Afren PLC (AFR) - Interim Management Statement RNS Number : 9451Q Afren PLC 13 November 2012 Afren plc (AFR LN) Interim Management Statement London, 13 November 2012 - Afren plc ("Afren" or the "Company"), announces its Interim Management Statement and financial results for the nine months ended 30 September 2012 and an update on its operations year-to-date 2012, in accordance with the reporting requirements of the EU Transparency Directive. Information contained within this release is un-audited and is subject to further review. 2012 nine months ended 30 September 2012 results summary Afren continues with record financial results in 2012 driven by the year-on-year increase in net production from the Ebok and Okoro fields, offshore Nigeria. Notably, production on the Okoro Field Extension has commenced, following the discovery announced in January. Production operations continue at the Barda Rash field in the Kurdistan region of Iraq. Following the exploration success on the Ebok North Fault Block and Okoro Field Extension, adding significant reserves, and a world class discovery in the Kurdistan region of Iraq, exploration wells are drilling ahead onshore Kenya (Block 10A) and in the Kurdistan region of Iraq (Simrit-3). Financial highlights Q3 2012 Q3 2011 Change Revenue (US$mm) 1,077.0 312.2 +245.0% Operating cash flow (US$mm)* 787.7 226.3 +248.1% Gross Profit (US$mm) 543.8 153.2 +255.0% Profit Before Tax (US$mm) 411.8 112.9 +264.7% Normalised Profit After Tax (US$mm)** 145.5 66.5 +118.8% * Before movements in working capital ** See note 4 of the condensed financial statements Key Highlights · Record sales revenue of US$1,077.0 million and operating cashflow before movements in working capital of US$787.7 million · Year-to-date net working interest production to 11 November of 42,033 boepd in line with expectations; on track for 2012 production guidance - Okoro-14 (Okoro Field Extension) early production well onstream at a stabilised rate of 5,000 bopd of 38° API oil; - Plan to replicate early production on Okoro Field Extension with an early production well at Ebok North Fault Block · Independently certified 2P reserves for Ogini and Isoko upgraded to 129 mmbbls and 2P+2C to 205 mmbbls on OML 26, onshore Nigeria - New gas lift compressor being installed; drilling of new wells to commence in 2013 · Exploration wells drilling ahead onshore Kenya (Block 10A) and Kurdistan region of Iraq (Simrit-3) - DST programme ongoing at Simrit-2 well; - Transocean Monitor drilling Rig secured ahead of E&A drilling on Okwok-10 and OML 115 Commenting on today's IMS, Osman Shahenshah, Chief Executive of Afren plc, said: "Afren has delivered another period of record financial results following the year-on-year increase in net production offshore Nigeria. The Company is on course to realise over a billion dollars of net operating cash flow in 2012, all from Afren's greenfield developments. I am also particularly pleased to see our ongoing exploration campaign delivering commercial success; with multiple E&A wells planned over the coming months in Nigeria, East Africa and the Kurdistan region of Iraq, Afren is well placed to continue to add to the growing reserves base." Operations update YTD production to 11 November 2012 Working interest Average gross Average net (boepd) production production Okoro 50% 16,158 8,284 Ebok 100%/50%* 29,359 29,359 CI-11 & LGP 47.96% / 100% 5,730 3,168 Barda Rash 60% 8 5 Total 51,255 40,816 Associate company production 45%** 6,010 1,217 Total including associate company 57,265 42,033 volumes * Pre/post cost recovery ** Afren is a 45% shareholder in First Hydrocarbon Nigeria Limited (FHN) which owns a 45% interest in OML 26 Note: All production data remains subject to reconciliation Following the completion of planned facilities work at the Ebok field and the commissioning of the Okoro-14 (Okoro Field Extension) production well post period end, average net production year-to-date as at 11 November 2012 is 42,033 boepd, keeping the Company on track to achieve full year 2012 production guidance. Nigeria Okoro and Okoro Field Extension Production operations continue to run smoothly at the Okoro main field. In Q2 2012, Afren and Amni International Petroleum Development Ltd. ("Amni") successfully side-tracked the existing Okoro-5 production well. As part of the partners' ongoing reservoir management and production optimisation work, the objective of the side-track well was to access additional oil volumes in a previously un-swept area of the reservoir within the Okoro main field area. The Okoro-5 well was re-entered and side-tracked at a measured depth of 4,481 ft, and the side-track subsequently drilled to a total measured depth of 9,800 ft. The side-track successfully encountered oil pay in the target reservoir, in line with prognosis, and a 2,500 ft lateral drainage section within this pay zone was bought onstream at a stabilised rate of 2,000 bopd. In July 2012, the Okoro-14 (Okoro Field Extension) development well was drilled by Afren and Amni from the existing Okoro main field wellhead platform ("WHP"), with the objective of establishing early production from the Okoro Field Extension discovery. The well targeted Tertiary aged reservoir sands within a new play comprising a deeper buried horst block structure, and