Oil and gas group Afren (LON:AFR) has set out ambitious plans to begin operating in the Kurdistan region of Iraq with a proposed US$588.25 million acquisition of stakes in two production sharing contracts. The deal not only marks Afren’s first move outside the African continent but it also promises to boost its 2P and 2C recoverable reserves base by over 700% at a cost of under US$1 per barrel.

As part of the proposed deal, Afren will acquire a 60 percent participating interest in the Barda Rash PSC from Komet Group S.A. and a 20 percent participating interest in the Ain Sifni PSC from the Kurdistan Regional Government (KRG). It said it believed that the acquisition represented a highly complementary extension of its existing portfolio, particularly in Nigeria, and offered a combination of near term development upside, substantial low risk exploration potential and a strategic “early mover advantage” in Kurdistan.

The deal is being funded through an agreed US$200 million corporate credit facility with BNP Paribas and VTB Capital together with a combination of equity financing, existing cash resources and cash flows from existing operations. The equity financing took the form of a share placing priced at 135p per share, raising £113 million.

The acquisition delivers independently certified 890 million barrels of net 2C resources and total net un-risked resources of 1,074 million barrels. The deal cost equates to US$0.66 per 2C barrel inclusive of approximately US$81.0 million back costs and US$14 million 2011 capex related to Ain Sifni.

As part of its announcement, Afren also set out a phased exploration, appraisal and production programme to develop Barda Rash and appraise Ain Sifni. The development will initially focus on light oil reservoirs that are expected to deliver 75,000 barrels of oil per day net to Afren within five years from Barda Rash alone. In the first phase, the company is targeting 15,000 bopd (gross) by the end of 2012. In turn, there will be an active exploration and appraisal drilling campaign between 2011 and 2012.

Osman Shahenshah, Afren’s chief executive, said: “We are delighted to acquire a high quality portfolio of assets in the Kurdistan region of Iraq, covering the full E&P spectrum of development, appraisal and low risk exploration upside. The acquisition is consistent with Afren’s strategy of acquiring low cost…

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