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Afren PLC (AFR)

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Friday 13 March, 2015

Afren PLC

Trading statement and operations update

RNS Number : 3447H
Afren PLC
13 March 2015
 

THIS ANNOUNCEMENT IS NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION IN WHOLE OR IN PART IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DISTRIBUTE THIS ANNOUNCEMENT.

THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS AND INVESTORS MUST ONLY SUBSCRIBE FOR OR PURCHASE ANY SECURITIES REFERRED TO IN THIS ANNOUNCEMENT ON THE BASIS OF THE INFORMATION CONTAINED IN A PROSPECTUS AND NOT IN RELIANCE ON ANY INFORMATION IN THIS ANNOUNCEMENT.

 

 

                                                                                                                                                                                                                       

 

Preliminary agreement for interim funding and refinancing structure

Trading statement and operations update

 

London, 13 March 2015

 

Afren plc ("Afren", the "Company" or the "Group"), (LSE: AFR) has reached an agreement in principle to address its short and longer-term funding needs and recapitalise its capital structure.  An agreement has been entered into by Afren together with certain noteholders under its 2016 Notes, 2019 Notes and 2020 Notes and a majority of the lenders under its existing US$300 million Ebok credit facility, regarding the key terms of a proposed interim funding and recapitalisation of the Group, which is intended to result in the provision of US$300 million of net total funding before the end of June 2015.

Afren also issues the following trading statement and operations update, in advance of the Group's 2014 full year results which are scheduled for release by the end of March 2015.  Information contained within this release is un-audited and is subject to further review.

Update on capital structure review: Interim Funding and Recapitalisation

In connection with a review of its capital structure and alternatives to address its immediate and longer term funding issues, Afren has considered a range of proposals and alternatives from both existing stakeholders and third parties.  Following such review, the Company has concluded that a transaction with its current creditors offers the best alternative that is capable of being implemented.

Afren has reached a conditional agreement with noteholders representing approximately 42% of the outstanding principal amount due under its 2016 Notes, 2019 Notes and 2020 Notes (the "Ad Hoc Committee") for the provision of US$200 million in net interim funding in the form of a super senior private placement notes ("PPN"), which are expected to be issued by the end of March 2015 (the "Interim Funding").  This Interim Funding will provide initial liquidity to the Group and provide time to implement the required steps towards the completion of the recapitalisation transaction that has been agreed in principle between the Ad Hoc Committee and a majority of its lenders under its existing US$300 million Ebok credit facility (the "Ebok Facility").  The PPN have been pre-placed with certain members of the Ad Hoc Committee (the "Participating Noteholders").

The Ad Hoc Committee, together with lenders representing more than 67% by value of the lenders under the Ebok Facility (the "Consenting Ebok Lenders") have also agreed in principle to implement a financial and capital restructuring (the "Recapitalisation") to secure the Group's future.  The key elements to the Recapitalisation include:

·      Refinancing of the PPN through the issuance of US$321 million new high yield notes (the "New Senior Notes") which will provide an additional US$100 million in net cash proceeds to the Group

·      Debt-for-equity swap: 25% of the 2016 Notes, 2019 Notes and 2020 Notes will be converted into equity with the remaining existing Notes being reinstated and extended to 2019 and 2020 at an annual coupon of 9.1%

·      Extension of the Ebok Facility until 2019, alongside a re-profiling of the amortisation schedule under such facility

·      Issue of new shares to the existing noteholders who subscribe for the PPN and the New Senior Notes

·      Up to US$75 million equity offering to all shareholders to provide the opportunity to participate in the Recapitalisation and provide additional liquidity to the Group

 

It is anticipated that the Recapitalisation will be completed by the end of June 2015.  The issue of the PPN and implementation of the Recapitalisation are subject to entry into and completion of further documentation and formal approval by the Participating Noteholders, each of the lenders under the Ebok Facility (the "Ebok Lenders"), the lenders under the Group's other secured facilities and the Group's principal joint venture partners.  It is intended that the Recapitalisation will be implemented pursuant to a scheme of arrangement of the noteholders under the 2016 Notes, 2019 Notes and 2020 Notes (the "Noteholders"). In addition, an extraordinary general meeting of shareholders will be called in due course to seek shareholder approval for the terms of the Recapitalisation.   

