Tax boost for embattled Afren

Production slumped at Afren during the first half and its output target for the full year has been cut following the temporary suspension of activities at Barda Rash in Kurdistan. Its chief executive and chief operating officer also remain suspended as part of an investigation into unauthorised payments. That mess should, however, be cleared up in September and there are bright spots operationally, too.

Working interest production fell 25% during the period to 33,488 barrels of oil per day (bopd), although that's because Afren took a smaller share of output having now recovered appraisal and development costs.

And despite a 29% decline in revenue to $565 million, profit after tax rocketed by almost $100 million (£60.27 million) to $160 million after the company achieved pioneer tax status at Ebok in Nigeria. That effectively turned last year's $198 million tax bill into a tax credit of $26.8 million this time. The tax exemption at Ebok will run until May 2016.

Of course, the issues in northern Iraq which have caused Afren to suspend its operations in Kurdistan are unhelpful. It's why full-year production guidance has been revised down to 32,000-36,000 bopd from 40,000bopd previously. But management are still targeting five-year double digit production growth from its portfolio of assets in Nigeria and Kurdistan.

Certainly, production is expected to ramp up over the next few months. Development wells at Ebok, Okoro and Okwok are planned, and an appraisal well at the Ogo field should be spudded towards the end of 2014. A deep exploration tail at Ebok should spud in the fourth quarter, too, targeting 50 million barrels of oil.

"These results look solid given the problems in Kurdistan, the infrastructure issues in Nigeria and despite the corporate governance crisis," said Westhouse Securities. "The bulk of Afren's Nigerian assets are offshore, which we prefer to onshore, and the boost from pioneer tax status has had a material impact on profits in first half 2014." The broker says 'buy' with 180p price target.

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