AFR.L Regulatory News (AFR)

Afren plc (AFR LN)

Strong underlying operational performance; significant exploration success

London, 23 August 2013 - Afren plc ("Afren" or the "Group"), (LSE: AFR, FTSE 250 index), the independent exploration and production company announces its Half-yearly Results for the six months ended 30 June 2013 and an update on its operations year-to-date 2013, in accordance with the reporting requirements of the EU Transparency Directive. Information contained within this release is unaudited and is subject to further review.

2013 Half-yearly Results Summary

The first half of 2013 has been a period of notable success for Afren across all operational fronts. The period saw record production (up 13 per cent.) principally from the Ebok and Okoro fields, offshore Nigeria. The Group's financial results reflect the consolidation of First Hydrocarbon Nigeria Company Limited (FHN) following the completion of the acquisition of an additional beneficial interest in FHN in the period and the early adoption of IFRS 10(1). Post period end, Afren further increased its beneficial interest in FHN and commenced sales from the Barda Rash field in the Kurdistan region of Iraq. On the exploration front, the oil discovery at OPL 310 opens a new oil basin in an under-explored region with targeted resources believed to be in excess of pre-drill estimates (78 mmboe). We continue to make good progress on our exploration and appraisal (E&A) work programme targeting opportunities across the portfolio.

Financial highlights

(1) Prior period results have been restated to reflect the consolidation of FHN, following the adoption of IFRS 10 and IFRS 11. Further details are provided in Note 1 and Note 14 of the condensed financial statements

(2) From continuing operations, for further details see Note 13 of the condensed financial statements

(3) See Note 4 of the condensed financial statements

(4) Operating cash flow before movements in working capital

Key Highlights

· Strong operating cash flow driven by a 13 per cent. year-on-year increase in net production to 47,653 boepd; on track for full year guidance of 40,000 - 47,000 boepd

· Continued E&A success

- Play opening discovery at OPL 310, offshore Nigeria

- DST programme at Simrit-2 on the Ain Sifni PSC, Kurdistan region of Iraq complete, with aggregate flow rates of 19,641 bopd achieved. Well being prepared for Extended Well Test operations

- Completion of drilling at Simrit-3. Multi-zone testing programme underway to confirm the resource potential and the eastern extent of the Simrit anticline

- Active exploration programme with ongoing Ogo-1 sidetrack and upcoming Ufon-1 well on OML 115 in Nigeria

· Active portfolio management

- Completion of farm-out (subject to Nigerian Ministerial Consent) of a 30 per cent. economic interest in OPL 310, offshore Nigeria, to Lekoil Limited

- Acquisition by FHN of 16.9 per cent. economic interest in OML 113. Synergies expected with OPL 310 development

- Agreement for sale of CI-11 block and Lion Gas Plant for total consideration of US$26.5 million, of which US$15.3 million will be settled in cash

- Proposed relinquishment of JDZ Block 1, Nigeria São Tomé & Príncipe

· Strong balance sheet and financial flexibility

- Cash at bank US$588 million (1H 2012: US$497 million); Net debt, excluding finance leases US$590 million (1H 2012: US$679 million). Full year capex guidance revised to US$650 million from US$620 million

Commenting today, Osman Shahenshah, Chief Executive of Afren plc, said:

"Afren continued to deliver strong operational results during the first half of 2013. We recorded a year-on-year increase in underlying net production of 13 per cent. principally from our green field developments offshore Nigeria. Our exploration campaign continues to deliver results, following the play opening discovery announced at OPL 310 offshore Nigeria, where further exploration drilling is ongoing. Elsewhere, we are continuing with exploration drilling and testing operations at the Ain Sifni PSC in Kurdistan. With high quality production underpinning both our strong financial position and exploration programme, we are well placed to realise numerous growth opportunities over the remainder of this year."

Analyst Presentation

There will be a presentation today to analysts at 09:00 BST at the Lincoln Centre, 18 Lincoln's Inn Fields, London, WC2A 3ED.

The presentation will also be broadcast live at www.afren.com where the accompanying presentation will be available, and on playback from 14:00 BST.

