Afren beats production guidance ahead of high impact exploration drilling programme

Afren (LON:AFR), the FTSE 250 oil and gas group, said today that it was on course to deliver average production of 40,000 barrels of oil equivalent this year after putting in a strong performance during the first quarter. Of note, the Africa-focused exploration and production group reported that production from the first phase of its flagship Ebok field development in Nigeria was currently in excess of 17,000 barrels of oil per day, beating earlier guidance. Meanwhile, production from Okoro, another Nigerian field, has reached 21,000 barrels of oil per day. Afren said that further exploration around Okoro had identified a look-a-like target that could be drilled later in 2011.

With production levels increasing, Afren is now looking forward to a programme of high impact exploration and appraisal drilling on its licences in West and East Africa during the rest of 2011. In March, it said the ten-well programme would target a total net mean prospective resource base in excess of 630 million barrels, with key wells in Ghana, Nigeria, Kenya and Tanzania.

Among the company’s current priority projects, the Okwok field in Nigeria is being assessed to determine an optimal development solution. Gross recoverable resource estimate there have been increased to 51.8m barrels. Meanwhile, at the Keta block in Ghana, ongoing studies have revealed the potential of Turonian intervals, leading to an increase in gross prospective resources to over 1.4 billion barrels. In March, Afren farmed down a 35% interest in the Keta block and operatorship to ENI whilst retaining a 35% stake in the block. In exchange, it will be carried through the drilling of one exploration well and further seismic acquisition in later phases. It will also receive back costs and a milestone bonus payable upon first production. The partners plan to drill the 325m barrel Cuda prospect during the third quarter.

Osman Shahenshah, the chief executive of Afren, said: “We are very pleased to have increased production at the Ebok field to current levels in excess of 17,000 bopd, ahead of pre start-up expectations. Together with the recent infill drilling at Okoro, group wide operated production is over 40,000 boepd (approximately 30,000 boepd net to Afren). The company will be drilling a number of high impact wells across both West and East Africa, and together with a strong acquisitions pipeline, Afren is very well positioned as we move towards the second half of the year.”

Revenues during the first quarter came in at US$73.4 million against US$84.6m in 2010. Working interest production in the period was 9,700 boepd reflecting cost recovery at Okoro (2010: 20,700 boepd pre cost recovery). Pre-tax profits were US$2.0m compared with US$18.2m in 2010, with the drop largely attributable to losses on derivative financial instruments, arising from mark to market movements on hedging contracts and also finance costs associated with the early repayment of debt following a bond issue in January. That deal saw Afren become the first UK listed independent E&P company to successfully issue a high yield bond, initially raising US$450m with a subsequent tap issue in February raising an additional US$50m.

Between January 2010 and March 2011, Afren bolted on 16 new assets and gained entry into six new African countries. Among them, First Hydrocarbon Nigeria, where it holds a 45% stake, acquired a major onshore portfolio at OML 26 from Royal Dutch Shell (LON:RDSA)  , Total (NYSE:TOT) and ENI. Meanwhile, a move in to East Africa saw Afren snap up Black Marlin Energy last October in a deal that brought with it 12 new assets mainly geared to high impact exploration. Since then, the company has acquired a 74% interest in the Tanga block, offshore Tanzania in a deal that expanded its existing acreage position from further south in Kenya. Click here to read a Stockopedia interview with Galib Virani, Associate Director and Afren’s Head of Acquisitions.