Afren PLC

Description

• Diversified portfolio of 10 assets in the Joint Development Zone of Nigeria São Tomé and Príncipe, Nigeria, Gabon and Congo
• Production: Kouakouala in Congo
• Near term development: 15,000 to 20,000 barrels of oil per day by 2008 from Ogedeh, Okoro and Setu Fields in Nigeria
• High impact exploration: La Noumbi in Congo and Block 1 of the Joint Development Zone of Nigeria São Tomé and Príncipe
• Low cost exploration: Iris Marin, Themis Marin and Ibekelia in Gabon

• The acquisition and strategic entry into Cote d'Ivoire provides immediate production

History

Afren was founded in December 2004 by a management team including Dr Rilwanu Lukman, (Chairman), Osman Shahenshah, (Chief Executive) and Bert Cooper (Advisor to the Board), with the vision to become the premier pan African independent Exploration and Production company. Afren's Chief Operating Officer is Evert Jan Mulder, who was most recently Chief Operating Officer of Addax Petroleum, Nigeria's largest independent oil producer.

Since its listing on the AIM market of the London Stock Exchange, Afren has rapidly expanded its portfolio and the management team has delivered 11 assets in the Joint Development Zone of Nigeria-São Tomé and Príncipe, Nigeria, Gabon, Angola and Congo Brazzaville. In addition, Afren has built an executive and non-executive management and advisory team with broad and extensive experience in the industry, both in West Africa and internationally; in identifying and completing corporate expansion opportunities and in public company financing. Afren also looks to leverage key relationships across the region to gain preferential access to opportunities.

Strategy

Outlook

• Development drilling has commenced on Okoro Setu with expected production of 15,000-20,000 bopd in 2008
• Active drilling campaign, with up to 7 development and 5 exploration wells to be drilled during 2008
• Completion of the acquisition in Cote d'Ivoire, with an effective date of 30 June 2007, expected in H1 2008, providing the Company with 3,000 entitlement barrels of oil equivalent per day and increasing 2P reserves by 28 mmboe
• Production start-up on the Eremor field in Nigeria expected in Q4 2008
• Active pipeline of New Venture opportunities to further consolidate Afren's position, particularly in West Africa

Strategy

Afren aims to become the premier African independent Oil and Gas exploration and production company through preferential and rapid access to African opportunities. The company's strong African orientation in management and stakeholders provides excellent local knowledge and access to attractive deal flow. Afren are focused on partnering with African governments, national oil companies, indigenous exploration and production and service companies to provide a uniquely African approach in accessing deal flow and growing shareholder value. Afren will continue to build a diversified portfolio with a focus on near term development and high impact exploration. The initial geographical focus has been on West Africa, particularly in the Gulf of Guinea, capitalising on Afren's local knowledge and expertise.

Other African opportunities will continue to be examined and will be pursued if the technical and commercial potential is attractive. Afren is willing to explore in the full range of basins and plays that are known to exist in Africa from deep water, through shallow water to onshore. In time, Afren's portfolio is expected to include assets through the full investment cycle from high impact exploration to stable and long term production.

In Nigeria, Afren intends to continue to exploit the development of proven undeveloped fields with their indigenous partners and to capitalise on the re-activation of the major international oil companies' (Major) peripheral onshore and shallow offshore assets.

Key data

Afren has developed its portfolio across seven countries: Nigeria, Sao Tome & Principe JDZ, Gabon, Congo, Cote d'Ivoire, Angola and Ghana.

2008 Interim Highlights

Operational Highlights
• The Okoro Setu development, offshore Nigeria, produced first oil on 10 June 2008. Production rates from the initial two wells are in excess of 7,000 barrels of oil per day (“bopd”).
- The remaining three wells from an initial 5 well programme have been successfully drilled and are ready for production.
- The Company is currently drilling an additional 2 wells, beyond the original 5 well programme, on the Okoro field, with per well rates that are expected to be comparable to the existing production wells.
- Reservoir quality encountered on the Okoro field to date has been at the higher end of expectations.

• Transformational acquisition-led growth with the addition of 8 assets across 4 West African countries, providing existing production, near-term development and high impact exploration.