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 a constituent of the Financial Times Stock Exchange Index of the leading 250 UK listed companies. Afren has a portfolio of assets 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 exploration interests in Ghana, Nigeria, Côte d'Ivoire, the Kurdistan region of Iraq, 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.

Operations Review

(1) Pre/post cost recovery

(2) Held through First Hydrocarbon Nigeria Company Limited (FHN), a subsidiary of Afren plc with a 60 per cent. beneficial holding as at 30 June 2013 and a 78 per cent. beneficial holding following the announcement of 5 July 2013

Note: All production data remains subject to reconciliation

Nigeria and other West Africa

Nigeria

Okoro

Gross production averaged 17,815 bopd at the Okoro field during the first half of 2013, representing a year-on-year increase of 16 per cent. Following the successful discovery in early 2012, Afren and Partner Amni International Petroleum Development Company Ltd. (Amni) commenced early development drilling at the Okoro Further Field Development (previously referred to as the Okoro Field Extension) in July 2012, just six months from discovery, using the available wellhead slots on the existing Okoro platform. The Okoro 14 well, is currently producing at stabilised rates of approximately 5,100 bopd.

The Partners have commenced the Front End Engineering Design (FEED) and development plans for the fabrication of a new wellhead platform and production unit required for the full development of the Okoro Further Field Development. The Okoro Further Field Development wellhead platform (WHP) will be a conventional four pile platform with a single piece jacket and deck capable of accommodating wireline and coil tubing units. The WHP will have 12 well slots capable of holding dual trees, which would enable the platform to host up to 24 wells. The Okoro Further Field Development platform will be located close to the existing Okoro Main wellhead platform and the two will be bridge linked.

After careful consideration it was determined that it was not possible to upgrade the existing Okoro FPSO; therefore a new Mobile Offshore Production Unit (MOPU), will be installed as close as possible to the Okoro Further Field Development WHP and will be bridge linked.

Ebok

Gross production at the Ebok field was 33,884 bopd during the first half of the year, representing a year-on-year increase of 16 per cent.

During the first half of 2013, and following the discovery in 2012, the Partners successfully drilled two producers from the Ebok North Fault Block (Ebok NFB). The wells have been tied to the existing West Fault Block (WFB) infrastructure. The Partners successfully drilled and brought on stream an additional producer in the WFB during the period. A water injector at the NFB is planned in Q3 2013.

The Central Fault Block Extension platform will set sail for Nigeria in November 2013. The wells from this platform will target reservoirs which contain approximately 38 mmbbls of 2P reserves.

The Partners are looking at development options for the NFB, the most likely of which is to drill the development wells from an extended WFB platform and produce through to the existing MOPU.

Okwok

The Partners commenced and completed drilling on the Okwok-11 side-track well during the first quarter of 2013. The well was drilled to a total measured depth of 3,997 ft and successfully encountered 95 ft of net oil pay in the 'D2' reservoir. The 'D2' reservoir was successfully cored, logged and tested for reservoir continuity. The newly acquired data together with the results of the Okwok-10 well (encountering 72 ft of net oil pay in the LD-1 reservoir) and Okwok-10 side-track well (encountering 89 ft of net oil pay in the LD-1B reservoir) will be integrated into the field model and used to update the volumetric and optimised Field Development Plan (FDP) prior to submission to the Nigerian authorities later this year.

The most likely development scenario for Okwok, which the Partnership is reviewing, 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 to the west.

OML 115

Afren and Partner Oriental will commence drilling the Ufon South-1 well, the first exploration well on the block towards the end of 2013. The Ufon structure has been selected (gross Pmean prospective resources of 65 mmbbls) for drilling and is structurally and geologically analogous to the nearby Ebok and Okwok fields but with significant deeper exploration potential.

OML 26

Following shareholder approval on 20 May 2013, Afren announced on 29 May that it had completed the acquisition of an additional 10.4 per cent. beneficial interest in First Hydrocarbon Nigeria (FHN) for a total consideration of US$37.05 million in cash. The acquisition (and adoption of IFRS 10) results in Afren consolidating its holding of FHN's reserves and production as a subsidiary and further strengthens its position onshore Nigeria. Post completion of the acquisition, Afren's independently audited net Proved and Probable reserves from continuing operations have increased from 209.8 mmboe as at 31 December 2012 to 268.5 mmboe, representing an increase of approximately 28 per cent.