The Recapitalisation will result in substantial dilution for existing shareholders.  Following completion of the Recapitalisation and assuming that the equity offering is subscribed in full by existing shareholders only, existing shareholders will hold up to approximately 11% of the fully diluted share capital of the Company. However, the Company believes that there are significant benefits in shareholders supporting the Recapitalisation, as compared to the alternative outcome if shareholders do not vote in favour at the extraordinary general meeting.  If shareholders do not approve the Recapitalisation, it is expected that the amended economic terms of the New Senior Notes, and the amendment and reinstatement of the Existing Notes, together with the requirement to initiate a sale of the Group's business, will mean that existing shareholders would be unlikely to see any return on their current investment.

Notwithstanding the aforementioned, both the provision of US$200 million of net interim funding and its replacement with the US$300 million in high yield notes (net) can be made available to the Group, without requiring shareholder approval, therefore ensuring that the short and longer-term needs of Afren are met. If shareholders do not approve the Recapitalisation, there will be no reduction in the amount due under the 2016 Notes, 2019 Notes and 2020 Notes (by way of a debt for equity swap) and the economic terms of the New Senior Notes will be amended so as to increase the return to holders of such notes, the combination of which is expected to result in existing shareholders being unlikely to see any return on their current investment. 

2014 summary

·      Afren faced several significant challenges during 2014, including the discovery of unauthorised payments to senior executives resulting in their dismissal, a significant reduction in reserves at Barda Rash in Kurdistan, the impact of a rapid decline in oil prices resulting in material impairments and a need to restructure the Group's financing. 

·      2014 full year net production slightly below guidance at 31.8 kbopd (gross production of 47.9 kbopd) (excluding Barda Rash), with net capex spend of approximately US$769 million.

·      2014 revenues were approximately US$0.9 billion (2013: US$1.644 billion) with gross debt of US$1.304 billion (2013: US$1.129 billion) and cash at bank of US$237 million (2013: US$390 million) which includes the realisation of US$80 million on oil price hedges sold in December 2014.

·      Post tax impairment charges totalling approximately US$2 billion are expected.  Impairment charges are expected in respect of production and development assets (including goodwill) due to the previously announced write-off of oil reserves at Barda Rash as well as the impact of lower oil prices on the reserves of producing assets in Nigeria.  Impairment charges will also be recorded against the Group's exploration and evaluation (E&E) assets as future capital expenditure is curtailed due to the materially lower oil price environment and Afren's current financing constraints.

·      Net certified 2P reserves excluding Barda Rash were 162 mmboe (31 December 2013: 172 mmboe).  The year-on-year fall of 6% was in line with expectations, reflecting net production in 2014, a change in net entitlement barrels due to the impact of lower oil prices and 4 mmbbls additional 2P reserves recognised at OML 113, following the Field Development Plan (FDP) approval.

2015 outlook and corporate update

·      In light of the significant volatility in the oil industry and related financing markets resulting from the rapid decline in oil prices, the Board initiated a review of the Group's capital structure, liquidity and funding requirements.  The Company was able to obtain a deferral of its obligation to pay a US$50 million amortisation payment under the Ebok Facility at the end of January 2015 and the Board decided (after utilising a 30 day grace period for payment) not to pay a US$15 million interest payment due under the 2016 Notes in order to preserve cash in the business while an agreement was being sought.

·      Agreement was reached in March 2015 with certain members of the Ad Hoc Committee to provide initial cash funding of US$200 million by way of new private placement notes. The proceeds of such interim funding will be used for working capital and general corporate purposes. 

·      Additionally, an agreement in principle has been reached with the Ad Hoc Committee, together with the Consenting Ebok Lenders, to implement a financial and capital restructuring to secure the Group's future, which is expected to be implemented by the end of June 2015 as part of the wider recapitalisation process.

