Afren PLC has entered into an agreement with Heritage Oil Corporation to acquire the entire issued share capital of Heritage Congo Limited, which holds Heritage's interests in the Republic of Congo (Brazzaville).
Acquisition highlights
• Heritage's Congo interests
- 25% interest in the Kouakouala A production permit
- 14% interest in the La Noumbi exploration licence
- 30% interest in the Mengo field on the Kouakouala B development permit.
• All licences are located close to the M'Boundi Field (1.4 billion barrels of oil originally in place), one of the largest onshore fields in Africa, which currently produces over 65,000 bopd.
• The cash consideration for the acquisition is US$28 million together with 2,000,000 warrants in Afren.
Impact on Afren
• Immediate production (25% interest of 1,093 bopd gross Kouakouala field production)
• High impact exploration potential on the La Noumbi licence with 2,830 sq km of under-explored acreage (Afren: 14%)
• Share of potential of the Mengo Field which has 2 billion barrels of oil in place (Afren: 30%)
• Strategic entry into Congo
• Continuation of pan-African diversification strategy
Afren post acquisition
• 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
Brian O'Cathain, Chief Executive of Afren commented:
"This acquisition is very exciting for Afren, providing a strategic entry into Congo and further diversification of Afren's West African portfolio. The acquisition delivers immediate production and cash flow together with high impact exploration in one of Africa's most prolific on-shore basins. The La Noumbi licence is adjacent to and on trend with the M'Boundi field, one of the largest onshore oilfields in Africa. Afren is delighted to be in Congo, and looks forward to working closely with the national oil company SNPC and the Congolese authorities to develop other opportunities in Congo.
This complements the recent announcement of a significant agreement with Amni in Nigeria for the development of two proved undeveloped fields of 30 to 60 million barrels and follows the announced Obo-1 discovery on Block 1 of the Joint Development Zone. Since the IPO in March 2005, Afren has expanded its West African presence to the Joint Development Zone of Nigeria São Tomé and Príncipe, Nigeria, Gabon and Congo, growing its portfolio to ten assets with a combination of production, near term development and high impact exploration opportunities."
Acquisition of Heritage Oil Corporation's interests in the Republic of Congo
Afren is acquiring the entire issued share capital of Heritage Congo Limited, which holds Heritage's interests in the Republic of Congo (Brazzaville). This includes a 25 percent interest in the Kouakouala A production permit ("Kouakouala"), a 14 percent interest in the La Noumbi exploration licence ("La Noumbi") and a 30 percent interest in the Mengo field on the Kouakouala B development permit ("Mengo"). All the licences are located close to or adjacent to the M'Boundi Field (1.4 billion barrel stock tank oil originally in place ("STOIIP")), which currently produces over 65,000 barrels of oil per day ("bopd").
The consideration for the acquisition is US$28 million in cash and 1,500,000 Afren warrants, with a term of five years and an exercise price of £0.60 per share and an additional 500,000 warrants in Afren, with a term of five years and an exercise price of £0.80 per share, the issuance of which will be contingent upon the satisfaction of certain conditions.
The acquisition is expected to close later this year, subject to certain conditions precedent, including customary governmental approvals and the waiver of pre-emption rights by its partners which the Company expects will be met.
This follows the recent announcement of a significant agreement in Nigeria for the development of the Okoro and Setu fields; two proved undeveloped offshore fields of 30 to 60 million barrels, which will be the focus of an intensive development programme alongside the Ogedeh development, together generating combined production of between 15,000 to 20,000 bopd by 2008.
Afren intends to further expand its presence in the Congo in the near term and to continue to diversify into other proven African hydrocarbon provinces, as part of its objective to become the leading pan African independent Exploration and Production Company. Afren's strategic entry into the Congo follows a recent visit by a senior Afren team led by Dr Rilwanu Lukman with the President of the Republic of Congo.
Kouakouala Field
The Kouakouala field was discovered by Elf in 1993 and brought on stream in May 2000 by the current operator Maurel et Prom, who has a 50 percent stake. Tacoma Resources, a subsidiary of Burren Energy, holds the remaining 25 percent stake.
Kouakouala provides Afren immediate revenue with gross average field production of 1,093 bopd in the first quarter of 2006 from four producing wells. The partners in the field are discussing options to prolong field life and increase production and reserves, including the implementation of a water injection programme and the drilling of additional production wells.
La Noumbi
The La Noumbi licence consists of 2,830 sq km of under-explored acreage and lies directly to the south of the Gabon border and to the north of the Kouilou permit, which contains the prolific M'Boundi field. The licence is operated by Maurel et Prom, who have a 49 percent stake, with Burren Energy holding a 37 percent stake through Tacoma Resources; Afren is acquiring the remaining 14 percent interest. The La Noumbi Production Sharing Contract was ratified by the Congolese parliament on 24 March 2006.
This licence offers an exciting high impact exploration opportunity. Several structural leads have been identified, the most mature of which is Doungou. Doungou is on trend with and interpreted to be in a similar structural setting to M'Boundi and has potential reserves of 50-75 mmbbl. A number of other significant leads and prospects have been identified on the licence.
The forward programme will involve carrying out further seismic acquisition and the reprocessing of existing data. This will be followed by the drilling of the most attractive targets, with three firm and three contingent wells required under the terms of the Production Sharing Contract. Preparations are underway for the drilling of the first exploration well on the Doungou prospect later this year.
A number of oil export options are being examined including a tie-back to the M'Boundi field and the possibility of a pipeline to the coast, where offloading to an FPSO could occur.
Mengo Field
The Mengo field was discovered by Elf in 1979 and has in place volumes of 2 billion barrels of oil. The field was shut in by Elf in 1993 following disappointing production rates, mostly from vertical wells. Afren intends to work with the Mengo partners (Maurel et Prom and Burren) to bring the latest technology to the field, including high angle wells and fracture stimulation techniques and will look carefully at potential future improved drilling and operational management processes for Mengo. Future production from Mengo will be subject to a 15 percent overriding royalty to Heritage Oil Corporation.