During the period, gross average production from the Ogini and Isoko fields was 4,267 bopd (subject to final figures from the Operator). In order to optimise production from currently active wells, a new 5.2 mmscfd gaslift compressor unit was procured in October 2012 and has been installed. The Partners have also procured - and are in the process of installing - a new LACT unit and have ordered new export pumps. Post period end, the Partners submitted the Ogini FDP on 29 July 2013, and are currently awaiting DPR approvals. The Ogini FDP consists of the drilling of 37 production wells, the execution of 13 short-to-medium term work-overs, installing a new 18" delivery line, two 50,000 bbl/d 3-Phase Separators as well as water treatment and disposal facilities. The Ogini FDP drilling campaign is scheduled to commence in Q4 2013 and will be targeting peak production of 35,000 bbls/d from the Ogini field alone by 2016. The Isoko FDP submission is expected in Q4 2013.

An independent assessment of the reserve and contingent resource potential of the Ogini and Isoko fields for FHN in March 2013 has estimated the gross remaining 2P oil reserves at the fields at 134.6 million barrels and gross contingent resources at 68.0 million barrels (gross 2P & 2C reserves and resources 202.6 million barrels; 91.2 million barrels net to FHN) as at 31 December 2012. This represents a 231 per cent. increase on 2P reserves previously carried by FHN and a 10 per cent. increase on previously carried 2P & 2C volumes as at 31 December 2011. In addition, significant upside potential of 144 mmboe also exists within the undeveloped Aboh, Ovo and Ozoro discoveries, together with an estimated 615 mmboe gross unrisked prospective resources defined across multiple prospects that will continue to be worked up in parallel to, and integrated with, future development plans.

OML 113

On 17 July 2013, FHN completed the acquisition of a 16.9 per cent. economic interest in OML 113 for a total consideration of US$40 million. OML 113 is located offshore Nigeria, and is contiguous to the Afren operated OPL 310 block. The Aje field located on OML 113 was initially discovered in 1996. Three (Aje-1, Aje-2 and Aje-4) of the four wells drilled on the field have encountered oil and gas in various intervals across the Turonian, Cenomanian and Albian sands, and two (Aje-1 and Aje-2) of the wells have comprehensively tested at commercial rates. The JV Partners estimate the Pmean contingent resources to be 167 mmboe principally related to the Aje field with an additional 205 mmboe of mean prospective resources on the block. The JV Partners are considering drilling and commencement of early production on the Aje field with full field development at a later stage likely in synergy with the recent discovery at OPL 310.

OPL 310

On 14 May 2013, Afren announced the completion of a farm-out agreement with Lekoil Limited ("Lekoil") (subject to Nigerian Ministerial Consent), in the OPL 310 licence. Under the terms of the farm out, Afren will receive a total carry of up to US$50 million in respect of an exploration well drilled at the Ogo prospect and a side-track well currently being drilled. Post farm-out, Afren will hold a 40 per cent. economic interest in the licence once Afren and Optimum Petroleum Development Ltd, the named Operator, achieve cost recovery. Afren provides technical assistance to Optimum in respect of Optimum's obligations under a Technical Assistance Agreement.

On 26 June 2013, Afren announced that the Ogo-1 well had encountered a significant light oil accumulation with 216 ft of net stacked pay. Following the discovery, the well was deepened to tag the crystalline basement and reached a total measured depth of 10,648 ft. A comprehensive wireline logging programme was completed post period end and is presently under evaluation. Following the conclusion of drilling operations at Ogo-1, the Partners spudded a planned side-track, Ogo-1 ST, which is currently drilling ahead. The Ogo-1 ST is planned to test both the down-dip extension of the Ogo discovery and test a new play of stratigraphically trapped sediments that pinch-out onto the basement high.

In its most recent independent assessment, NSAI evaluated gross P50 unrisked prospective resources on OPL 310 at 476 mmboe.

OPL 907, 917

Afren is in the process of relinquishing its interests in OPL 907 and 917. The net assets in respect of this licence were written-off in full at 31 December 2012.