·      Business plan realigned around core producing assets to operate in a lower oil price environment, with significant cost reductions expected in 2015, both in opex and capex.  Alvarez & Marsal engaged to provide services as Chief Restructuring Officer and cash management support.

·      2015 full year net production guidance of between 29 to 36 kbopd; capex spend expected to be approximately US$0.5 billion; capital allocation prioritised to the highest cash yielding near-term projects with focus towards existing Nigerian producing asset base.

·      The appointment of a new CEO is well advanced and an announcement is expected to be made shortly.  In addition, the Board of Directors will be strengthened with the appointment of new directors to broaden its expertise; further announcements will be made in due course.

Commenting today, Toby Hayward, Interim CEO of Afren plc, said:

"2014 was a painful year for Afren and its shareholders.  The consequences of the unauthorised payments issue and resulting dismissal of both CEO and COO immediately before the dramatic fall in the oil price coupled with the material reduction in our Kurdistan reserves and resources led to material impairments all of which significantly eroded shareholder value.  We have responded by putting in place a number of recovery measures and a business plan that focuses on our valuable cash generating production assets in Nigeria and incorporates broad cost cutting measures.

We are confident that Afren will emerge from this difficult period as a financially stable company capable of delivering growth in 2015 and beyond. This has been made possible because of the constructive discussions we have had with the Ad Hoc Committee of our largest bond holders as well as the Group's senior lenders and operating Partners which has resulted in the funding announced today combined with a longer term focus on recapitalising the business. We anticipate appointing a new CEO shortly who will be able to work with all stakeholders and to lead the business forward."

 

Strengthening for the future

2014 full year trading statement and operational update

Despite the challenging operational and macro-economic conditions during the year, Afren delivered full year 2014 gross and net production (excluding Barda Rash) of 47.6 kbopd and 31.8 kbopd respectively.  Full year net production was slightly below our production guidance range of between 32 to 36 kbopd (excluding Barda Rash).  Production fell below our guidance principally due to the lower production at Ebok caused by delays with the installation of the Ebok Central Fault Block platform extension as well as lower than planned production from Barda Rash.  In addition, unplanned downtime on the Trans-Forcados pipeline and delays in mobilising the Durga-2 rig at OML 26, onshore Nigeria, impacted the timing of completion of the planned two wells from the Ogini field.  The Ogini-22 and -23 wells were however successfully drilled and completed during the second half of the year, while a third producer was spudded on 26 December 2014 and was completed on 13 February 2015.  Elsewhere, at the Okoro field, production operations during the period were in line with expectations following completion of the Okoro 15 well and the sidetrack of the Okoro 12 well. 

On an annualised basis, Group production in 2014 was down 33% due to cost recovery at Ebok and the delays in achieving production ramp-up at Ebok and OML 26.   2014 full year revenue is expected to be approximately US$0.9 billion (2013: US$1.644 billion), reflecting both lower production volumes and lower realised oil prices in the second half of the year (1H 2014: US$108/bbl, 2H 2014: US$86/bbl).  Capital expenditure in 2014 was approximately US$769 million, with US$625 million allocated to production and development activities and US$144 million allocated to E&E work.  In December, Afren sold its remaining hedges of 2.85 mmbbls, realising a cash benefit of US$80 million.  Net debt at the end of 2014 was US$1.067 billion (31 December 2013: US$739 million). 

On 12 January 2015, Afren announced its intention to review its strategic options in respect of the Barda Rash field, Kurdistan region of Iraq, reflecting both disappointing operational results at the field and a significant reserves and resources downgrade following an updated Competent Persons Report (CPR) by RPS Energy.  The reserves movement at Barda Rash combined with the impact of lower oil prices on producing assets is expected to result in a material impairment charge in 2014 in respect of the reserves relating to production and development assets (including goodwill) with Barda Rash fully written off.  In addition material impairment charges are expected in relation to its E&E assets as future capital expenditure is curtailed due to the materially lower oil price environment and Afren's current financing constraints.  Post tax impairment charges totalling approximately US$2 billion are expected.

