Prevailing unsavoury developments in the oil sector may have further worsened the prospects of Afren Plc from getting out of the current crisis threatning its corporate existence.
Reason: The company, currently embroiled in sliding fortunes, has projected lower output from its oilfield. Already, its shares in the capital market has been suspended.
The company, in its operational and financial update, said, “as part of an ongoing review of the business plan, it has become clear that the expected level of near-term production is likely to be materially lower as compared to the assumptions announced alongside the proposed restructuring on 13 March 2015. There is significant uncertainty at this stage regarding the outcome of the review.”
Afren secured $255 million from bondholders in April but still needs approval for a wider restructuring which shareholders are scheduled to vote on July 24.
It stated: “As the review reaches a conclusion, the company will be further engage 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, to discuss 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, and therefore the company has requested the suspension of trading in its shares.
A further update will be provided to the market as soon as practicable,” it added. The London-listed company was forced to take nearly $2 billion in 2014 impairment charges and write-offs hurt by a fall in oil prices and the wiping out of reserves at an oilfield in Iraqi Kurdistan. In its restructuring proposal, Afren reckoned it could pump 29,000 to 36,000 barrels per dayin 2015, compared to the 31.8 kbopd 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”. Earlier this year, SEPLAT was in talks with Afren Plc over a potential take-over offer, which eventually failed.
Afren’s share price had already taken a hammering after it fired its Chief Executive, Osman Shahenshah, and Chief Operating Officer, Shahid Ullah for gross misconduct, but the company said it was confident it would be able to push on under the new terms, and build a stronger foundation for the future.
Chairman, Egbert Imomoh, had said: “Afren shareholders have been through an incredibly difficult period in the life of the business, and the next steps, while complex, are essential if we want to successfully emerge from this period on a value growth trajectory.
“I am clear that the only viable course of action for the business is to progress through the proposed refinancing process; it offers the only secure route to relieve the unsustainable debt burden, and support Afren’s recovery.
“ New chief executive Alan Linn added: “I believe Afren has significant potential within its core Nigerian portfolio which will enable us to successfully emerge from this period and provide growth to all shareholders.
“The recommended restructuring, combined with the open offer, is the only viable opportunity for our shareholders to realise any value from their investment in the company. “I urge all Afren shareholders to recognise this fact and vote to retain their active interest in the company by voting in favour of the proposed debt restructuring and refinancing.”
