling on the Okoro Field in Nigeria. The Company has received Governmentapproval of the increase of Afren's stake in the Ibekelia Study Area from 10 to20 per cent. Financial The Group made a loss of £8.5 million for the year (2005: £4.6 million),equating to a loss per share of 4.4p, a 22% larger loss than in 2005 (3.6p).Administration expenses increased from £3.7 million to £6.8 million due to thehigher levels of activity during the year. There was no exploration write-offduring the year (2005: £1.2 million) reflecting the success of all three wellsdrilled in the period. Following the successful placement of US$75 millionequivalent of convertible bonds and the significant investment in both OkoroSetu (£20.8 million) and the acquisition of La Noumbi (£13.2 million), netinterest expense increased to £1.5 million (2005: £0.3 million income). Total capitalised intangible expenditure stands at £44.9 million, but of this£20.8 million (Okoro Setu) is set to be transferred to tangible oil and gasassets within property, plant and equipment once the Field Development Planapproval is received from the Nigerian government. Development approval isexpected before the end of April 2007. Afren has a unique entrepreneurial culture both technically and in new businessdevelopment. Our employees' African passion, 'can do' approach and the teamdynamic should enable us to continue our success in 2007 and beyond. The next 12 months should be a very exciting period as we execute our maindevelopment programme on the Okoro Setu Project and continue to utilise ourAfrican relationships to grow the diversified portfolio with the overall aim ofcreating substantial shareholder value. Dr Rilwanu Lukman Chairman & Founder Osman Shahenshah Chief Executive & Founder Group income statement (unaudited) For the year ended 31 December 2006 NOTES 2006 2005 £ 000's £ 000'sRevenue - -Administrative expenses (6,762) (3,685)Other operating expenses - (1,202)Operating loss 2 (6,762) (4,887)Investment revenue 1,219 250Finance costs (2,692) -Other gains and losses - foreign currency (228) 82Loss before tax (8,463) (4,555)Income tax expense - -Loss after tax (8,463) (4,555) Loss per shareBasic and diluted 3 4.4 p 3.6 p Group balance sheet (unaudited) At 31 December 2006 NOTES 2006 2005 £ £ 000's 000'sASSETSNon-current assetsIntangible assets 4 44,876 9,348Property, plant and equipment 667 440Available for sale investments 625 - 46,168 9,788Current assetsInventories 1,577 -Trade and other receivables 2,675 2,567Cash and cash equivalents 18,206 17,165 22,458 19,732 Total assets 68,626 29,520 LIABILITIESCurrent liabilitiesTrade and other payables (8,140) (1,310) Net current assets 14,318 18,422 Non-current liabilities 5 (32,943) - Net assets 27,543 28,210 EQUITY Share capital 1,915 1,890Share premium 29,741 29,465Other reserves 8,183 1,410Accumulated losses (12,296) (4,555)Total equity 27,543 28,210 Group cash flow statement (unaudited) For the year ended 31 December 2006 2006 2005 £ 000's £ 000's Operating loss for the year (6,762) (4,887)Depreciation of property, plant and equipment 177 40Impairment of intangible assets - 1,202Share based payments charge 900 904Operating cash flows before movements in working capital (5,685) (2,741)Increase in trade and other operating receivables (208) (2,567)Increase in trade and other operating payables 41 824Currency translation adjustments (14) 82NET CASH USED IN OPERATING ACTIVITIES (5,866) (4,402) Purchases of property, plant and equipment (404) (480)Exploration and development expenditure (31,893) (9,503)Increase in inventories (spare parts) (1,577) -Purchase of investments (500) -Investment revenue 1,219 250NET CASH USED IN INVESTING ACTIVITIES (33,155) (9,733) Issues of ordinary share capital 301 32,828Costs of share issues - (1,674)Issue of convertible bonds 41,250 -Costs of convertible bonds (979) -NET CASH PROVIDED BY FINANCING ACTIVITIES 40,572 31,154 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,551 17,019Cash and cash equivalents at the beginning of the year 17,165 50Effect of foreign exchange rate changes (510) 96 CASH AND CASH EQUIVALENTS AT END OF YEAR 18,206 17,165 Group statement of changes in equity (unaudited) For the year ended 31 December 2006 Share capital Share premium Other Accumulated Total equity account reserves losses £ 000's £ 000's £ 000's £ 000's £ 000's At 1 January 2005 50 - - - 50 Issue of share capital 1,840 31,139 - - 32,979Deductible costs of share issues - (1,674) - - (1,674)Exchange differences arising on - - 506 - 506translation of overseas operationsShare based payments for services - - 904 - 904Net loss for the year - - - (4,555) (4,555) Balance at 31 December 2005 1,890 29,465 1,410 (4,555) 28,210 Issue of share capital 25 276 - - 301Exchange differences arising on - - (1,889) - (1,889)translation of overseas operationsShare based payments for services - - 900 - 900Issue of convertible bonds - - 8,002 - 8,002Reserves transfer relating to - - (722) 722 -convertible bondOther share based payments - - 357 - 357Revaluation of available for sale - - 125 - 125investmentsNet loss for the year - - - (8,463) (8,463) Balance at 31 December 2006 1,915 29,741 8,183 (12,296) 27,543 Notes to the consolidated financial information (unaudited) 1. GENERAL INFORMATION The financial information set out in this announcement does not constitute theCompany's statutory accounts for the years ended 31 December 2006 or 2005. Thefinancial information for the year ended 31 December 2005 is derived from thestatutory accounts for that year which have been delivered to the Registrar ofCompanies. The auditors reported on those accounts; their report wasunqualified and did not contain a statement under s. 237(2) or (3) of theCompanies Act 1985. The statutory accounts for the year ended 31 December 2006will be finalised on the basis of the financial information presented by theDirectors in this preliminary announcement and will be delivered to theRegistrar of Companies following the Company's annual general meeting. While the financial information included in this preliminary announcement hasbeen computed in accordance with the recognition and measurement criteria ofInternational Financial Reporting Standards (IFRS), this announcement does notitself contain sufficient information to comply with IFRS. The Company expectsto publish full financial statements that comply with IFRS in April 2007 This preliminary announcement was approved by the Board on 26 March 2007. 2. SEGMENTAL REPORTING Geographical segments The Group currently operates in only one geographical market: West Africa. Thisis the basis on which the Group records its primary segment information.Unallocated operating expenses, assets and liabilities relate to the generalmanagement, financing and administration of the Group. West Africa Unallocated Consolidated £ 000's £ 000's £ 000's2006Segment result (930) (5,832) (6,762) Investment revenue 1,219Finance costs (2,692)Other gains and losses (228) Loss before and after tax (8,463) Segment assets 46,807 21,819 68,626Segment liabilities (3,821) (37,262) (41,083) Capital additions 36,928 206 37,134Depreciation 48 129 177 2005Segment result (1,305) (3,582) (4,887) Investment revenue 250Other gains and losses 82 Loss before and after tax (4,555) Segment assets 12,571 16,949 29,520Segment liabilities (676) (634) (1,310) Capital additions 10,240 380 10,620Depreciation 7 33 40 Business segments The operations of the Group comprise one class of business, being oil and gasexploration, development and production. 3. LOSS PER ORDINARY SHARE The calculation of basic loss per share is based on the loss for the year aftertaxation of £8,463,000 (2005: £4,555,000) and 190,356,208 ordinary shares (2005:127,628,963), 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 anddiluted earnings per share. 2006 2005 Basic and diluted 4.4p 3.6p 4. INTANGIBLE ASSETS Costs of exploration - pending determination £ 000's At 1 January 2005 -Additions 10,140Amounts written off (1,202)Foreign exchange differences 410At 1 January 2006 9,348 Additions 36,730Foreign exchange differences (1,202) At 31 December 2006 44,876 The carrying value at 31 December 2006 includes £20.8 million relating to theOkoro Setu project in Nigeria, £13.2 million relating to the La Noumbi permit inCongo Brazzaville and £8.4 million in respect of Block One of the Nigeria SaoTome & Principe Joint Development Zone ("JDZ Block One"). The Group's interestin Okoro Setu is expected to be transferred to tangible oil and gas assets inproperty, plant and equipment in the near future once final approval for theField Development Plan is received from the Nigerian government. Additional amounts are payable in relation to JDZ Block One if proved reservesare discovered and upon approval of a field development programme. The amountpayable is based on the level of proved reserves and prevailing oil and gasprices and is subject to adjustment upon any subsequent amendments to suchreserve figures. 