The Group's exploration and drilling campaign had mixed results in 2014.  Of note, we were pleased with the technical results of the drilling and coring operations in Madagascar which encountered light oil accumulations in two boreholes, whilst we had disappointing news at the Ameena East well on OML 115, which was spudded at year-end and completed in January 2015.  The Ameena East well was targeting 65 mmbbls of gross unrisked resources and reached a Total Depth of 8,200 ft.  Although the shallower reservoirs were found to be water-bearing, light hydrocarbons were encountered in a gross interval between 7,475 ft and 7,535 ft as indicated by wireline logs.  No further testing was undertaken.  The well has been temporarily abandoned and made available for potential re-entry at a future time.  The unsuccessful well costs have been written off in accordance with IFRS and Afren's accounting policies.

Net certified 2P reserves excluding Barda Rash in 2014 were 162 mmboe (31 December 2013: 172 mmboe).  The year-on-year fall of 6% was in line with expectations, reflecting net production in 2014, a change in net entitlement due to the impact of lower oil prices and 4 mmbbls additional 2P reserves recognised at OML 113, following FDP approval in 2014.

2015 outlook

As announced on 27 January 2015, in light of the significant challenges in the industry and related financing markets resulting from the rapid fall in the oil prices, the Board has been discussing a number of refinancing measures with the aim of recapitalising the business, extending debt maturities, lowering the Group's cost base and focussing the Company's operational efforts towards achieving production and cash flow ramp-up from its existing Nigerian production base as outlined in the business plan.  The Group's revised business plan assumes a lower oil price environment for the foreseeable future and is expected to lead to a year-on-year growth in the underlying net production base through to 2017.

On 2 February 2015 following an agreement with the Ebok Lenders, Afren agreed a deferral of the US$50 million amortisation due on 31 January 2015 until 27 February 2015.  On 2 March 2015, the Ebok Lenders agreed a further deferral of the US$50 million amortisation until 31 March 2015.  On 3 March 2015, following the expiration of the 30 day grace period, Afren announced that it had decided not to make the payment of US$15 million due in respect of interest under the 2016 Notes.  Such decisions were taken in light of the constructive discussions held with the Ad Hoc Committee, the Ebok Lenders and the Group's operating partners.

Afren is pleased to announce that an agreement has been reached with the Participating Noteholders to provide interim funding of US$200 million by way of new private placement notes. The proceeds of such Interim Funding will be used for working capital and general corporate purposes.  Additionally, an agreement in principle has been reached with the Ad Hoc Committee, together with the Consenting Ebok Lenders, to implement a financial and capital restructuring to secure the Group's future which is expected to be implemented by the end of June 2015.

Afren expects full year 2015 net production to average between 29 to 36 kbopd, with forecast capital expenditure of approximately US$0.5 billion, giving priority to the Group's existing high-margin Nigerian producing asset base.  This guidance reflects the impact of operating in a significantly lower oil price environment, and includes a single rig drilling campaign throughout the year on Ebok, completion of the 5 well programme on OML 26 (which includes 3 wells to be drilled in 2015, and 2 wells which were completed in 2014), and the optimisation of the forward programme at Okoro.  Furthermore, a decision has been made to postpone discretionary spending subject to an improvement in oil prices and the outcome of the wider recapitalisation initiatives which are under discussion.  The Group's postponed discretionary spend includes planned expenditure on projects which are lower margin, higher cost projects compared with its existing producing Nigerian asset base.  In respect of the Group's exploration and appraisal commitments this year, Afren will continue to engage with host governments including discussing opportunities for strategic divestments.  In light of current low oil prices, the Company anticipates that its operating expenses will benefit from a targeted 15% in efficiency savings through a reduction in market rates and renegotiation of contracts.

Moreover, the Group has initiated a broad programme of general and administrative cost reductions and is currently implementing a number of operational measures, including a review of headcount, that will lead to efficiencies and significant cost savings

 

Additional disclosures

The Group had US$170 million of accounts payable and accrued liabilities relating to exploration and development expenditure as at 31 December 2014 that is unwinding during the first half of 2015, resulting in a significant cash outflow.