delivered rates in excess of 6,000 bopd on production test, making it the most productive well drilled in the Okoro area to date. The well was subsequently completed and bought onstream via the existing Okoro Floating Production Storage Offloading vessel ("FPSO") at a stabilised rate of 5,000 bopd of 38° API oil. The partners are firstly utilising the available well head slots on the existing Okoro platform to gain early production information that will allow optimal design of the full field development configuration, which could potentially involve up to a further eight production wells under a full field development scenario. The Company estimates Pmean STOIIP at Okoro Field Extension to be 157 mmbbls with upside to 329 mmbbls. As a result of the Okoro-5 side-track and Okoro-14 (Okoro Field Extension) development well, total current production from the Okoro area is approximately 21,500 bopd. Ebok and Ebok North Fault Block As expected, planned shutdowns and ongoing facilities work influenced average daily production during the period. Following completion of this work, current production for November month to date is averaging 34,948 bopd, with year to date production averaging 29,359 bopd. The Adriatic IX drilling rig has now been relocated to the Ebok field in order to undertake planned rig-based work, which includes the drilling of a development well to establish early production from the recent Ebok North Fault Block ("Ebok NFB") discovery via existing facilities. This will provide Afren and partner Oriental Energy Resources ("Oriental") with important production and reservoir information ahead of implementing a full field development solution that is expected to incorporate the installation of a new 12-slot wellhead support structure and dedicated Mobile Offshore Production Unit ("MOPU") that will be tied back directly to the existing Ebok Floating Storage Offloading Vessel ("FSO"). The Company estimates Pmean STOIIP at Ebok NFB to be in excess of 100 mmbbls. Okwok Processing of the 348 km^2 Ocean Bottom Cable 3D seismic survey that was acquired over the whole Ebok/Okwok/OML 115 area in late 2011 has been completed, and results have been integrated into the existing data set. The new data is assisting with an E&A programme to test upside potential, and assist in development planning prior to formal submission of a Field Development Plan to the Nigerian authorities. The most likely development scenario for Okwok comprises the installation of a separate dedicated production processing platform tied back to, and sharing, the Ebok Floating Storage Offloading vessel ("FSO") located approximately 13 km tothe west. OML 115 The partners plan to spud the first exploration well on the block using the recently contracted Transocean Monitor Rig. The Ufon structure remains the most likely target. OML 26 Following completion of an independent assessment of the reserve and contingent resource potential of the Ogini and Isoko fields for First Hydrocarbon Nigeria ("FHN"), an Afren Associate, gross remaining 2P oil reserves at the fields have been estimated at 129.3 million barrels and gross contingent resources have been estimated at 75.7 million barrels (gross 2P+2C reserves and resources 205.0 million barrels; 92.3 million barrels net to FHN). This represents a 218 per cent. increase on 2P reserves previously carried by FHN and a 12 per cent. increase on previously carried 2P+2C volumes. Gross production at the Ogini and Isoko fields averaged 9,980 bopd during the third quarter with compressor uptime of 80 per cent., boosting average year-to-date production at 11 November to 6,010 bopd. In order to optimise compressor uptime, a new 5.2 mmcfd gaslift compressor unit was procured in October 2012 and is being installed, with plans also in progress to install a Lease Automatic Custody Transfer (LACT) unit at the Eriemu manifold by year end. Furthermore, sub-surface and facilities studies are in progress and it is the partners' intention to finalise the full Ogini FDP by year end and the full Isoko FDP in 2013. The drilling of new horizontal wells will commence in 2013 with the objective of ultimately increasing gross production to 50,000 bopd. Kurdistan region of Iraq Barda Rash Having commenced an extensive testing programme at the BR-1 well in July 2012 and establishing oil rates in excess of 6,000 bopd of 28° to 32° API oil, as well as obtaining valuable information on the production characteristics of the Mus/Adiayah reservoir, the Company commenced production operations in August 2012 and has produced its first cargo of sales specification oil to tank. Initial storage capacity limits during the early phases of start-up at the field led the Company to restrict flow-to-tank from the well to 2,472 barrels as at 11 November. Workover operations continue on the BR-3 well and a second rig is being contracted in order to commence the Phase 2 drilling campaign. Drilling pads for the first 2 wells are nearing completion and locations are being finalised for the remaining Phase 2 wells. Ain Sifni On 12 September 2012, Afren announced that exploration drilling had commenced at the East Simrit prospect (Simrit-3 well). The Simrit-3 well is located approximately 10 km east of the successful Simrit-2 discovery well, and is exploring the eastern