Afren (AFR)


Another nail in Afren's coffin

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Another nail in Afren's coffin
It's one disaster after another at accident prone Afren (AFR). In the final stages of a lengthy business review, the troubled Africa-focused oil company has now warned that a slump in production could threaten its restructuring. As a result, it has no accurate idea of its financial position, so has asked that its shares be suspended.

In its restructuring proposal, Afren reckoned it could pump 29-36 thousand barrels of oil per day (kbopd) in 2015, compared to the 31.8 kbopd produced last year. But the business review has made it clear that near-term production is likely to come in "materially lower". That means there is "significant uncertainty at this stage regarding the outcome of the review".

Mark Henderson, an analyst at Westhouse Securities, suspects this could be a clever ploy by Afren's Nigerian partners.

"We believe that Afren's Nigerian partners are seeking to squeeze it in a probable attempt to force a breach of the existing PSAs [production-sharing agreements] so they can take over Afren's producing interests at a low cost," he explains. "Afren has a 50% working interest in the producing Ebok and Okoro fields, offshore Nigeria, which produced almost 46kbopd gross (34.4kbopd net) in the first quarter."

He adds: "We suggest that it is possibly just a matter of time before the bondholders end up owning the entire company, under the terms of the proposed restructuring."

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Afren said Wednesday the company will be further engaging with the Ad Hoc Committee of bondholders regarding its request for an additional $30 million in net cash proceeds borrowed under the Bridge Securities, and with other stakeholders, as appropriate. Talks will focus on the potential implications on the proposed restructuring, including its timeline.

"Given the material uncertainty of the results of the above-mentioned review, Afren is unable to assess accurately its financial position and inform the market accordingly at this stage" the firm added.

Hit by weaker oil prices, an expensive recapitalisation process and bond defaults, Afren has proposed a debt-for-equity swap and £49 million rights issue. Compared to the beginning of last year, there is little, if any, value left for holders of equity.

Given all the uncertainties at Afren it's debatable whether the shares will ever return from suspension. That would at least put existing shareholders out of their misery. Afren shares traded at 170p before the oil crash and sacking of its chief executive and chief operating officer for receiving unauthorised payments. They closed last night at 1.78p.