There are also one-off exceptional items that are contractually due during 2015:

·      US$23 million exceptional cash outflow in 2015, out of which US$15 million relates to the termination of contracts

·      US$69 million of partner payments due following the renegotiation of the Production Sharing and Technical Services Agreement with AMNI ("PSTSA") in 2013

·      US$83 million deferred acquisition costs relating to the acquisition of additional equity in FHN in 2013, which comes due in July 2015

·      It is estimated that the Group will incur at least US$48 million in costs associated with the Recapitalisation, of which US$20 million is contingent on the closing of the Recapitalisation

Since the announcement of the review of the Group's capital structure and funding requirements, Afren has received a number of claims for breaches of contract for non-payment of amounts due for services provided and/or the termination of services contracts.  These claims have arisen in part due to the liquidity constraints facing the Group, as well as actions taken to reduce costs in line with the revised focus on the Group's core producing assets.  Such claims include:

·      Notice of claim for US$104 million in termination and cancellation fees, costs, losses and expenses under oil services contracts relating to Okwok and Okoro, together with a notice of breach of the PSTSA from AMNI arising in respect of such terminated oil services contract for Okoro

·      Arbitration proceedings by Lion Petroleum for US$10 million in damages in respect of certain breaches of the Joint Operating Agreement signed between East African Exploration (Kenya) Limited and Lion Petroleum in respect of Block 1, Kenya

The Company disputes and/or has rejected such claims and is in discussions with the relevant claimants regarding potential settlements and/or withdrawal of such claims.   The Company has made certain provisions in respect of some of these claims pending resolution of the disputes.

Further information of the Interim Funding and Recapitalisation

The members of the Ad Hoc Committee and the Consenting Ebok Lenders (together, the "Locked Up Creditors") have entered into a lock-up and restructuring agreement with the Group. Under the terms of this agreement, the Locked Up Creditors have agreed to take all actions reasonably requested by the Group in order to support, facilitate, implement or otherwise give effect to the Interim Funding and the Recapitalisation. In addition, the Locked Up Creditors have agreed to refrain from taking any action that would frustrate the Recapitalisation, such as accelerating any sums owing by the Group or taking any enforcement action over any security from which they benefit.

Subject to, among other things, entry into definitive agreements in respect of the issue of the PPN and the implementation of the Recapitalisation, the receipt of requisite approvals by Noteholders, each of the Ebok Lenders, the Group's other secured lenders and key operating partners, together with the approval of shareholders (at an extraordinary general meeting to be convened in due course), the Recapitalisation will include: 

Interim Funding

·      Provision of US$200 million in net interim funding by the issue of US$212 million PPN to the Participating Noteholders.  The PPN will be issued for a term of 12 months at an original issue discount of 5.5% and carry annual interest (payable in kind) of 15%. 

·      The issue of the PPN is subject to the satisfaction (or waiver) of a number of conditions precedent, including the appointment of a new CEO, receipt of the consent of the remaining lenders under the Ebok Facility to the terms of the Recapitalisation and the amendment of the terms of the 2016 Notes and the 2019 Notes (by way of a consent solicitation process to be launched shortly) to increase certain thresholds under such Notes to permit the issue of the PPN. 

·      The PPN will be repaid through a combination of the issue of the New Senior Notes and the issue to the Participating Noteholders of new ordinary shares representing 5% of the fully diluted share capital of the Company following the completion of the Open Offer (the "PPN Share Issue"). 

 

Recapitalisation

·      Conversion of 25% of the outstanding principal amount of 2016 Notes, 2019 Notes and 2020 Notes (the "Existing Notes") (being US$230 million) pursuant to the issue of new ordinary shares which will result in Noteholders holding 80% of the increased share capital of the Company immediately following such conversion (the "Debt-for-Equity Swap").

