Nov 20 - Fitch Ratings has revised the Outlook on Afren plc's Long-term Issuer Default Rating (IDR) to Stable from Negative and affirmed its Long-term IDR and senior unsecured rating at 'B'. The recovery rating is 'RR4'.
The Outlook stabilisation reflects Afren's ability to demonstrate strong production growth in 9M12 after slower than expected output dynamics in 2011 and Fitch's expectations of the successful implementation of future production expansion plans. The company more than doubled its average daily oil and gas output to 40.8 kboepd YTD to 11 November 2012 (42 kboepd including an associate interest) from 19.2 kboepd (19.3 kboepd including an associate interest) in 2011 and outperformed Fitch's estimates. This step-up in production level also demonstrates a shift in the company's scale of operations putting it on par with such peers as Russia's Alliance Oil Company Ltd ('B'/Stable).
Fitch believes that the successful development of the Nigerian Ebok field and commencement of production at the Iraqi Barda Rash field enhanced the company's operational and financial profile as it diversified its operations across three main producing assets and established a solid foundation for strong cash flow generation. It also created a track record of largely successful project implementation and provided a platform for medium-term growth. The agency believes that expansion of the cash flow generative asset base should somewhat reduce the execution risk inherent in Afren's operations and could mitigate the negative impact on its operations and financials of potential delays and/or cost overruns in project development and/or unsuccessful exploration activities.
Fitch assesses Afren's operational profile to be commensurate with the mid-to-high 'B' rating category. The agency believes that positive rating momentum could be mounting for the company if it sustains a track record of successful expansion strategy implementation, while maintaining solid credit metrics.
The company's ratings also take into account Fitch's expectations of stronger financial profile over 2012-15. The agency anticipates that the company will generate strong cash flow from operations and positive free cash flow (FCF) over 2012-15 driven primarily by the production expansion and sound profitability. Fitch's expectations of positive FCF generation are based on the assumption that the company will maintain a conservative dividend policy, which envisages no dividend payments. However, the agency believes that expected improvement of cash flow profile may provide an impetus for more shareholder friendly actions and/or pursuit of an ambitious acquisitive strategy.
United Kingdom-listed Afren Plc has commenced crude oil production at the Okoro East oil field, with record financial results in 2012 driven by the year-on-year increase in net production from both Okoro and Ebok fields, offshore Nigeria.
According to the company’s interim management statement and financial results for the nine months ended September 30, 2012 and an update on its operations year-to-date 2012, Afren said production on the Okoro Field Extension had commenced.
The company noted that the results were prepared in accordance with the reporting requirements of the European Union (EU) Transparency Directive.
The company has also recorded exploration success on the Ebok North Fault Block and Okoro Field Extension. Key highlights of the results showed record sales revenue of $1,077.0 million and operating cash flow before movements in working capital of $787.7 million
The year-to-date net working interest production to November 11, 2012 was 42,033 barrels of oil equivalent per day (boepd) in line with the company’s expectations.
The company also plans to replicate early production on Okoro Field Extension with an early production well at Ebok North Fault Block.
Commenting on the company’s successes, the Chief Executive of Afren plc, Mr. Osman Shahenshah, said the company had 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 Exploration and Appraisal (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,” he said.
Following the completion of planned facilities work at the Ebok field and the commissioning of the Okoro-14, that is, Okoro Field Extension, production well post period end, average net production year-to-date as at 11 November 2012 is 42,033 barrels of oil equivalent per day (boepd).
This production figure keeps the company on track to achieve full year 2012 production guidance. According to the company, production operations continue to run smoothly at the Okoro main field.
You hit the nail on the head. The problem with AFR has not been their operation and working portfolio, it has always been the comm's. You feel they just dont like engaging and spreading good news stories outside AGMs and interim management statements. It is continual RNS that keeps the market informed and happy.
But less than 10% of its production in the country. They are active managers of their fields, and with only a 20% working interest figured this one could obviously go. I think I read somewhere they are looking to monetise assets to raise between $15 and $20bn to beef up their balance sheet. AFR's hard-core line on go-it-alone, develop organically means we just don't get the benefit from this type of news.
I appreciate that stability and transparency are key issues for every NOC and IOC. In particular, NOC's have to become self-dependent in terms of their infrastructure, management practices, and developing a competent work force to operate cost efficiently and safely. That is where AFR is now.
AFR are attracting signficant IOC interest regarding their African interests. Ironically, the more the SP drops, the greater the interest is. I hope the BOD, which appears apathetic to the current SP woes, understands they could effectively be out of a job !!!
Does your success and growth attract potential buyers of Afren?
We are focused on delivering the organic growth opportunities we have within the business today and realising the full po-tential of our portfolio. However, it is the nature of the industry that successful companies such as Afren that have world-class assets and large-scale growth potential are increasingly attracting attention from the IOCs and NOCs.
Normally when there's a general sell off Afren lose10-15% it was down 5% on the week maybe the tide is turning we shall see. I agree the BoD's lack of shareholder appreciation is also of concern to me also. I am awaiting communication from them, we shall see if they are interested.
Datafeed and UK data supplied by NBTrader and Digital Look.
While London South East do their best to maintain the high quality of the information displayed on this site,
we cannot be held responsible for any loss due to incorrect information found here. All information is provided free of charge, 'as-is', and you use it at your own risk.
The contents of all 'Chat' messages should not be construed as advice and represent the opinions of the authors, not those of London South East Limited, or its affiliates.
London South East does not authorise or approve this content, and reserves the right to remove items at its discretion.