Côte d'Ivoire

CI-11 and Lion Gas Plant

Average gross production during the period at CI-11 was 4,142 boepd, with the Lion gas plant processing approximately 55.7 mmcfd of gas with yields of 459 bbls butane and 495 bcpd. During the period, Afren agreed the sale of the CI-11 block and Lion Gas Plant to a third party for total consideration of US$26.5 million. Completion of the transaction is expected in Q3 2013.

CI-01

Discussions are continuing with Petroci and the Côte d'Ivoire Government on the forward programme.

Nigeria São Tomé & Príncipe JDZ

Block 1

In 2012, Total commissioned and completed drilling two appraisal wells on the block, the Obo-2 well and the Enitimi-1 well, both encountering oil and gas pay, but at lower levels than pre-drill estimates.

It is anticipated that Afren will relinquish its interest in the licence in 2H 2013 and as such have decided to impair the associated costs in 1H 2013.

Congo Brazzaville

La Noumbi

The Kolo-1 well was spudded in late February 2013 and was drilled to a total depth of 4,472 ft, evaluating sands in the Chela and Vandji formations. Wireline logs and borehole samples were taken to better understand hydrocarbon shows encountered in the drilling process. Sands in the well were deemed wet and the well was subsequently plugged and abandoned in April 2013.

Following completion of drilling operations at Kolo-1, the Operator commenced drilling on an independent prospect, Kolo-2 in April 2013. The well was drilled to a total depth just below 1,969 ft and had oil shows in a cored interval. Analysis of the core, log and MDT data suggested the interval had a high water content with only minor light oil saturation, as such, the well was plugged and abandoned. The partnership has agreed to a 50 per cent. relinquishment of the block and is discussing a forward work programme.

Ghana

Keta Block

The Partners have progressed into the next two-year exploration phase. A 1,582 km2 3D seismic survey completed in December 2012 is currently being processed. In April 2013, Afren received a fast-track cube from the new 3D seismic which is currently being interpreted alongside a detailed processing review. A data trade agreement has been made with Ophir for the Starfish-1 well, which was recently drilling in the nearby offshore Accra block and has been declared a dry-hole. The new data will be interpreted along with the Nunya-1x exploration well, to help define the next steps to be taken on the work-programme, which requires one exploration well to be drilled by May 2014.

South Africa

Block 2B

Processing of the 686 km2 of 3D seismic data acquired this year is progressing and results are expected during Q3 2013.

Kurdistan region of Iraq

Barda Rash

Approximately 18,800 barrels of oil were held in storage during 1H 2013. Preliminary crude oil sales to the local market have commenced with initial sales of 1,300 bopd achieved since 8 July 2013.  Production is planned to be initially ramped up to 5,000 as the surface facilities and well performance are stabilised and continuity of sales monitored.

The Partners commenced drilling on the BR-5 well in March 2013 using the Romfor-23 drilling rig which is currently drilling ahead at around 7,200 ft and commenced drilling the BR-4 in May using the Viking I-10 rig, which is currently drilling ahead at around 10,200 ft. The wells will test the Cretaceous, Jurassic and Triassic reservoirs previously identified on the structure.

Ain Sifni

During the first half of 2013, Operator Hunt Oil completed testing of the Simrit-2 well with aggregate flow rates of 19,641 bopd achieved from the planned Drill Stem Test (DST) programme. The well is currently being completed for an Extended Well Test (EWT) in the Jurassic age, Mus/Adaiyah reservoirs. Produced crude is expected to be trucked to local markets. The Simrit-3 well, exploring the eastern extent of the large scale Simrit anticline reached a final maximum depth of 12,300 ft in the Triassic Kurra-Chine formation in 1H 2013 encountering hydrocarbon bearing intervals in the Cretaceous, Jurassic and Triassic reservoirs. A multi-zone testing programme is underway to confirm the resource potential of the well. Results from the tests are expected to be available from the Operator shortly.

Operator Hunt Oil spudded the Maqlub-1 well testing the high potential Maqlub structure in June 2013. The drilling programme is expected to last 110 days followed by drilling at Maqlub-2. The Maqlub structure is located adjacent to the Barda Rash PSC and will be testing the Cretaceous, Jurassic and Triassic reservoirs.

