Afren sets sights on forthcoming drilling campaign

Tuesday, Aug 30 2011 by
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Afren sets sights on forthcoming drilling campaign

Shares in FTSE 250 oil and gas group Afren (LON:AFR) rose by 4.5% to 99.8p today on news that it was close to starting an exploration drilling campaign targeting up to 930 million barrels of oil equivalent (boe) of net prospective resources. Later in 2011, wells are due to be drilled on Afren’s licences in East and West Africa as well as on its recently-acquired land holdings in the Kurdistan region of Iraq.

Reporting its figures for the six months to June, the Africa and Middle East focused company confirmed that production this year is on course to reach 25,000 boe per day, with an exit rate of 50,000 boepd. Year-on-year production was 36% lower in the first half of the year, at 13,000 boepd, due primarily to cost recovery being achieved at the Nigerian Okoro field and longer than expected periods of facilities related down time at the Ebok field. This was partially offset by significantly higher price realisations and lower cost of sales.

In July Afren set out plans to begin operating in Kurdistan with a proposed US$588.25 million acquisition of stakes in two production sharing contracts. The deal marked its first move outside the African continent and 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 deal, Afren will acquire a 60% participating interest in the Barda Rash PSC from Komet Group S.A. and a 20% participating interest in the Ain Sifni PSC from the Kurdistan Regional Government. In today’s report, the company said a phased development of the Barda Rash field was targeting initial production for early 2012. That work will focus on developing 506 million barrels of recoverable light oil resource that is anticipated to deliver gross production of 125,000 bopd by 2017 (giving five year line of sight on 75,000 bopd net to Afren).

Osman Shahenshah, Afren’s chief executive, said: “Afren continues to make good operational progress, with reservoir performance and drilling results at our Ebok and Okoro fields at the upper end of expectations. Whilst first half production volumes were impacted by periods of non-reservoir related facilities down time, we are now ramping up production towards our targeted 50,000 boepd exit rate. We are delighted to have acquired, post the period end, a high quality portfolio of assets in, and gain entry into the Kurdistan region of Iraq. The acquisition is consistent with our strategy of acquiring low cost barrels, increases our 2P and 2C recoverable reserves and resources base by over 700% at a cost of under US$1 per barrel and means that Afren is now strategically positioned in two of the world's most prolific oil producing countries in Nigeria and Iraq. Our planned exploration campaign is due to commence shortly with the drilling of key wells in each of our core regions that, if successful, could materially increase the company's reserves base. Financially we are in a strong position with low gearing and substantial resources available to execute our planned work programme and pursue further inorganic growth opportunities that are available to us.”


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