London, UK | – International independent oil exploration and production company, Afren Plc said it was in talks with its largest bondholders over its liquidity and funding needs as the oil producer struggles with slumping prices and dry wells in Iraqi Kurdistan.
Shares in the company, which produces most of its oil in Nigeria, fell as much as 71 percent to a record low of 5 pence, wiping 141 million pounds ($213 million) off its market value. One analyst questioned whether Afren, which had net debt excluding finance leases of $720 million as at June last year, was now in breach of its debt covenants.
Afren said its funding requirements were likely to exceed its market value if its debt remained unchanged. At Monday’s close, Afren was valued at about 194.5 million pounds. Oil producers and services companies across the globe have been walloped by a 60 percent drop in crude prices over the past seven months.
On top of the slide in oil prices, Afren has struggled with internal issues including the dismissal of top executives and the suspension of operations in Iraqi Kurdistan. “The Company has been advised that an ad hoc committee of its largest bond holders has been formed,” Afren said in a statement. “The Company has initiated discussions with the advisers to the committee regarding the immediate liquidity and funding needs of the business.” Afren is reviewing its capital and other expenditure and talking with lenders to amend credit facilities and defer a $50 million amortisation payment.
It said it might also utilise a 30-day grace period to delay a $15 million interest payment due on Feb.1 for its 2016 bonds. Afren said it was still in merger talks with Nigeria’s Seplat Petroleum Development Co Plc as it searched for new funding.
However, the funding search was dented after it announced on Jan. 12 that there were no proven or probable reserves at its Barda Rash oilfield in Iraqi Kurdistan. The decision by Afren’s bond holders to step in did not surprise analysts at Wood & Company, a brokerage house. “According to Afren, the current liquidity available to the company is significantly lower as a result of restricted and segregated cash balances in place to address operational requirements, which we read as a breach of covenants,” Wood & Company analysts wrote in a note.