AFR.L Regulatory News (AFR)

Statement at 2015 Annual General Meeting

London, 25 June 2015

Afren plc ("Afren", the "Company" or the "Group"), (LSE: AFR) announces that at today's annual general meeting the Chairman, Egbert Imomoh, opened the meeting with the following statement:

"Just over a year ago when I spoke at the last AGM, little was I aware that of what the year held in stock for us. The events that have radically changed our Company commenced when the Board discovered that our former CEO, Osman Shahenshah, and our former COO Shahid Ullah had received payments undisclosed and unknown to the Board. They were immediately suspended and following a very thorough investigation of the situation their contracts with the Company were terminated. This necessitated Toby Hayward stepping in as the interim CEO and me as executive chairman whilst we commenced the search for a new CEO. 

Events following their dismissal, including the Company's inability to complete the planned refinancing of its debt obligations in the second half of 2014, and the sharp decline in oil prices from over US$100/bbl in August 2014 to under US$50 per barrel in January 2015, placed significant pressure on the Group's liquidity position, resulting in the Group having net current liabilities of US$459 million as at 31 December 2014. Early this year, we reviewed our strategic options in respect of the Barda Rash field in the Kurdistan region of Iraq after disappointing operational results (early water breakthrough and production of hydrogen sulphide) at the field and a significant reserves and resources downgrade. This eliminated gross 2P reserves whilst gross 2C resources fell from 1,243 mmbbls to around 250 mmbbls. This movement in reserves in the field led to a material impairment charge in the year ended 31 December 2014 of US$933 million, which contributed to the unprecedented pre-tax loss of US$1,955 million last year.

Average net production for year ended 31 December 2014 was 31,819 bopd (excluding Barda Rash), a decrease of 32% from 47,112 bopd for the year ended 31 December 2013, this was due to achieving cost recovery on Ebok in the first quarter of 2014, and delays in achieving production ramp-up across Afren's producing asset base in Nigeria. There was also a 42% decrease in revenue from US$1,644 million for the year ended 31 December 2013 to US$946 million in the year ended 31 December 2014 reflecting lower production volumes and share of production, and the impact of lower realised oil prices during the second half of 2014.

The Company recorded a loss after tax of US$1,651 million in the year ended 31 December 2014, mainly due to a reduction in revenue given the fall in oil prices, a material impairment charge of US$1,112 million in respect of the carrying value of the Company's production and development assets and the impact of the curtailment of future capital expenditure on our exploration.

In response to the very adverse situation that developed, the interim management took decisive action in reviewing our capital structure and operating/capital expenditure. We took the strategic decision to concentrate on the lower cost production capacity in our Nigerian portfolio. We are focused on delivering on this strategy, and have therefore lowered our full 2015 capital expenditure to US$0.4 billion. We are confident that, in conjunction with our proven operational capabilities, the strategy will create value for all our stakeholders in the near future.

In March, we announced the terms of a financial restructuring which had been agreed with our creditors, and which provided essential additional funding to the Group - without this funding, I can genuinely say that we would not be here today. Last week, we published the full prospectus explaining the terms of the restructuring and how shareholders can participate in this for the benefit of your Company. I strongly encourage you all to read the document that has been sent to you, which explains why your Board believes that this is the only viable option to secure Afren's future and to provide an opportunity for shareholders to realise value in their investment in the Company. Your Board also unanimously recommends that you vote in favour of the restructuring at the extraordinary general meeting to be held on 24 July, because a "No Vote" will mean shareholders will receive no return at all.

In the first quarter of this year Afren achieved an average net production of 36,035 bopd, which is above our guidance range of 23,000 - 32,000 bopd for 2015. The Company delivered revenue of US$130 million and operating cash flows before movements in working capital of US$59 million, down from US$269 million and US$169 million respectively in Q1 2014. The fall in revenue was due to lower realised oil prices and production liftings from Ebok utilised to settle a net profit interest (NPI) liability which is part of the agreement.

As we have moved forward, a key requisite has been renewing the management team. I am therefore delighted to welcome Alan Linn as the new Chief Executive Officer. His proven turnaround experience and excellent grasp of operational matters will be invaluable. He has a firm vision of where he wishes to take the Company. We have also recently appointed Dave Thomas as our COO and proposed new executive director, who has significant executive and operational experience in the international oil and gas industry. I would also like to thank Toby Hayward for his steady leadership in adverse circumstances.

On behalf of the Board, I would like to re-iterate my thanks to Darra Comyn, Peter Bingham, John St John and Ennio Sganzerla, who have all stepped down as Executive and Non-Executive Directors since the last AGM. They all have made considerable contributions to Afren and its development. Additionally, as announced this morning, I shall be stepping down as Chairman with effect from the close of this Annual General Meeting, together with Iain McLaren, Toby Hayward, Patrick Obath and Sheree Bryant as Non-Executive Directors. My thanks also go out to each of Iain, Toby, Patrick and Sheree. David Frauman, an experienced restructuring lawyer and director, will become non-executive chairman with immediate effect from the close of this meeting. As previously announced, the Company has commenced the search for a Chief Financial Officer and is also seeking to appoint additional non-executive directors to the Board.

The internal changes go beyond the Board movements. All of our internal processes have been reviewed and amended where necessary to ensure compliance with corporate governance best practice. We have run comprehensive training for our employees and contractors in anti-bribery and corruption laws, and are confident that we now have a robust infrastructure in place to avoid the failures of the past.

I would also like to say a few words about our corporate responsibility activities. In 2014 the Board identified CSR as one of the five key strategic priorities needed to fulfil our vision, and the Board of Directors adopted a new CSR strategy. Our approach was generated by taking as the framework industry guidance on sustainability produced by IPIECA and identifying where current performance did not meet stakeholder expectations. The strategy design process identified a series of high priority issues and recommendations to address these gaps. These are reflected in our targets and aims for 2014 and 2015. More detail can be found in our annual report.

In summary, the last 12 months have been far from what we planned and results have been disappointing and have led to a very sharp drop in our share price and a loss of confidence by stakeholders. However I believe the Company can face the future with confidence given the quality of our assets, the good relationship with our partners, the injection of capital and the attraction of very competent people into the Company. I want to thank our shareholders, bondholders, partners, staff and all other stakeholders for their patience and forbearance in what has been a very difficult period for the Company. I would like to end by re-iterating the new Board's commitment and determination to regain the confidence of all our stakeholders, and set Afren back on the course to value growth once more and where it truly belongs."

- Ends -

Contacts:

Afren plcTel.: +44 20 7864 3700Anne Vallely, Acting General CounselNatalia Erikssen, Investor Relations

Bell Pottinger (public relations adviser to Afren plc)Tel.: +44 20 3772 2500Gavin DavisHenry Lerwill