Dear Mr xxx
Thank you for your enquiry submitted through the Afren website.
In order to best respond to your questions I feel that it may bebeneficial to firstly update you on Afren's operations and activitiesand then provide thoughts on the exogenous factors that are impactingnot only Afren but the sector as a whole.
Okoro
We successfully completed development work at Okoro in Q4 2008 and arenow producing profitably at a stable rate of approximately 22,000 bopdfrom all seven wells. This marks a significant out-performance versusthe 15,000 bopd volume we previously guided towards. The project wassuccessfully delivered within two years from announcing the initialagreement with our local partner, an exceptionally short lead time byindustry standards and an achievement of which we are proud.
Cote d'Ivoire
We successfully completed the acquisition of Devon Energy's assets inCote d'Ivoire in September 2008. Production is stable at approximately38 mmcfd of gas and 1,600 bopd gross from upstream operations withapproximately a further 1,200 boepd of natural gas liquids production atthe 100% Afren owned Lion Gas Plant. Since Afren assumed operatorshipof the assets gross production has increased by some 700 boepd. 2009will see the implementation of a low cost wireline workover schedulewhilst work is ongoing in planning a heavy workover/infill campaign inlate 2009.
Ebok
We commenced appraisal drilling at Ebok on 24th November 2008 using theTrident IV jack-up rig. We completed appraisal drilling operations inline with our stated timetable on 1 February 2009. We are pleased toconfirm that we successfully achieved all of our pre-drill objectiveswhich included establishing the areal distribution of the reservoir,reservoir properties and acquiring a full suite of technical data.Interpretation and analysis of the appraisal results is ongoing and weare awaiting the independent analysis and certification of this, afterwhich a further announcement will be made on this very exciting projectand the timing of the development. You will note from the Okorodevelopment that the Company has always maintained a conservativeapproach to releasing robust information to our shareholders.
Exploration activities
We will be drilling one firm well at the La Noumbi permit (Afren 14%) inCongo Brazaville in Q2. This is a low cost exploration well and isfully funded from existing resources.
General Corporate
We are looking at several opportunities in the context of the strategicalliance with Sojitz. Whilst we cannot provide details on specificopportunities, or offer precise timings, the acquisition alliance is apriority for both partners and we are increasingly seeing attractivelypriced opportunities.
External conditions and their impact on Afren and the sector
The fact remains that on fundamentals Afren has never been stronger ormore robust than it is today. We are currently producing approximately27,000 net working interest boepd profitably and have a strong, visibleproduction growth curve which from our existing asset base alone isexpected to provide organic growth to approximately 40,000 net workinginterest boe/d in 2011. Having reported a cash balance of $269 mm andnet debt of $13 mm mid year we will report a significant cash balance atend 2008 which combined with strong cash generation from our producingasset base ensures that we are fully funded through our budgeted workprogramme.
What is apparent is that the market is currently not valuing the sectoron fundamentals, but instead on external macro factors largely driven bythe onset of the global economic crisis.
First and foremost the oil price collapse has dramatically influencedperformance of the E&P sector (Afren included). Oil has come down byover 70% from record highs of approximately $147/bbl in the middle oflast year. The volatility witnessed in oil price, and the alarming rateat which prices dropped has undoubtedly influenced investor's behaviourand appetite for exposure to the E&P sector.
Afren has in place certain oil price hedges which provide a degree ofprotection against oil price volatility. In Cote d'Ivoire we havehedged all oil production out to the end of 2012 at an average floorprice of approximately $83/bbl. Furthermore we have hedgedapproximately 17% of Okoro production to the end of 2010 at an averagefloor price of approximately $55/bbl.
Like countless other companies we have also suffered from redemptions.Afren is one of the most traded and liquid stocks on AIM, which resultedin high levels of selling simply because our shares could be sold(particularly as funds were facing redemptions and required to close outpositions).
Whilst it is almost impossible to tie the Afren share price performanceback to one specific factor, it is clear that it is due to a combinationof external circumstances that are unfortunately beyond an oil companiescontrol. We remain totally focused and committed to continuing todeliver superior operational performance against our strategy and tomaintain our strict capital discipline whilst selectively pursuing highquality growth opportunities.
We appreciate your enquiry and highly value our shareholder base. Wetrust that this goes some way to answering your question. Should youhave any further questions please do not hesitate to get back in touch.
With best regards,
Afren Investor Relations
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