extent of the large scale Simrit anticline. The Simrit anticline is a large scale east to west trending structure located on the northern part of the Ain Sifni PSC. The partners completed drilling of the Simrit-2 exploration well in July 2012, the purpose of which was to test the western extent of the structure. The well was ultimately drilled to a total measure depth of 12,467 ft and encountered 1,509 ft of net oil pay throughout Cretaceous, Jurassic and Triassic age reservoirs. No oil water contact has been established in the target reservoirs. Following the conclusion of drilling operations, a comprehensive well test programme commenced and is scheduled to recommence with a workover rig that is currently undergoing acceptance tests. The partners intend to undertake up to a further nine separate drill stem tests ("DSTs") in total, and announced on 26 July 2012 that the first batch of three DSTs in the Triassic age Kurra Chine formation had yielded an aggregate flow rate of 13,584 bopd of 39° API oil. The Simrit-3 exploration well is seeking to demonstrate the presence of oil within the same Cretaceous, Jurassic and Triassic reservoir intervals at the eastern extent of the Simrit anticline. Côte d'Ivoire CI-11 and Lion gas Plant Average gross production to 11 November 2012 at CI-11 was 4,923 boepd, with807 boepd of Natural Gas Liquids ("NGL") production at the Lion Gas Plant. Production operations continue uninterrupted at the Company's assets in Côte d'Ivoire and remain in line with expectations. CI-01 Progress is being made to advance the field development plan and associated work programme with Petroci and the Government on this block. 3D seismic to augment the existing well and seismic dataset is expected to be part of this programme. It is believed that the acquisition of new data will significantly enhance the prospectivity of this block. West Africa exploration Nigeria São Tomé & Príncipe JDZ Block 1 The Obo-2 and Enitimi-1 wells were drilled during the first half of the year. Both wells encountered oil and gas pay, and the operator Total continues to evaluate the results and commercial viability. Congo Brazzaville La Noumbi Following interpretation of depth processed 2D data on the block, two prospects have been identified and the operator plans to commence drilling these in the fourth quarter of 2012 Nigeria OPL 310 Afren has identified several prospects that lie in the same Senonian, Turonian and Albian sandstone intervals that have yielded significant discoveries along the West African Transform Margin in Ghana and Côted'Ivoire. Detailed technical work and well planning continues in preparation for an exploration well in early 2013. OPL 907, 917 The Company is continuing to evaluate the potential of the blocks in order to identify areas for future seismic acquisition that could ultimately lead to future exploration drilling. Ghana Keta Block The partners have progressed into the next two year exploration phase. The work programme associated with the current phase requires the acquisition of new 3D seismic data, which recently commenced, and the drilling of one exploration well by May 2014. The Nunya-1x exploration well has provided important information with which to calibrate and further enhance the Company's understanding of this under-explored block in what still remains a high potential basin. South Africa Block 2B The partners' near-term work programme involves the acquisition of 686 km^2 of 3D seismic data in the first quarter of 2013. Exploration drilling is expected in 2014. East Africa exploration Kenya Block 10A Having satisfied all seismic work commitments with the acquisition of 750 km of 2D seismic over the block in 2011, the operator (Tullow Oil) commenced exploration drilling at the Paipai prospect in September 2012 and continues to drill ahead. Block 1 Acquisition of the planned 1,900 km of 2D seismic data is nearing completion duringthe fourth quarter of 2012. Blocks L17/L18 Interpretation of the new 1,207 km of 2D seismic data acquired in January 2012 has identified four new highly encouraging prospects, in addition to the previously mapped prospects in the shallow water. These prospects represent a major new play with lower risk and greater materiality than the shallow water play, and together have increased the mean prospective resources on the block from 94 mmboe to 1,088 mmboe, since the Black Marlin acquisition. As a result, Afren, in close consultation with the Ministry of Energy, has commenced the acquisition of 1,000 km^2 3D seismic in lieu of the well commitment, in order to better understand the deep water prospectivity, prior to exploration drilling. In addition, an onshore 2D seismic survey of 120 km has been contracted and commenced in September 2012 to simultaneously continue maturation of the shallow water/onshore play. Tanzania Tanga Block During Q4 2011, the partners acquired over 900 km of 2D seismic data in deeper water areas of the licence. Interpretation of these data reinforces previous views of the prospectivity of these areas, in the same play that has also been identified in neighbouring Kenya blocks L17/18. The result is an increase in mean prospective resources on the block from 1,026 mmboe to 1,244 mmboe. A 3D seismic survey of approximately 500 km^2 will commence