·      The remainder of the Existing Notes will be amended and reinstated into equal amounts of US$345 million of new notes due 2019 and 2020 (the "New 2019 Notes" and the "New 2020 Notes"), with an annual interest rate of 9.1%, payable in kind until the New Senior Notes are fully repaid and then payable in cash.

·      The issue of US$321 million of new high yield notes due 2017 to refinance and repay the PPN and provide an additional US$100 million in net cash proceeds to the Group.  The issue of the New Senior Notes will be committed by the Participating Noteholders, while all Noteholders will be eligible to participate in the subscription for the New Senior Notes pro rata to their existing holdings. The New Senior Notes will carry annual interest at 15% (7.5% payable in cash and 7.5% payable in kind). 

·      Additionally, new ordinary shares representing 50% of the fully diluted share capital immediately following the Debt-for-Equity Swap will be issued (for cash at nominal value) to those Noteholders who subscribe for the New Senior Notes (the "New Senior Notes Share Issue"). These new shares will dilute both existing shareholders, as well as the Noteholders who receive shares pursuant to the Debt-for-Equity Swap.      

·      Afren will then commence a pre-emptive open offer of new shares to all shareholders, including those Noteholders who acquire shares pursuant to the Debt-for-Equity Swap and the New Senior Notes Share Issue (the "Open Offer").  At the time of the commencement of the Open Offer, existing shareholders will own 10% of the issued share capital of the Company.  The Open Offer will comprise up to US$75 million in new ordinary shares and will include an ability for all shareholders to subscribe for more than their pro rata interests in the shares, but will not be underwritten. Details of the Open Offer including pricing will be announced in due course.

·      Upon completion of the Open Offer, Afren will then issue to Noteholders who agreed to subscribe for the New Senior Notes further new ordinary shares (for cash at nominal value) representing 10% of the fully diluted share capital of the Company following the completion of the Recapitalisation (the "Early Subscriber Issue").  Such additional shares will be allocated to Noteholders in order of priority of their agreement to subscribe for the New Senior Notes (being a form of "early bird" incentive payment).

·      Additionally, Afren will issue the new shares pursuant to the PPN Issue (noted above). 

·      The amendment and restatement of the Ebok Facility, to include an extension of such facilities until 2019, alongside a re-profiling of the amortisation schedule under such facilities such that no repayment of such facilities will occur until after repayment in full of the New Senior Notes. 

In order to facilitate the Recapitalisation, and to ensure that the new ordinary shares to be issued under the Recapitalisation are not issued below the current nominal value of 1p each, shareholders will be asked to approve an initial reduction in the nominal value of the ordinary shares at the extraordinary general meeting (via a sub-division of the ordinary shares).  It is also proposed that, following all issues of new shares under the Recapitalisation (including the Open Offer), the new ordinary shares are then subsequently consolidated such that the total number of issued shares is commensurate with the expected market capitalisation of the Company.  Details of the proposed sub-division and consolidation of the share capital will be announced in due course.

It is proposed that the Debt-for-Equity Swap and the issue of the New Senior Notes, the New 2019 Notes and New 2020 Notes will be implemented by way of a scheme of arrangement between the Company and the Noteholders in accordance with Part 26 of the Companies Act 2006.  It is anticipated that the PPN will be issued before the end of March 2015 and the Recapitalisation will be completed by the end of June 2015. 

Following completion of the Recapitalisation and assuming that the Open Offer is subscribed in full by existing shareholders only, existing shareholders will hold up to approximately 11% of the fully diluted share capital of the Company (assuming the Open Offer is made at a 40% discount to the theoretical ex-rights price of the ordinary shares).

Impact if shareholder approval is not given

In the event that shareholder approval for the Recapitalisation is not obtained at the general meeting to be convened in due course, this will not prevent the provision of the US$200 million interim funding nor the subsequent issue of the New Senior Notes.  However amendments will be made to the terms of the Interim Funding and Recapitalisation (as part of the approval pursuant to the scheme of arrangement), including:

·      The PPN will become repayable in full pursuant to the issue of the New Senior Notes.