Financial Highlights
• Robust capital position, with over US$405 million of equity and debt financing secured:
- Completion of US$236 million (before expenses) equity fund raising after placing 95 million ordinary shares in April 2008.
- US$169 million debt facility secured for the acquisition in Côte d’Ivoire.
- Cash balances at 30 June 2008 of US$269 million and net debt of US$13 million.

• Net loss of US$26.8 million (1H 2007: US$10.2 million) for the period, reflecting the continued investment in personnel and business development to support growth plans.

H2 2008 Outlook
• Stable production is expected from the Okoro field from the existing five-well base and two new wells are due online at the end of October.
- Total production of in excess of 21,000 bopd expected from all 7 wells by November.
- New opportunities in the field will be identified with a view to a second phase of operations at the appropriate time.

• Appraisal drilling on the Ebok field in Nigeria scheduled from October 2008.
- The Trident IV drilling rig was recently secured for a 2 well appraisal programme commencing in early October.
- Assuming a successful outcome to the appraisal phase, Afren expects to submit a Field Development Plan (“FDP”) in the second quarter of 2009 with a view, subject to regulatory approvals and equipment availability, to commence development operations thereafter.

• High impact exploration drilling to commence on the Keta Block, offshore Ghana, from November 2008.
- The Transocean Deepwater Discovery Drill Ship has been contracted and the first well will be targeting the Cuda prospect, estimated by Afren to contain over 300 million barrels of oil (“mmbbl“).
- Under final negotiations on farm-out process.

2007 Results

Operational

Okoro Setu on-track for the Company's first organic oil production:
• Key milestones achieved in 2007 include the approval of the Field Development Plan by the Government of Nigeria, reserves certified by Netherland Sewell & Associates, Floating Production Storage and Offloading Vessel ('FPSO') upgrade and completion of project long lead items
• The Adriatic VI drilling rig, which has been contracted for a nine-month period, arrived on location on 22 January 2008 and development drilling has commenced
• Targeted production of 15,000-20,000 bopd in 2008 from 5 development wells
• Eremor field is on-track for first oil in Q4 2008
• First exploration well (Doungou-1) completed on the La Noumbi licence in Congo Brazzaville. The well was plugged and abandoned but proved a working hydrocarbon system in the pre-salt section
• Testing operations on the Ofa-1 discovery well completed and decision taken not to proceed further with the development

Corporate and acquisitions

Acquisition of Devon Energy's interests in Ghana, Angola and Cote d'Ivoire (post period-end):
• Fully financed through debt, without shareholder equity dilution
• In Ghana, a 95% working interest and operatorship of the Keta Block. A well is planned in Q4 2008 to test the Cuda prospect which is analogous to the Jubilee and Odum discoveries to the west in Ghanaian waters
• In Angola, a 15% working interest in Block 16. Three exploration wells are planned, commencing in Q3 2008 on prospects in deep water, analogous to the discoveries in the adjacent Blocks
• In Cote d'Ivoire, 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 ('LGP')
• Subject to customary approvals
• Continued progress on gas monetisation strategy, with a co-operation agreement signed with E.ON Ruhrgas AG and African LNG Holdings Limited and Production Sharing Contracts for OPL 907 and OPL 917 signed, within the gas rich Anambra basin onshore Nigeria, post period-end
• Participation agreement signed with Excel Exploration & Production Limited for the development of the Eremor field in Nigeria. The field contains oil reserves of 2.9 mmbbl (1P) and 4.1 mmbbl (2P), according to an independent reserves audit by Netherland Sewell & Associates

Financial

• $230 million borrowing base rolling facility secured to finance the Okoro Setu Project
• Completion of $80 million (before expenses) total equity fund raisings
• Closed $50 million unsecured loan acquisition facility in Nigeria
• Cash balance as at 31 December 2007 of $91.8 million (2006: $35.7 million)
• Net loss of $39.0 million (2006: $15.8 million) due to increased operational, administrative and business development activities

2007 HIGHLIGHTS

• 2007 and 2008 year-to-date saw the increase in Afren's portfolio to 15 assets in 7 African countries.