Afren East Africa Exploration

Kenya

Block 1

Processing of the new 1,900 km 2D grid has been completed and interpretation is underway. The seismic is showing faulting and evidence of a working petroleum system. Initial mapping should be completed by early September and will guide well location selection for anticipated drilling in 2014. Afren have traded for well data in the area and are purchasing additional local well data from the National Oil Corporation of Kenya.

Blocks L17 & L18

Afren completed processing of the 120 km onshore 2D seismic in June 2013 and on the 1,006 km2 offshore 3D seismic in July 2013. Data is currently being interpreted to refine previous leads across the acreage. The regional Mombasa high structure has remained as a viable target for near-shore or onshore drilling. Further advanced processing of the 3D (AVO Analysis) began in mid-July and will complete in September. This work should help de-risk the offshore prospects in preparation for a two well drilling programme.

Block 10A

On 1 March 2013, the Operator Tullow Oil announced the temporary suspension of the Paipai-1 exploration well. The well, which was drilled to a total depth of 13,960 ft, encountered light hydrocarbon shows across a 180 ft thick gross sandstone interval. This sandstone is overlain by a 656 ft thick source rock which forms an effective regional top seal. The Partners have agreed to return to Paipai for testing at a later date dependent on rig availability. Current work on the block includes further evaluation of the well results and a passive seismic programme to better define basement.

Tanzania

Tanga Block

Following completion of a 620 km2 3D seismic survey in January 2013, Afren received final processing of the dataset in early July and subsequently initiated advanced seismic analysis (AVO). Initial interpretation of the 3D has highlighted structures with conforming amplitudes. Afren and its Partners have identified a rig to drill the deeper water Mkonge-1 prospect (previously Calliope) and have a Letter of Intent (LOI) in place with the rig contractor. Drilling is expected on the prospect in Q1 2014, which is the first of two wells expected to be drilled on the block in 2014.

Seychelles

Areas A & B

In Q1 2013, Afren completed a major 3D seismic programme, the first 3D survey to be conducted in the Seychelles. The programme consisted of two surveys in Afren's licence areas. The first 3D survey was conducted in the southern portion of the licence over the Bonit prospect and covered 600 km2. The second survey was in the northern section of the licence area and covered an area of 2,775 km2. The new 3D seismic combined with existing 2D data are being processed by the Partners to assess in detail the Tertiary, Cretaceous and Jurassic prospectivity. Fast-Track versions of the datasets have now been received and final processing should be available in September 2013.

Madagascar

Block 1101

In June 2013, Afren ran a successful fieldtrip across the block with OMNIS, the state oil and gas company, viewing exposures of the probable reservoir targets. Additional 2D seismic acquisition and a shallow borehole coring programme are planned for Q3 2013 to enhance our subsurface understanding ahead of exploration drilling. The borehole effort would further assess reservoir quality, perform petrophysical and geochemical analysis to infer burial depth and search for heavy oil deposits near a known oil show.

Ethiopia

Blocks 7 & 8

Operator New Age plans to spud the El Kuran-3 well in early September. The drilling programme is expected to last 45 days and will test the reservoir productivity in the Adigrat and Hamanlei zones, targeting 100 mmbbls of gross prospective resources. Previous drilling on the block at the El Kuran-1 identified gas shows in the Adigrat and a potential oil zone in the Hamanlei.

Exploration and appraisal drilling schedule

(1) Pre/post cost recovery

(2) Following the announcement of the farm-out to Lekoil Limited ("Lekoil") on 14 May 2013, subject to Nigerian Ministerial consent. Economic interest post Afren and Optimum achieving cost recovery.

Finance Review

1. Result for the period (1)

Revenue

Revenue for the period from continuing operations was US$797 million, of which US$21 million was generated by FHN (1H 2012: US778 million, of which US$25 million related to FHN). The increase in revenue is largely driven by increased production from the development of the Ebok field, offshore Nigeria. Working interest production from continuing operations for the period increased from 39,044 boepd (including FHN) to 44,712 boepd in 1H 2013.

In 1H 2013, the Group realised an average oil price from continuing operations of US$103.6/bbl (1H 2012: US$108.8/bbl), before all royalties and hedging. The average Brent price for the period was US$110/bbl (1H 2012:US$112/bbl).