immediately after completion of the Kenya blocks L17/L18 survey, prior to exploration drilling. Seychelles Areas A, B Seismic data previously acquired by the partners revealed the presence of several large scale structures in the two licence areas. A major new survey in Q4 2011 (3,733 km) focussed on these areas to better define the prospectivity. The data is currently being processed. An extensive prospect building 3D seismic programme is being planned for the fourth quarter of 2012. Madagascar Block 1101 An airborne gravity and magnetic survey was completed in January 2012. Geological fieldwork was conducted in June, and a 250 km 2D seismic acquisition is underway. An exploration well is expected in 2013. Ethiopia Blocks 7, 8 Work is ongoing to further interpret the prospectivity of Blocks 7 and 8 ahead of expected drilling by the new operator New Age in the first half of 2013. Forward exploration and appraisal drilling schedule Effective Gross Mean Country Asset Working prospect size E&A wells / Seismic Interest mmbbls Nigeria Ebok North 100%/50%* Discovery** - Fault Block Nigeria Okoro East 50% Discovery** - Kurdistan Ain Sifni 20% Discovery** 3 wells region of Iraq Kenya Block 10A 20% 100 1 well Tanzania Tanga Block 74% 200 550 km^2 3D seismic & 1 well Nigeria OPL 310 70% 250 1 well Nigeria OML 115 100%/50%* 60 1 well Nigeria Okwok 70%/56%* 70 1 well Ethiopia Blocks 7 & 8 30% TBC 1 well Congo La Noumbi 14% TBC 2 wells Kenya Blocks 100% TBC 1,000 km^2 3D seismic L17/L18 Madagascar Block 1101 90% TBC 250 km 2D seismic & 1 well Seychelles Areas A,B 75% - 3D seismic South Africa Block 2B 25% - 600 km^2 3D seismic Ongoing technical studies Côte d'Ivoire Block CI-01 65% - and evaluation * Working interest pre/post cost recovery; ** Ebok North discovery announced 14 May 2012, successfully encountered net oil pay of 370 ft. Okoro East discovery announced 17 January 2012; successfully encountered net oil pay of 549 ft. Simrit-2 (Ain Sifni, Kurdistan region of Iraq) discovery announced 17 April 2012; successfully encountered net oil pay of 1,342 ft. Financial position Revenue in the period increased more than threefold to US$1,077.0 million (Q3 2011: US$312.2 million), following a full period of production from the Ebok field. The company realised an average oil price of US$107.7/bbl (Q3 2011: US$110.8/bbl) and an average gas price of US$5.95/mcf (Q3 2011: US$8.53/mcf). Oil and gas inventory at Q3 2012 was US$37.9 million (Q3 2011: US$49.2 million), representing approximately 228,000 barrels at Ebok and 415,000 barrels at Okoro net to Afren. Hedges covering approximately 6.2 million barrels are in place for the period 1 October 2012 to 30 June 2014, providing minimum floor prices on these volumes of between approximately US$80-US$90/bbl. Profit from continuing activities before tax was US$411.8 million (Q3 2011: US$112.9 million). This reflects an increase in gross profit of US$390.6 million compared with the comparative period, but also includes the effect of losses on derivative financial instruments of US$23.7 million on the valuation of mark to market oil price hedges (Q3 2011: US$5.2 million gain), finance costs of US$71.4 million (Q3 2011: US$36.8 million) largely arising from interest charges on the Company's banking facilities and secured loan notes and Afren's share of loss of associate FHN of US$5.0 million (Q3 2011: US$12.5 million gain). FHN reported a loss during the period mainly due to losses arising from crude oil hedging contracts in respect of the company's production from the OML26 field in Nigeria. Normalised profit in the period was US$145.5 million (Q3 2011: US$66.5 million). See note 4 to the financial statements for a full reconciliation of this number. The income tax charge for the period was US$289.0 million, of which US$209.7 million related to deferred tax (Q3 2011: US$47.5 million, including a deferred tax charge of US$6.3 million). With a period of full production at the Ebok field and having largely utilised available tax losses in 2011, the effective tax rate has increased during the period. Operating cash flow before movements in working capital was US$787.7 million (Q3 2011: US$226.3 million). After movements in working capital, which included advances and payments to partners of US$100 million relating to field development, and tax payments of US$9 million, net cash generated by operating activities totalled US$657.0 million (Q3 2011: US$152.0 million). The Company's investment in appraisal and exploration activities has continued during 2012, with expenditure of US$142.4 million in the period (Q3 2011: US$286.0 million). The main areas of expenditure were further exploration at the Okoro Field Extension (US$20.5 million), Keta (US$18.6 million), Ain Sifni (US$14.9 million) and Kenya Blocks 1, 10A and L17/L18 (US$23.8 million). Expenditure on oil and gas assets was US$204.3 million (Q3 2011: US$318.2 million), comprising continuing development of the Ebok and Okoro fields and US$69.2 million on Barda Rash. Net debt, excluding finance leases, as at Q3 2012 was US$595.4 million (Q3 2011: US$518.8 million; 31 December 2011: US$548.3 million) with cash at bank of US$448.0 million (Q3 2011: US$222.6 million; 31 December 2011: US$291.7 million). Q3 2012 Afren net debt Coupon Repayment due US$mm 2016 