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Afren plc (ticker: AFR) is an independent upstream oil and gas exploration and production company listed on the main market of the London Stock Exchange. Afren is currently producing from its assets offshore Nigeria and Côte d’Ivoire and holds further interests in the Kurdistan region of Iraq, Ghana, Nigeria, Côte d’Ivoire, Congo Brazzaville, the Joint Development Zone of Nigeria -São Tomé & Príncipe, Kenya, Ethiopia, Madagascar, Seychelles, Tanzania and South Africa.

Afren plc released its 2013 half year results on August 23, 2013. Highlights include:

  • Active exploration in Nigeria, including a discovery at OPL 310 offshore;
  • Two drilling completions in Kurdistan, with one drilling stem test finalized;
  • Commencement of the Front End Engineering Design (FEED);
  • Development plans for the fabrication of a new wellhead platform for the Okoro Further Field Development. The expansion can host an additional 24 wells.

WEBCAST: Afren plc presented at EnerCom’s The Oil and Gas Conference 18® in Denver on August 12, 2013.

Afren plc delivered record production (up 13%) during 1H13 principally from the Ebok and Okoro fields in offshore Nigeria. AFR’s financial results reflect the consolidation of First Hydrocarbon Nigeria Company Limited (FHN) following the completion of the acquisition of an additional beneficial interest in FHN in the period and the early adoption of IFRS 10. Post period end, Afren further increased its beneficial interest in FHN and commenced sales from the Barda Rash field in the Kurdistan region of Iraq.

On the exploration front, the oil discovery at OPL 310 opens a new oil basin in an under-explored region with targeted resources believed to be in excess of pre-drill estimates (78 million barrels of oil equivalent).

Exploration and Production Review

Afren invested US$130 million in exploration and appraisal activities in 1H 2013 (1H 2012: US$91 million). The main areas of expenditure being Nigeria (including US$42 million for further drilling on Okwok, US$10 million of pre-drilling activities on OML115 and US$6 million for drilling on OPL310), testing and drilling at Ain Sifni in the Kurdistan region of Iraq (US$19 million), and seismic and other pre-drilling activities in East Africa (total of US$36 million on Seychelles Areas A&B, South Africa Block 2B, Tanga Block in Tanzania, and Ethiopia Blocks 7 and 8).

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Expenditure on oil and gas assets was US$202 million, largely related to the continued development of producing wells and facilities upgrades at Ebok (US$142 million) and further drilling at Barda Rash (US$56 million).

West Africa: Afren’s production in Nigeria and West Africa was headlined by record-setting time development projects in Ebok and Okoro. The two projects have led to a portfolio of six further development, appraisal and exploration projects. The company plans for the fabrication of a new wellhead platform and production unit, which should enable for the hosting of 24 additional wells. Beyond Nigeria, the company’s other West African ventures include production assets in Côte d’Ivoire and exploration acreage in Ghana, Congo Brazzaville and South Africa.

Click here for a release covering Afren’s OPL 310 discovery.

East Africa: Afren is focusing a great deal of effort in East Africa, and its surface position comprised of more than 100,000 kilometers is the largest seismic database in the region. The extensive territory has yielded discoveries in six countries, with Kenya being the most recent addition to the list.

Kurdistan: The company used an early mover advantage (entry cost US$0.68 per 2P and 2C barrel) to stake claim in Kurdistan, a comparatively stable oil-producing region which has opened as a new oil-producing province for smaller Western companies in the years after multinational military operations in Iraq. OAG360 notes that a 2C barrel references a stage of contingent resource categorized based on uncertainty similar to 2P reserves. The accumulations are potentially recoverable but are not considered commercially recoverable due to current contingencies including but not limited to no viable market, or the technology is currently under development.

Afren is confident in benefitting from significant reserves growth once the area develops politically. Kurdistan’s reputation as a prolific hydrocarbon province is deemed to be worth the risk of purchasing the Barda Rash (60% operated) and Ain Sifni (20% non-operated) PSCs. A pipeline export route is being constructed to Turkey, which will boost production in the area once upon its completion by year end.

Financial Review

Revenue for the period from continuing operations was US$797 million, of which US$21 million was generated by FHN (1H 2012: US778 million, of which US$25 million related to FHN). The increase in revenue is largely driven by increased production from the development of the Ebok field, offshore Nigeria. Working interest production from continuing operations for the period increased from 39,044 BOE per day (including FHN) to 44,712 BOE per day in 1H 2013.

In 1H 2013, the Group realized an average oil price from continuing operations of US$103.6/barrel (1H 2012: US$108.8/barrel), before all royalties and hedging. The average Brent price for the period was US$110/bbl (1H 2012: US$112/barrel).

Gross profit for the period from continuing operations was US$377 million (1H 2012: US$411 million) which reflects the higher DD&A charge on oil and gas assets in the period, due to increased production, and a higher level of royalties paid on Ebok. The DD&A charge in 1H 2013 was US$195 million, an increase of 7% compared to 1H 2012. Of this, US$2 million related to OML 26.

Operating cash flow

Operating cash flow before movements in working capital was US$564 million in 1H 2013 (1H 2012: US$571 million), of which US$446 million has been used to fund the Group’s investment in development, appraisal and exploration activities as well as fund the purchase of the Group’s additional equity investment in FHN.

Financing

In March 2013, the Group successfully renegotiated the terms of its Ebok Reserve Based Lending Facility, with 14 international banks involved in the syndication of a new facility which significantly extends the maturity of the Group’s debt. Repayments of the new US$300 million facility begin in January 2015.

Gross debt at 30 June 2013 was US$1,178 million, excluding finance leases. Cash at bank at  June 30, 2013 was US$588 million, resulting in net debt (excluding finance leases) of US$590 million (June 30, 2012: cash of US$497 million; net debt of US$679 million).

Subsequent to the period end, the Group repaid its US$50 million unsecured facility.

Executive Team Commentary

“Afren continued to deliver strong operational results during the first half of 2013”, said Osman Shahenshah, Afren plc’s Chief Executive Officer.  “We recorded a year-on-year increase in underlying net production of 13%, principally from our green field developments offshore Nigeria. Our exploration campaign continues to deliver results, following the play opening discovery announced at OPL 310 offshore Nigeria, where further exploration drilling is ongoing. Elsewhere, we are continuing with exploration drilling and testing operations at the Ain Sifni PSC in Kurdistan. With high quality production underpinning both our strong financial position and exploration program, we are well placed to realize numerous growth opportunities over the remainder of this year.”

Click here for a fact book detailing Afren’s 2013 half year results.

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication.


Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.