·      The Debt-for-Equity Swap will not be completed:

-     The Existing Notes will be amended and reinstated into US$345 million notes due 2019, US$345 million notes due 2020 and US$230 million notes due 2021.

-     The amended and restated notes due in 2019 and 2020 will carry cash interest at 9.1% per annum, with the new notes due in 2021 having an annual interest rate of 20.2% (payable in kind).

·      No new shares will be issued, either under the terms of the PPN, the New Senior Notes or pursuant to any equity offering to existing shareholders.

·      The terms of the New Senior Notes will be amended:

-     The principal amount of the New Senior Notes will be increased to US$353 million, reflecting (i) that the "early bird" incentive mechanism to subscribers of the New Senior Notes will be payable in additional New Senior Notes (rather than in ordinary shares) (ii) an increase in the discounted issue price to 5% and (iii) the additional New Senior Notes to be issued in partial repayment of the PPN (that would otherwise have been repaid by the issue of new shares).

-     The New Senior Notes will be issued with amended cash interest rate of 7.1% per annum.

-     Additional interest will accrue on the New Senior Notes, to be payable pursuant to two further series of notes. 

  A separate class of senior notes will be issued, which will carry interest at 2.7% per annum (payable in kind) and will be repayable in 2017 (the "New Senior PIK Notes").

  A separate class of junior notes will be issued, which will carry interest at 26.8% per annum (payable in kind) and will be repayable no earlier than 6 months after the maturity date of the Ebok Facility (the "New Junior PIK Notes").

-     The New Senior Notes will include certain events of default if the Company does not initiate and/or implement a sale of the Group's business by agreed dates.  The New Senior Notes will also carry the right to appoint a majority of the Company's board, with such nominated directors having control over the sale of the Group's business.

Therefore, if shareholders do not approve the Recapitalisation, it is expected that the amended economic terms of the New Senior Notes, and the amendment and reinstatement of the Existing Notes, together with the requirement to initiate a sale of the Group's business, will mean that existing shareholders would be unlikely to see any return on their current investment.  If shareholders do approve the Recapitalisation, they will have the opportunity to participate in the Open Offer (and thereby limit the size of the dilution of their interests in the Company), as well as benefit from any upside in the business of the Group. 

Further details on the transaction

The Company has received the support of a number of its stakeholders, who have entered into a lock-up agreement:

·      Not less than 67% of the Ebok Lenders

·      Approximately 42% of the Noteholders

Under the terms of the lock-up agreement, amendments will be made to the existing inter-creditor agreements relating to the existing Notes and secured lender facilities.

The amortisation profile under the Ebok Facility will be amended as follows:

·      No amortisation payments will be made until the later of the New Senior Notes being repaid and 30 June 2017

·      From thereon, 8 quarterly amortisations of up to a maximum of US$37.5 million, including:

-     A fixed amortisation of US$13.3 million rising to US$23.3 million

-     The remaining amortisation (up to US$37.5 million in aggregate together with the fixed amortisation) being subject to a DSCR and cash test. 

·      To the extent that the full US$37.5 million amortisation has not been paid in a given quarter, it will be deferred until the maturity of the loan (unless there are certain minimum cash balances in the Group)

The Group will also repay amounts due under the Ebok Facility under a semi-annual cash sweep mechanism.

Production 

Production FY 2014 (kbopd)

 

Working
interest

Average gross production

Average net production

Okoro

50%

16.5

8.2

Ebok

50%(1)

27.8

22.1

OML 26

45%

3.3

1.5

Barda Rash

60%

0.3

0.2

Total


47.9

32.0

(1)       Afren's net production includes its 50% economic interest plus additional barrels to recover costs of capital investment funded by Afren (inclusive of barrels used to settle net profit interest)

 

Realised commodity prices and oil inventory

 

 

Financing and net debt (prior to the Recapitalisation)

 

 

End 2014 (US$m)

End 2013 (US$m)

Coupon

Repayment due/Final maturity

2016 senior secured notes

253

253

11.50%

2016

2019 senior secured notes

250

250

10.25%

2019

2020 senior secured notes

360

360

6.625%

2020

Ebok facility

300

210

LIBOR +4.25%

From 2015 (1)

