Afren administrators struggling to attract interest for ARL sale

Following Afren Plc’s declared insolvency on July 31st, 2015, tension has been building up as creditors of the fallen company seek to secure any value left in the company.

After fighting for six months to re-structure a huge debt burden amidst falling oil prices and internal management re-structuring, following the removal of the CEO, COO and a number of other senior employees, Afren was left with creditors of over $1.6 billion, all seeking to recover any value possible.

The preliminary findings of Afren’s administrators indicated that the company had secured creditors of $517 million at the point of insolvency, and a further$1.197 billion of unsecured creditors.

The administrators resolved that the company could not survive as an on-going concern and that the only way to secure value for creditors was through a process of selling the assets held by the company at a valuation higher than what would be achieved should the company be wound up.

The secured creditors of Afren who stand to recover any value from the sale of assets, consist of Wilmington Trust, which represents the interests of Afren note and bondholders, as well as creditors under the Ebok facility, which consists of BNP Paribas, Citibank Nigeria, Deutsche Bank and Natixis.

Effectively, the creditors likely to receive any value from the process, are therefore major global financial institutions.

“However, there is unlikely to be sufficient funds to settle all secured creditors and so, even the secured creditors are in conflict with each other to secure value,” an insider familiar with the story told BusinessDay.

The question on the lips of industry watchers is where will the money to pay creditors come from and what happens to the plethora of unsecured creditors, including many Nigerian oil services companies with major outstanding trade debts?

Since their appointment, the administrators have been seeking buyers for Afren assets under their assumed mandate, with a number of transactions being concluded, most recently the Lekoil acquisition of Afren’s interest in OML 113. These funds, will then be used to settle the secured creditors.

However, Afren’s two producing assets, the Okoro Setu field, in partnership with AMNI and the Ebok field, in partnership with Oriental Energy Resources were designed as technical and financial partnerships within which Afren would support the indigenous operating partners.

The sale of any Afren interest in these assets requires the prior consent of a number of key parties, notably the Minister of Petroleum Resources and the Department for Petroleum Resources, the original farmer of the asset and the indigenous operating partner.

No transfer of equity can take place without such consent, which requires the administrators to engage in a collaborative process with the indigenous partners and the Nigerian state.

“Under this scenario, no local partners, not even the Federal Government will endorse any sale that simply passes value to international creditors while leaving Nigerian contractors empty handed,” said one expatriate in Lagos last night.

Already, indigenous partners have had to step in at significant cost, to take over control of the assets Afren’s insolvency left unfunded. Oriental Energy Resources, the indigenous owner of the Ebok field, has assumed responsibility for field operations under the Ebok transition plan, funding all field operations, directly employing over 100 Afren employees and assuming responsibility for ongoing contractor relationships.

The Department of Petroleum Resources (DPR) which has been monitoring the process, has signaled that the proposed sale is in breach of the Ministerial guidelines, suggesting that regulatory consent may be challenging for any buyer. At the same time, they are anxious that one of the few marginal field successes is not destabilised, as they look for further bid rounds. The Ebok field is the largest producing marginal field in Nigeria.

Several local subcontractors are exposed to significant trade debt, in particular within Afren Resources Ltd, ARL, the vehicle established to hold Afren’s interest in the Ebok field.

ARL has significant trade debt of up to US$250 million across 245 local and international creditors, who are incorporated into Afren’s unsecured lenders, and so stand to receive nothing from the sale of Afren assets. This is in addition to the finance debt which is secured under the Ebok lending facility. This debt would be assumed by any potential acquirer.

Currently, BusinessDay investigation show that Afren trade debtors are conscious that the value of any sale will be distributed amongst international creditors, rather than unsecured lenders and so a number are aggressively pursuing legal action against ARL in an attempt to secure any remaining value. This includes Vogue Energy Services, which has a hearing scheduled in the courts on December 9th to hear a winding up petition they have submitted.

By OUR REPORTER