Gross profit

Gross profit for the period from continuing operations was US$377 million (1H 2012: US$411 million) which reflects the higher DD&A charge on oil and gas assets in the period, due to increased production, and a higher level of royalties paid on Ebok. The DD&A charge in 1H 2013 was US$195 million, an increase of 7 per cent. compared to 1H 2012. Of this, US$2 million related to OML 26.

Profit for the period

Profit after tax from continuing operations was US$62 million (1H 2012: US$102 million), the decrease on the prior period being impacted by impairment charges, non-recurring administrative expenses and losses on derivative financial instruments arising from the inclusion of FHN's results for the period. The impairment charge of US$5 million largely relates to the write-off of costs of drilling the Kola 1 and Kola 2 wells at La Noumbi, Congo Brazzaville. In addition to this, the Group's interest in JDZ was impaired in advance of the expected relinquishment, which is reflected in the share of joint venture loss of US$25 million in the financial statements.

These increases have been offset by lower finance costs charged to the income statement (total finance costs in the period were US$69 million, of which US$31 million was capitalised; 1H 2012: total finance costs of US$76 million, of which US$18 million was capitalised). Administrative expenses for the period were US$27 million, compared to US$15 million in 1H 2012. The increase principally relates to share options and other non-recurring share based expenses.

During the period, the Group recognised a loss of US$27 million from derivative financial instruments (1H 2012: US$15 million), relating to crude oil hedging contracts, as the oil price in the period averaged consistently above the hedged price, and mark-to-market losses on interest rate swaps.

The income tax charge for the period was US$198 million, of which US$126 million related to deferred tax (1H 2012: charge of US$209 million, of which US$159 million related to deferred tax). The Group's effective tax rate has increased as a result of greater losses incurred in corporate entities in which the related tax losses have not been recognised as deferred tax assets or which cannot be offset against taxable profits. During the second half of 2013 we will continue discussions with the Nigerian Tax Authorities to finalise our tax returns from previous periods, including discussions over the applicable tax rate. Whilst a range of outcomes are possible, we continue to believe the taxation provisions held remain sufficient.

(1) Notes on basis of preparation: During the period ended 30 June 2013, Afren adopted IFRS 10 which resulted in a change in accounting policy for consolidating its investees. 1H 2012 and year ended 31 December 2012 comparative information have been restated accordingly. Further information is provided in Note 1 to the condensed financial statements.  

In addition, in May 2013, Afren's holding companies for the CI-11 and Lion Gas Plant assets in Cote d'Ivoire were classified as held for sale. Further information is provided in Note 13 to the condensed financial statements.

The profit for the period from discontinued operations in Cote d'Ivoire of US$16 million largely relates to the partial release of creditors no longer expected to crystallise.

Hedging and hedging strategy

At 30 June 2013, crude oil hedges covering approximately 1.9 million barrels are in place for the period 1 July 2013 to 31 December 2013, providing minimum floor prices on these volumes of between US$80-US$90/bbl.

As in prior periods, the policy of the Group is to protect its minimum cash flow requirement against a downturn in oil prices. As such the maximum amount of working interest Afren would seek to protect with these arrangements is between 20-30 per cent. of estimated production for a rolling period of up to 24 months forward.

2. Financing and capital structure

Operating cash flow

Operating cash flow before movements in working capital was US$564 million in 1H 2013 (1H 2012: US$571 million), of which US$446 million has been used to fund the Group's investment in development, appraisal and exploration activities as well as fund the purchase of the Group's additional equity investment in FHN.

Financing

In March 2013, the Group successfully renegotiated the terms of its Ebok Reserve Based Lending Facility, with 14 international banks involved in the syndication of a new facility which significantly extends the maturity of the Group's debt. Repayments of the new US$300 million facility begin in January 2015.

Gross debt at 30 June 2013 was US$1,178 million, excluding finance leases. Cash at bank at 30 June 2013 was US$588 million, resulting in net debt (excluding finance leases) of US$590 million (30 June 2012: cash of US$497 million; net debt of US$679 million).

Subsequent to the period end, the Group repaid its US$50 million unsecured facility.