Okwok facility

60

-

LIBOR +9.75%

2015

OML 26 facility(2)  

100

80

LIBOR +6.5%

From 2015

Capitalised borrowing costs

(19)

(24)



Total debt at end period

1,304

1,129



Cash at bank

237

390



Net debt at end period

1,067

739



(1)       No repayments in 2014. Scheduled repayments commencing January 2015 at US$50 million per quarter

(2)       OML 26 facility refinanced in 1H 2014.  No repayments in 2014.  Scheduled payments commencing September 2015 at US$9 million per quarter

 

 

A copy of a presentation on the proposed Recapitalisation and trading update is available on the Company's website www.afren.com. For further information contact:

 

Afren plc                                                                                                          Tel: +44 20 7864 3700

Toby Hayward, Interim CEO

Simon Hawkins, Group Head of Investor Relations                                               

 

Bell Pottinger (public relations adviser to Afren plc)                                       Tel: +44 20 7772 2500

Gavin Davis

Henry Lerwill

 

Notices

This announcement is for information purposes only and does not constitute an invitation or offer to buy, sell, issue, underwrite, acquire or subscribe for, or the solicitation of an offer to buy, sell, issue, acquire or subscribe for any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. Any failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdictions.

In particular, this announcement does not constitute or form part of any offer to buy, sell, issue, acquire or subscribe for, or the solicitation of an offer to buy, sell, issue, acquire, or subscribe for, any securities in Australia, Canada, Japan, the Republic of South Africa or any other jurisdiction into which such offer or solicitation would be unlawful. No public offering of the securities referred to herein is being made in the United Kingdom, Australia, Canada, Japan, the Republic of South Africa or any other jurisdiction.

This announcement is not an offer of securities for sale in the United States. The securities referred to above have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the "US Securities Act"), and may not be offered or sold in the United States absent registration or an exemption from registration as provided in the US Securities Act and the rules and regulations thereunder. There has not been and will not be a public offer of the securities in the United States.

The distribution of this announcement in certain jurisdictions may be restricted by law. No action has been taken that would permit an offering of any securities or possession or distribution of this announcement or any other offering or publicity material relating to such securities in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes are required to inform themselves about, and to observe, such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

Disclaimer and cautionary note on forward looking statements and notes on certain other matters

Certain statements in this announcement are not historical facts and are or are deemed to be "forward-looking". The Company's prospects, plans, financial position and business strategy, and statements pertaining to the capital resources, future expenditure for development projects and results of operations, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology including, but not limited to; "may", "expect", "intend", "estimate", "anticipate", "plan", "foresee", "will", "could", "may", "might", "believe" or "continue" or the negatives of these terms or variations of them or similar terminology. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. These forward-looking statements involve a number of risks, uncertainties and other facts that may cause actual results to be materially different from those expressed or implied in these forward-looking statements because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond Afren's ability to control or predict. Forward-looking statements are not guarantees of future performances.

Factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected include, but are not limited to, the following: risks relating to changes in political, economic and social conditions in the countries in which Afren operates; future prices and demand for the Company's products; global oil production; trends in the oil & gas industry and domestic and international oil & gas market conditions; risks in oil & gas operations; future expansion plans and capital expenditures; the Company's relationship with, and conditions affecting, the Company's partners and regulators; competition; weather conditions or catastrophic damage; risks relating to law, regulations and taxation in the countries in which Afren operates, including laws, regulations, decrees and decisions governing the oil & gas industry, the environment and currency and exchange controls and their official interpretation by governmental and other regulatory bodies and by the courts; and risks relating to global economic conditions and the global economic environment. Additional risk factors are as described in the Company's annual report.

Forward-looking statements are made only as of the date of this announcement. The Company expressly disclaims any obligation or undertaking to release, publicly or otherwise, any updates or revisions to any forward-looking statement contained in this announcement to reflect any change in its expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based unless so required by applicable law.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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