The Company has successfully raised over $450 million in attractively priced debt and loan notes since IPO. On the face of it, although this figure appears high in comparison to the Company’s current market capitalisation, the majority of this debt is ringfenced around the assets in a reserves based lending structure.
Of the Company’s current $430 million debt, only a $50 million senior un-secured facility and the $45 million loan notes (at labor + 2%) are non-ringfenced to the assets.
The reserve based lending facilities are amortised over a 5 year term. The facility amounts available (which have been drawn) are calculated based on the fields ability to service the debt under a very conservative banking case (which is typically below the 1P production forecast) and low oil price.
This ensures that the fields will generate sufficient net cashflow to service the debt even in a low case. It is worth noting that both Okoro and Cote d’Ivoire are performing substantially above the forecasts used for the purpose of determining the borrowing base, and are set to continue to do so, thereby ensuring that all debt obligations (reserves based or otherwise) can be comfortably met now and in the future with significant residual free cash remaining for the company to fund further growth and expansion.
As part of its reserve based lending facilities, the Company has strategically hedged a certain amount of production to further ensure that debt service obligations can be met and also to comply with certain debt covenants.
The Company has hedged its oil production in Cote d’Ivoire out to the end of 2012 at an average floor price of $83/bbl, and at Okoro has hedged approximately 17% of production to the end of 2010 at an average floor price of approximately $55/bbl. 2009 will be a year of peak production at Okoro, with the field currently producing profitably at circa 22,000 b/d the field is significantly out-performing pre production start-up estimates of 15,000 b/d (circa +47% out-performance vs guidance).
Coupled with a stable 5,200 boe/d production in Cote d’Ivoire the Company is now producing circa 27,000 boe/d. The Company is therefore strongly cash generative, and 2009 will see Afren pay down a further $105 million in debt principal amounts, thereby reducing the forecast end 2009 debt position to approximately $325 million (including the loan notes), approximately $280 million excluding the loan notes
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