senior secured 500 11.5% 2016 notes 2019 senior secured 300 10.25% 2019 notes LIBOR +4.0% to Up to US$450 million facility. Ebok RBL 218 5.25% Repayments commence 2012 through 2015 Unsecured corporate 50 LIBOR +4.5% 23 month facility. facility Repayment in July 2013 Capitalised borrowing (25) costs Total debt at end 1,043 period Cash at bank 448 Net debt at end period 595 Ends. For further information contact: Afren plc (+44 20 7451 9700) Pelham Bell Pottinger (+44 20 7861 3232) Andrew Dymond James Henderson Investor Relations Mark Antelme Notes to Editors Afren Plc Afren is an independent upstream oil and gas exploration and production company listed on the main market of the London Stock Exchange and constituent of the Financial Times Stock Exchange Index of the leading 250 UK listed companies. Afren has a portfolio of 28 assets across 12 countries spanning the full cycle E&P value chain. Afren is currently producing from its assets in Nigeria, Côte d'Ivoire and the Kurdistan region of Iraq and holds further interests in Nigeria, the Kurdistan region of Iraq, Ghana, Côte d'Ivoire, Congo Brazzaville, the Joint Development Zone of Nigeria - São Tomé & Príncipe, Kenya, Ethiopia, Madagascar, Seychelles, Tanzania and South Africa. For more information please refer to www.afren.com. Condensed Group Income Statement For the nine months ended 30 September 2012 9 months to 9 months to 30 September 30 September 2012 2011 Unaudited Unaudited Notes US$ mm US$ mm Revenue 1,077.0 312.2 Cost of sales (533.2) (159.0) Gross profit 543.8 153.2 Administrative expenses (17.3) (25.8) Other operating income/(expenses) - impairment charge on exploration and 8 (14.4) (0.9) evaluation assets - service fees receivable from associate 3.2 5.0 company - derivative financial (23.7) 5.2 instruments Operating profit 491.6 136.7 Investment revenue 0.1 0.3 Finance costs 2 (71.4) (36.8) Other gains and (losses) - foreign currency (losses)/gains (0.1) 0.3 - fair value of financial liabilities and (3.0) (0.1) financial assets - loss on derivative financial instruments (0.4) - on shares of associate company Share of (loss)/profit of associate (5.0) 12.5 company Profit from continuing operations before 411.8 112.9 tax Income tax expense 5 (289.0) (47.5) Profit from continuing operations after tax 122.8 65.4 Discontinued operations Loss for the period from discontinued - (2.5) operations Profit for the period 122.8 62.9 Earnings per share from continuing operations Basic 3 11.4c 6.6c Diluted 3 10.9c 6.2c Earnings per share from all operations Basic 3 11.4c 6.3c Diluted 3 10.9c 6.0c Condensed Statement of Comprehensive Income For the nine months ended 30 September 2012 9 months to 9 months to 30 September 2012 30 September 2011 Unaudited Unaudited Notes US$ mm US$ mm Profit for the period 122.8 62.9 Loss on revaluation of investment (0.6) - in associate Total comprehensive income for the 122.2 62.9 period Condensed Group Balance Sheet As at 30 September 2012 30 September 31 December 2012 2011 Unaudited Audited Notes US$ mm US$ mm Assets Non-current assets Intangible oil and gas assets 802.8 713.7 Property, plant and equipment - Oil and gas assets 1,646.2 1,668.6 - Other 7.5 7.4 Prepayments and advances to partners 95.3 0.6 Derivative financial instruments 10.4 13.4 Investments 18.2 21.8 2,580.4 2,425.5 Current assets Inventories 80.2 67.1 Trade and other receivables 137.8 145.6 Derivative financial instruments - 0.7 Cash and cash equivalents 448.0 291.7 666.0 505.1 Total assets 3,246.4 2,930.6 Liabilities Current liabilities Trade and other payables (244.6) (317.4) Borrowings (217.8) (157.8) Current tax liabilities (107.9) (39.6) Deferred consideration and payables on - (216.7) acquisitions Obligations under finance lease (19.0) (18.1) Derivative financial instruments (11.9) (10.3) (601.2) (759.9) Net current assets/(liabilities) 64.8 (254.8) Non-current liabilities Deferred tax liabilities (334.1) (124.5) Provision for decommissioning (32.9) (31.6) Borrowings 7 (825.6) (682.2) Obligations under finance leases (103.0) (117.4) Derivative financial instruments (6.7) (7.6) (1,302.3) (963.3) Total liabilities (1,903.5) (1,723.2) Net assets 1,342.9 1,207.4 Equity Share capital 18.9 18.7 Share premium 920.1 918.1 Other reserves 32.3 26.4 Merger reserve 179.4 179.4 Retained earnings 192.2 64.8 Total equity 1,342.9 1,207.4 Condensed Group Cash Flow Statement For the nine months ended 30 September 2012 9 months to 30 September 2012 Unaudited 9 months to 30 September 2011 US$ mm Unaudited US$ mm Operating profit for the period 491.6 136.7 Depreciation, depletion and amortization 267.5 95.1 Unrealised losses/(gains) on derivative 4.0 (11.7) financial instruments Impairment charge on exploration and 14.4 0.9 evaluation assets Share based payments charge 10.2 5.3 Operating cash-flows before movements in 787.7 226.3 working capital Cash provided by operating activities of - (2.5) discontinued operations (Increase) in trade and other operating (94.0) (78.2) receivables (Decrease)/Increase in trade and other (30.5) 41.1 operating payables Decrease/(increase) in inventory (crude oil) 2.8 (35.0) Current tax paid (9.0) - Foreign exchange adjustments - 0.3 Net cash generated by operating activities 657.0 152.0 Purchases of property, plant and equipment - Oil and gas assets (274.6) (318.2) - Other (3.3) (4.2) Acquisition of participating interest on (190.2) (220.3) licences in Kurdistan region of Iraq Exploration and evaluation expenditure (108.3) (65.7) Purchase of investments - (0.7) Cash received on disposal of equipment of 1.2 - discontinued operations (Increase) in inventories - spare parts and (15.9) (10.5) materials Expenditure on acquisitions pending - (57.9) completion Investment revenue 0.1 0.2 Net cash used in investing activities (591.0) (677.3) Issue of ordinary share capital - equity - 180.7 raising Issue of ordinary share capital - share based 1.9 17.5 plans exercises Net proceeds from senior secured loan notes 291.8 479.6 Net proceeds from bank borrowings 111.9 159.4 Repayment of borrowings and finance leases (227.5) (189.4) Deferred consideration - finance cost paid (9.7) - Interest and financing fees paid (78.0) (40.4) Net cash provided by financing activities 90.4 607.4 Net increase in cash and cash equivalents 156.4 82.1 Cash and cash equivalents at beginning of the 291.7 140.2 period Effect of foreign exchange rate changes (0.1) 0.3 Cash and cash equivalents at end of period 448.0 222.6 Condensed consolidated statement of changes in equity As at 30 September 2012 Share Share premium Other Merger Retained Total capital account reserves reserve earnings equity US$ mm US$ mm US$ mm US$ mm US$ mm US$ mm Group At 1 January 2011 17.0 896.8 22.8 - (77.9) 858.7 Issue of share capital 1.6 17.3 - 179.4 - 198.3 Share based payments for - - 9.7 - - 9.7 services Other share based payments - - 0.1 - - 0.1 Reserves transfer relating - - (2.2) - 2.2 - to loan notes Reserves transfer on exercise of options, awards - - (6.5) - 6.5 - and LTIP Exercise of warrants - - - - 11.6 11.6 Other movements - - (0.5) - - (0.5) Net profit for the period - - - - 62.9 62.9 Balance at 30 September 18.6 914.1 23.4 179.4 5.3 1,140.8 2011 At 1 January 2012 18.7 918.1 26.4 179.4 64.8 1,207.4 Issue of share capital 0.2 2.0 - - - 2.2 Share based payments for services - - 10.9 - - 10.9 Other share based payments - - 0.1 - - 0.1 Reserves transfer on exercise of - - (4.4) - 4.4 - options, awards and LTIP Exercise of warrants - - (0.1) - 0.2 0.1 Net profit for the period - - - - 122.8 122.8 Other comprehensive expense for the - - (0.6) - - (0.6) period Balance at 30 September 2012 18.9 920.1 32.3 179.4 192.2 1,342.9 1. Basis of accounting and presentation of financial information The condensed Group interim financial statements, comprising Afren plc (''Afren'') and its subsidiaries (together, ''the Group''), have been prepared in accordance with International Accounting Standard (''IAS'') 34, ''Interim Financial Reporting'', as adopted by the International Accounting Standards Board ("IASB"). Accordingly, certain information and footnote disclosure normally included in annual financial statements prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the IASB, have been omitted or condensed as is normal practice. The condensed Group interim financial statements for the nine months ended 30 September 2012 have been prepared solely for the purposes of compliance with the terms of issue of the senior secured loan notes. The condensed Group interim financial statements are unaudited, and do not constitute statutory accounts as defined in sections 435(1) and (2) of the Companies Act 2006. Statutory accounts for the year ended 31 December 2011 were published and copies of which have been delivered to the Companies House. The report of the auditors on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not contain any statement under sections 498(2) or (3) of the Companies Act 2006. Changes in accounting policy The same accounting policies, presentation and methods of computation have been followed in these condensed Group interim financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 December 2011. These interim financial statements should be read in conjunction with the Group's consolidated financial statements for the year ended 31 December 2011. Going concern The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed Group interim financial statements. Principal risks and uncertainties Full details of the principal risks and uncertainties affecting the Group and its operations can be found on the appropriate pages of the 2011 Annual Report, which is available on the Company's website www.afren.com. Management consider these items to remain reflective of the risks faced by the Group as at 30 September 2012. 2. Finance costs 2012 2011 US$ mm US$ mm Bank interest payable 12.1 8.2 Borrowing costs amortisation and facility fees 11.4 13.7 Interest on finance lease 6.5 4.0 Interest on loan notes 61.4 40.5 Corporate facility interest payable 1.9 0.4 Unwinding of discount on loan notes - 2.5 Unwinding of discount on decommissioning and deferred 4.5 1.5 consideration 97.8 70.8 Less: capitalised interest (26.4) (34.0) 71.4 36.8 3. Earnings per share Period ended 30 September 2012 2011 From continuing and discontinued operations Basic 11.4c 6.3c Diluted 10.9c 6.0c From continuing operations Basic 11.4c 6.6c Diluted 10.9c 6.2c The profit and weighted average number of ordinary shares used in the calculation of the earnings per share are as follows: Profit for the period used in 122.8 62.9 the calculation of the basic earnings per share