3. Development, appraisal and exploration activities

The Group invested US$130 million in exploration and appraisal activities in 1H 2013 (1H 2012: US$91 million). The main areas of expenditure being Nigeria (including US$42 million for further drilling on Okwok, US$10 million of pre-drilling activities on OML115 and US$6 million for drilling on OPL310), testing and drilling at Ain Sifni in the Kurdistan region of Iraq (US$19 million), and seismic and other pre-drilling activities in East Africa (total of US$36 million on Seychelles Areas A&B, South Africa Block 2B, Tanga Block in Tanzania, and Ethiopia Blocks 7 and 8).

Expenditure on oil and gas assets was US$202 million, largely related to the continued development of producing wells and facilities upgrades at Ebok (US$142 million) and further drilling at Barda Rash (US$56 million).

4. Related party transactions

Related party transactions are disclosed in Note 11 of the condensed financial information. There have been no material changes to the level or nature of related party transactions since the last annual report.

5. Principal risks to 2013 performance

The Directors do not consider that the principal risks and uncertainties of the Group have changed since the publication of the Annual Report and Accounts for the year ended 31 December 2012. The principal risks faced by Afren relate to: operational risk relating to field delivery, exploration failure, environmental and safety incidents, and unfulfilled work / PSC obligations; external risks being geo-political risk, security incidents, host community action and oil price volatility; strategic risk including exposure to bribery and corruption, managing growth and the loss of key employees; and financial risk including changes to taxation and other legislative changes, and treasury management.

A detailed explanation of these risks can be found on pages 28 to 31 of the 2012 Annual Report and Accounts which is available at www.afren.com.

6. Going concern

As stated in Note 1 to the condensed financial information, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, being a period of not less than twelve months from the date of this report. Accordingly, they continue to adopt the going concern assumption in preparing the condensed financial information.

7. Financial outlook and strategy

Our financial strategy continues to be to achieve a balance of operational cash flow with longer-term financing to support the Group's on-going appraisal and development activities.

Responsibility Statement

The Directors confirm that to the best of their knowledge:

a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board,

Osman Shahenshah Darra Comyn

Chief Executive Group Finance Director

23 August 2013 23 August 2013

Independent review report to Afren plc

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the statement of comprehensive income, the balance sheet, the cash flow statement, the statement of changes in equity, and related Notes 1 to 15. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

23 August 2013

Condensed consolidated statement of comprehensive income

Six months ended 30 June 2013

Condensed consolidated balance sheet

As at 30 June 2013

Condensed consolidated cash flow statement

Six months ended 30 June 2013

Condensed consolidated statement of changes in equity

As at 30 June 2013

Notes to the half-yearly financial statements

Six months ended 30 June 2013

1. Basis of accounting and presentation of financial information

The condensed Group interim financial statements, comprised of 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 note disclosures 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 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 2012 were published and copies of which have been delivered to 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

With the exception of the early adoption of IFRS 10, IFRS 11, IFRS 12, IAS 27 (revised), IAS 28 (revised) and the adoption of IFRS 13, 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 2012. These interim financial statements should be read in conjunction with the Group's consolidated financial statements for the year ended 31 December 2012. Details of the changes in accounting policies arising from the adoption of IFRS 10 and IFRS 11 are discussed below. IFRS 12 relates to the disclosure of interests in other entities, and IFRS 13 establishes a single framework for measuring fair value, replacing guidance previously included in other standards. Neither IFRS 12 nor IFRS 13 has had a significant impact on the financial statements of the Group. 

IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements

IFRS 10 replaces the parts of the previously existing IAS 27 which dealt with consolidated financial statements. As a result of adopting IFRS 10, and to ensure compliance with that standard, the Group has changed its accounting policy for determining whether it consolidates its investees. IFRS 10 requires consideration of whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns. In particular, IFRS 10 explicitly requires that the Group consolidates investees on the basis of de facto circumstances that give it power over the investee irrespective of the Group's shareholding. Under previous accounting standards the Group's accounting policy determined consolidation of investees primarily on the basis of its legal shareholding.

