Afren to cut exploration budget

A British oil and gas company, Afren Plc, will cut its budget in Kenya citing weak global crude prices.

Its strategy to scale down business locally comes as falling crude oil prices continue to impact heavily on oil exploration in Kenya.

Afren’s move follows in the steps of other international oil and gas exploration companies — UK’s Tullow Oil and Swala Energy of Australia — which have also announced plans to slash their budget and shelve fundraising.

The company has said that it will concentrate on development of its resources in Nigeria, a plan that is likely to affect its local business as well as in other regions where it has presence.

Afren was expected to start drilling two exploration wells on blocks L17 and L18 located within Lamu basin, where it has 100 per cent interest, this year.

The British company had also started data collection on block 1 where it holds 80 per cent interest last October.

The outcome of data collection is expected to inform its decision on drilling plans on the block.

“The board has reviewed its business plan with the aim of minimising its funding requirements in the current oil price environment to focus on the development of the company’s core assets in Nigeria.

EQUITY REQUIREMENT

“Assuming the company’s current debt structure remains unchanged, there is an equity requirement which is likely to be significant and in excess of the company’s current market capitalisation,” the London Stock Exchange listed firm said in a statement.

Globally, crude prices have fallen sharply to a six-year low, now trading at below $50 a barrel, which both the World Bank and the International Monetary Fund said is likely to derail oil and gas exploration.

In November, Organisation of the Petroleum Exporting Countries resisted calls to reduce output in the face of falling prices, keeping its output ceiling at 30 million barrels per day in a decision that exacerbated the global price slump.

Afren also said that it is operating on a “significantly lower” liquidity position. Hence, it has opened negotiations with its lenders of a $300 million debt to obtain a deferral on a $50 million repayment which is due at the end of this month.

CONSIDERING MERGER

It is also considering a merger with Seplat Petroleum Development Company, also listed at the London Stock Exchange, which has exploration and production interests in Nigeria to boost its liquidity.

Apart from Kenya, Afren has exploration interests in Tanzania and Ethiopia in the Eastern Africa region.