from continuing and discontinued operations (US$ mm) Effect of dilutive - - potential ordinary shares Profit for the period used in 122.8 62.9 the calculation of the diluted earnings per share from continuing and discontinued operations (US$ mm) Profit for the - 2.5 period from discontinued operations Profit used in the 122.8 65.4 calculation of the basic and diluted earnings per share from continuing activities (US$ mm) The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows: Weighted average number of ordinary shares used in the calculation of 1,078,770,015 998,367,237 basic earnings per share Effect of dilutive potential ordinary shares: Share based 49,728,395 payments schemes 49,453,920 Warrants 165,340 1,424,149 Weighted average number of ordinary shares used - in the calculation of 1,128,389,275 1,049,519,781 diluted earnings per share 4. Reconciliation of profit after tax to normalised profit after tax 2012 2011 US$ mm US$ mm Profit after tax 122.8 65.6 Unrealised losses/(gains) on derivative financial instruments* 4.0 (11.6) Share based payment charge 10.2 5.3 Foreign exchange gains/(losses) 0.1 (0.3) Fair value of financial assets and liabilities 3.0 0.1 Finance costs on settlement of borrowings 1.8 7.4 Share of after tax loss of associate's derivative financial 3.6 - instruments losses Normalised profit after tax 145.5 66.5 * Excludes realised losses on derivative financial instruments of US$19.7 million (30 September 2011: US$6.4m). Normalised profit after tax is a non-IFRS measure of financial performance of the Group, which in management's view provide a better understanding of the Group's underlying financial performance. This may not be comparable to similarly titled measures reported by other companies. 5. Taxation 2012 2011 US$ mm US$ mm UK corporation tax - - Overseas corporation tax 79.3 41.2 Total current tax 79.3 41.2 Deferred tax charge 209.7 6.3 289.0 47.5 The rise in the effective tax rate reflects having largely utilised the available tax losses and the commencing of production at the Ebok field during 2011 and throughout the 9 months ended 30 September 2012. 6. Operating segments For management purposes, the Group currently operates in five geographical markets which form the basis of the information evaluated by the Group's chief operating decision maker: Nigeria, Côte d'Ivoire, Other West Africa, Eastern Africa, and Middle East and North Africa. Unallocated operating expenses, assets and liabilities relate to the general management, financing and administration of the Group. Middle East Other and Côte West North Nigeria d'Ivoire Africa East Africa Unallocated Consolidated Africa US$ mm US$ mm US$ mm US$ mm US$ mm US$ mm US$ mm Nine months to September 2012 Sales revenue 1,052.5 24.5 - - - - 1,077.0 by origin Operating gain/(loss) before 546.7 0.4 (14.4) (0.5) (0.2) (16.7) 515.3 derivative financial instruments Derivative financial (23.7) - - - - - (23.7) instruments losses Segment result 523.0 0.4 (14.4) (0.5) (0.2) (16.7) 491.6 Investment 0.1 revenue Finance costs (71.4) Other gains and losses - (0.1) foreign currency gains Other gains and losses - fair value of financial (3.0) assets and liabilities Other gains and losses - gain on derivative financial (0.4) instruments in associate Share of loss (5.0) of an associate Profit from continuing operations before tax 411.8 Income tax (289.0) expense Profit from continuing operations after tax 122.8 Loss from discontinued - operations Profit for the 122.8 period Segment assets 1,439.6 122.3 82.0 245.6 673.6 17.3 2,580.4 - non-current Segment assets 577.2 (5.4) 3.3 2.5 10.4 78.0 666.0 - current Segment (944.6) (42.4) (8.2) (42.7) (6.9) (858.7) (1,903.5) liabilities Capital additions - oil 135.2 - - - 69.1 - 204.3 and gas assets Capital additions - 73.2 0.4 27.1 26.2 0.6 142.4 exploration and 14.9 evaluation Capital additions - 1.2 - - - 0.9 1.2 3.3 other Depletion, depreciation (250.7) (15.3) - - (0.1) (1.3) (267.4) and amortisation Exploration - - 14.4 - - - 14.4 costs write-off * During the period ended 30 September 2012, exploration and evaluation additions of US$39.4 million in respect of Okoro-14 (Okoro Field Extension) were transferred to oil and gas assets in the Nigeria segment. 6. Operating segments continued Middle East Other and Côte West North Nigeria d'Ivoire Africa East Africa Unallocated Consolidated Africa US$ mm US$ mm US$ mm US$ mm US$ mm US$ mm US$ mm Year to December 2011 Sales revenue 546.8 49.8 - - - - 596.6 by origin Operating gain/(loss) before 279.3 20.8 (0.3) (1.1) (0.1) (18.0) 280.6 derivative financial instruments Derivative financial (11.2) (1.3) - - - - (12.5) instruments losses Segment result 268.1 19.5 (0.3) (1.1) (0.1) (18.0) 268.1 Investment 0.6 revenue Finance costs (57.1) Other gains and losses - 1.2 foreign currency gains Other gains and losses - dilution gain 14.7 on investment in associate company Other gains and losses - gain on derivative financial 8.0 instruments on shares of associate company Other gains and losses - fair value of (0.1) financial assets and liabilities Share of loss of an (14.0) associate Profit from continuing 221.4 operations before tax Income tax (96.0) expense Profit from continuing 125.4 operations after tax Loss from discontinued (3.7) operations Profit for the 121.7 period Segment assets 1,390.1 139.1 71.6 216.6 588.8 19.3 2,425.5 - non-current Segment assets 364.9 60.4 4.4 1.7 20.1 53.6 505.1 - current Segment (726.4) (49.7) (6.9) (43.6) (312.8) (583.8) (1,723.2) liabilities Capital additions - 660.6 0.2 - - 5.0 - 665.8 oil and gas assets Capital additions - exploration 72.7 1.0 10.0 18.1 583.9 0.7 686.4 and evaluation* Capital additions - 1.6 0.3 - - - 2.6 4.5 other Capital disposal - - - - (2.1) - - (2.1) other Depletion, depreciation (143.9) (14.3) - - - (1.9) (160.1) and amortisation Exploration costs - - (0.3) (0.8) - - (1.1) write-off * During the year ended 31 December 2011, exploration and evaluation additions of US$415.4 million in respect of the Barda Rash licence were transferred to oil and gas assets in the Middle East and North Africa segment. 