In accordance with the transitional provisions of IFRS 10, the Group reassessed the consolidation conclusion for its investees at 1 January 2013. As a consequence, the Group has changed its conclusion in respect of its investment in FHN, which was previously accounted for as an associate using the equity method. Although prior to May 2013 the Group owned less than half of the voting rights of the investee, the Directors have determined that under IFRS 10 the Group has had the power to direct the relevant activities of the investee. This is because the Group has held more voting rights of FHN than other vote holders and the Group had the ability to cast the majority of votes at shareholder meetings due to non-attendance by some shareholders. Accordingly, the Group has applied acquisition accounting to its original investment at 21 October 2010 as if the investee had been consolidated from that date.

Following the conclusion that FHN should be consolidated from 21 October 2010, Afren applied the transitional requirements of IFRS10, and restated the balance sheet as at 1 January 2012. These condensed financial statements present restated comparative periods to include the consolidation of FHN as a subsidiary. The effects of the change in accounting policy on the restated periods are presented in Note 14.

1. Basis of accounting and presentation of financial information continued

IFRS 11 Joint Arrangements

As a result of adopting IFRS 11, and to ensure compliance with that standard, the Group has changed its accounting policy for its interests in joint ventures. Entities over which the Group exercises joint control are now accounted for using the equity method, whereas they were previously proportionately consolidated. The Group has applied IFRS 11 retrospectively, in accordance with the transitional provisions, therefore 2012 results have been restated accordingly. On transition, the Group has collapsed the proportionally consolidated net asset value into a single investment. This change was not material. The effects of the change in accounting policy on the restated periods are presented in Note 14.

Accounting policy for goodwill

As a result of the adoption of IFRS 10, the Group consolidates FHN's financial statements, which include goodwill. Therefore, the Group has adopted the following accounting policy for goodwill:

Goodwill arising in a business combination is recognised as an asset at the date that control is acquired. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer's previously held equity interest (if any) in the entity over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill is not amortised but is reviewed for impairment at least annually.

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 financial statements.

2. Finance costs

3. Earnings per share

4. Reconciliation of profit after tax to normalised profit after tax

Normalised profit after tax is a non-IFRS measure of financial performance of the Group, which in management's view more accurately reflects the Group's underlying financial performance. This may not be comparable to similarly titled measures reported by other companies.

5. Taxation

The Group's effective tax rate has increased as a result of greater losses incurred in corporate entities in which the related tax losses have not been recognised as deferred tax assets or which cannot be offset against taxable profits.

During the second half of 2013 we will continue discussions with the Nigerian Tax Authorities to finalise our tax returns from previous periods, including discussions over the applicable tax rate. Whilst a range of outcomes are possible, we continue to believe the taxation provisions held remain sufficient.

6. Operating segments

For management purposes, the Group currently operates in three geographical markets which form the basis of the information evaluated by the Group's chief operating decision maker: Nigeria and other West Africa, East Africa and Kurdistan Region of Iraq. Unallocated operating expenses, assets and liabilities relate to the general management, financing and administration of the Group. Assets in Cote d'Ivoire which have been classified as held for sale (Note 13) are included in the Nigeria and other West Africa segment for management purposes but have been deducted in a separate column in the segmental analysis below to enable reconciliation to the income statement and balance sheet.

6. Operating segments continued

6. Operating segments continued

7. Borrowings

Ebok facility

On 22 March 2013, Afren signed a new US$300 million Ebok facility which has a three-year term and bears interest at Libor plus 4.0-4.8 per cent. The new facility replaces the previous facility of approximately US$185 million. The new extended facility will be used to fund on-going capital expenditure and general corporate requirements including Group loans.

During the period FHN 113, a subsidiary of Afren, utilised a US$34 million facility for the acquisition of a 9 per cent. interest in the OML 113 licence. The facility bears interest at Libor plus 9 per cent. and has a two-year term.

The SOCAR loan of US$50 million was repaid on 5 July 2013 in accordance with the agreement.

8. Fair values

The financial instruments on the Afren balance sheet are measured at either fair value or amortised cost. Set out below is a comparison by category of carrying amounts and fair values of all the Group's financial instruments. The measurement of fair value can sometimes be subjective. For financial instruments carried at fair value, the different valuation methods are called hierarchies. Afren currently only has level 2 fair value items, which are described below;