5. CONVERTIBLE BOND On 3 July 2006, Afren announced the closing of the private placement of US$50million equivalent in British Pounds of Convertible Senior Unsecured Bonds due2011 (the "Bonds"). The Bonds, privately placed with institutional investors,were issued at 100 percent of the principal amount and denominated in BritishPounds. The Bonds bear a coupon of 9 percent per annum (payable semi-annually),mature in 2011 and are convertible into ordinary shares of the Company. Theconversion price of 59.9 pence (approximately) per ordinary share was set at a25 percent premium to the price determined in the pricing method leading up toclosing. The Bonds also contain other terms, including anti-dilution provisionseffective in the event of certain future issuances, a bondholder put optionpayable in cash or shares (at a discount to the share price during the periodprior to the payment) at the Company's option, a Company call option, and theability to make coupon payments in cash or shares (at a discount to the shareprice during the period prior to the payment) at the Company's option. On 17 July 2006, Afren announced that it had upsized the previously announcedprivate placement by US$25 million to US$75 million equivalent in British Pounds(being £41.25 million) of Convertible Senior Unsecured Bonds due 2011. Theadditional bonds were issued under identical terms to those previouslyannounced. The net proceeds from the issue of the bonds were split between a liabilityelement and an equity component at the date of issue. The fair value of theliability element was estimated using the prevailing market interest rate forsimilar non-convertible debt. The difference between the proceeds of issue ofthe bonds and the fair value assigned to the liability component, representingthe embedded option to convert the liability into equity of the Group, wasincluded within other reserves in equity. Issue costs were apportioned between the liability and equity components of thebonds based on their relative carrying amounts at the date of issue. Theportion relating directly to the equity component was charged directly againstequity. The interest expense on the liability component was calculated by applying theprevailing market rate for similar non-convertible debt of 15.2% to theliability component of the bonds. The above principles have been reflected asfollows: 2006 £000's Nominal value of convertible bonds issued net of costs 40,109Equity component (8,002)Debt component at date of issue 32,107Interest charged 2,692Total liability component at 31 December 2006 34,799 Reported in:Interest payable in current liabilities 1,856Non-current liabilities 32,943Total liability component at 31 December 2006 34,799 There is no material difference between the carrying amount of the liabilitycomponent of the convertible bonds and its fair value at 31 December 2006. 6. POST BALANCE SHEET EVENTS On 21 March 2007, it was announced that BNP Paribas - as Mandated Lead Arranger("MLA") - had executed and underwritten a US$200 million debt facility agreementand that, together with Standard Bank Plc, BNP Paribas had subscribed to a US$15million equity investment in the Company. The Company has secured a US$200 million, 5-year Senior Secured RevolvingReducing Credit Facility (the "Facility"), which will primarily be used tofinance the development of the Okoro Setu Project (the "Project"), which Afrenand its JV partner Amni International Petroleum Development Company ("AMNI")successfully appraised in the third quarter of 2006. The Facility is fullyunderwritten by BNP Paribas as Mandated Lead Arranger and has been securedagainst certain Afren assets, principally the Okoro Setu Project reserves. Aspart of the financing due diligence process, an independent assessment of thereserves of the Project has been completed by Netherland, Sewell and Associates,Inc. BNP Paribas is currently syndicating the Facility among a group ofinternational banks. BNP Paribas and Standard Bank have invested US$5 million and US$10 millionequity respectively in the Company. Subscription Agreements were entered intoon 20 March 2007 for 13,523,711 shares ranking pari passu in all respects withall other issued Ordinary Shares in the capital of the Company at 57.0 pence.Application for admission has been made for the shares and was effective on 26March 2007. Following the equity investment, the Company's outstanding issuedshare capital is 205,063,207 shares. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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