• Partnerships with indigenous companies, governments and national oil companies. Afren are partnered with 5 indigenous companies in Nigeria and the national oil company in Cote d'Ivoire.

• Growing African component in the shareholder base. The continued support by Nigerian financial institutions ($50 million loan and participation in the $230 million Okoro Setu Project Development Facility), including First City Monument Bank Plc and Guaranty Trust Bank Plc, is both a strong endorsement of Afren's established credibility in its principal operating region and to the maturity and funding capacity of the regional financial sector. Afren see increasing local participation from the growing African capital markets base in the near future.

• Gas monetisation. Afren see a major opportunity here which is good business, good for local economic development and good for the environment. The confluence of these three factors will create an exciting and innovative platform for growth. To this effect, the company have signed a co-operation agreement with E.ON Ruhrgas AG and African LNG Holdings Limited (post period-end) with the intention to jointly develop, collect and monetise gas for domestic and export purposes in Nigeria, and are building a rapidly expanding gas asset portfolio.

In 2007, Afren put in place the drilling capability, financing structure, development plan and the production capacity for the Okoro Setu Project.  First oil from Okoro Setu is expected shortly, marking Afren's first organic oil production, in less than 2 years from signing the agreement with their indigenous partner. With development drilling under-way the Company is on track for a production target of 15,000 to 20,000 barrels of oil per day in 2008.

Financial Review

Afren raised over $360 million in equity and debt financing over the course of the year. Cash reserves across the Group amounted to $91.8 million at the end of the year, with long term debt of $146.7 million. The Group made a loss of $39.0 million compared with a $15.8 million loss in 2006. The increased loss was largely due to the inclusion of an exploration write-off of $12.0 million (2006: $nil) consisting of $7.1 million relating to the Ofa well test operations in Nigeria, $2.1 million associated with drilling of the Doungou-1 well on the La Noumbi licence in Congo, $2.4 million for the THAM-1 well on the Admiral prospect and other associated costs in Themis Marin and the costs incurred with the lapsed option over Cabinda Block B ($0.4 million). In addition, an accounting loss on hedging of $6.0 million was incurred, reflecting the marked-to-market position of certain instruments taken out by Afren to protect against low oil prices for a proportion of Afren's oil sales from the Okoro Setu Project, as required under our loan agreement. There is no cash impact of these instruments until after production start-up.

Total administrative expenses for the group were $18.1 million, an increase of $5.5 million from 2006, mainly due to the Company's expanded operational and business development activities, reflected in an increase in staff numbers from an average of 25 in 2006 to 38 in 2007. Net interest and financing costs for the Group in 2007 amounted to $2.7 million (2006: $2.9 million). Overall costs are similar despite increased debt levels, reflecting the fact that the majority of the interest cost is related to the development of the Okoro Setu Project, and is therefore capitalised.

2008: A Transformational Leap in Afren's Development

Through their focused and differentiated strategy Afren have built a diversified portfolio of 15 assets in 7 African countries in less than 36 months; representing unparalleled portfolio growth amongst the peer group of international independents.

Operationally, the company has demonstrated its technical competence with development drilling on the Okoro Setu Project in Nigeria having commenced a mere 20 months from signing the agreement with their indigenous partner.

The acquisition and strategic entry into Cote d'Ivoire provides immediate production. Afren expect production ramp-up from the Okoro Setu Project and the Eremor field and look ahead to an exciting high impact exploration programme from the existing portfolio.

Graduate Recruitment

Capex

Future Plans

Outlook

• Development drilling has commenced on Okoro Setu with expected production of 15,000-20,000 bopd in 2008
• Active drilling campaign, with up to 7 development and 5 exploration wells to be drilled during 2008
• Completion of the acquisition in Cote d'Ivoire, with an effective date of 30 June 2007, expected in H1 2008, providing the Company with 3,000 entitlement barrels of oil equivalent per day and increasing 2P reserves by 28 mmboe
• Production start-up on the Eremor field in Nigeria expected in Q4 2008
• Active pipeline of New Venture opportunities to further consolidate Afren's position, particularly in West Africa

Reserves

Who's Who

Offices