6. Operating segments continued Middle Other East and Côte West East North Consolidated Nigeria d'Ivoire Africa Africa Africa Unallocated US$ mm US$ mm US$ mm US$ mm US$ mm US$ mm US$ mm Nine months to September 2011 Sales revenue 279.5 32.7 - - - - 312.2 by origin Operating profit/(loss) before derivative 131.7 financial instruments 141.8 11.8 - (1.3) - (20.6) Derivative financial instruments - 5.2 gains/(losses) 6.4 (1.2) - - - Segment result 148.2 10.6 - (1.3) - (20.6) 136.9 Investment 0.2 revenue Finance costs (36.8) Other gains and losses - (0.1) foreign currency gains Other gains and losses - fair value of financial 0.2 assets & liabilities Share of result of associate 12.5 Profit from continuing operations before tax 112.9 Income tax expense (47.5) Profit from continuing operations after tax 65.4 Loss from discontinued operations (2.5) Profit from continuing operations after tax 62.9 Segment assets 1,327.8 144.1 76.4 205.7 410.6 19.0 2,183.7 - non current Segment assets 241.2 45.0 7.8 2.0 - 180.9 477.0 - current Segment (667.4) (45.5) (5.0) (41.7) (192.1) (568.1) (1,519.9) liabilities Capital additions - oil 538.6 - - - - - 538.6 and gas assets Capital additions - exploration and 410.6 471.9 evaluation 41.2 0.8 7.9 11.3 - Capital additions - 1.4 - - 2.7 - 2.8 6.9 other Capital disposals - - - - (0.1) - (0.1) (0.2) other Depletion, depreciation (83.9) (10.0) - - - (1.2) (95.1) and amortisation Exploration - (0.1) costs write-off - - - (0.1) - 7. Senior secured loan notes On 8 March 2012, Afren announced the closing of the offering of US$300 million of its 10.25% senior secured notes due 2019 (the Notes). The Notes are guaranteed on a senior basis by certain subsidiaries of Afren plc and on a subordinate basis by Afren Resources Limited. Interest will be paid semi-annually. The interest charged for the period is calculated by applying the 10.25% coupon rate to the total proceeds. Interest amounting toUS$17.6 million has been charged to the income statement for the period to 30 September 2012. Total expenses of the offering incurred amounted to US$8.2 million which are being amortised over the life the Notes. Part of the proceeds of the offering were used to settle borrowings amounting to US$200.0 million and accrued interest of US$0.3 million. 8. Impairment charge on exploration and evaluation assets The charge during the period relates to Nunya-1x well costs, in Keta block offshore Ghana, written off during the period as the well was plugged and abandoned. 9. Contingent liabilities There has been no material change to the contingencies reported in the annual report for the year ended 31 December 2011. The Company continues to review its strategic options in relation to OPL 907/917 and discussions are in progress to extend future drilling commitments and associated performance bonds which crystallise in 2013. 10. Related parties The following table provides the total amount of transactions which have been entered into with related parties during the nine months ended 30 September 2012 and 2011: Trading transactions Sale of Purchase of Amounts owed goods/services goods/services to/(by) related parties Nine Nine months Nine Nine months months months ended ended ended 30 ended 30 As at 30 30 Sept Sept 30 Sept Sept As at 30 Sept 2012 2011 2012 2011 2012 Sept 2011 US$ mm US$ mm US$ mm US$ mm US$ mm US$ mm St John - - 0.2 0.1 Advisors Ltd - - STJ Advisors - - 0.4 1.2 - - LLP First Hydrocarbon 3.2 - - - (3.9) (2.2) Nigeria Ltd St John Advisors Ltd and STJ Advisors LLP are the contractor companies for the consulting services of John St. John, a Non-Executive Director of Afren, for which they receive fees, including contingent completion and success fees, from the Company. Both St John Advisors and STJ Advisors LLP also receive monthly retainers of £18,000 and £36,000 under contracts which started from 27 June 2008 and 15 December 2011 respectively. The contracts have a twelve month period which automatically continues unless terminated by either party. In addition, a separate contract was entered into with STJ Advisors LLP in 2010 for consulting services provided in relation to the issue of the senior secured loan notes which completed on 27 January 2011. First Hydrocarbon Nigeria Limited (FHN) is an associate of Afren plc. This information is provided by RNS The company news service from the London Stock Exchange END IMSZMMMMGZRGZZZ -0- Nov/13/2012 07:00 GMT
Afren PLC AFR Interim Management Statement
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