Afren unit buys Nigerian oil field stake from majors

Afren said it was to buy a stake in a Nigerian oil field from and expects to complete further such deals next year as it positions itself as a major independent player in Nigeria. “We remain in talks with all the majors about fields,” Chief Executive Osman Shahenshah said in an interview on Thursday, adding that he would be surprised if the company did not complete another similar acquisition in 2011.

Afren said that First Hydrocarbon Nigeria, an indigenous Nigerian company it set up to buy fields sold off by oil majors, would spend $187.5 million on a 45 percent stake in oil field OML 26 from Shell and its partners Total and Eni. The announcement of the long awaited deal, which has been flagged by Afren a number of times in recent months, boosted Afren’s shares by as much as 10.4 percent to 128 pence, an all time high, making the company the top gainer on Britain’s mid-cap index .FTMC. “Afren’s long gestating ‘big deal”‘has finally arrived and it delivers on every level: reserves, exploration upside and major production growth,” said Arbuthnot analyst Dougie Youngson, who has a “strong buy” recommendation on the stock and called the deal “transformational.”

Shahenshah said in May that there are between 80 and 120 fields with between 50 and 250 million barrels of recoverable oil reserves which oil majors control but which they think are too small to develop. “The whole disposal programme of the majors in Nigeria has certainly picked up pace,” said Shahenshah, pointing to Shell’s sale of three licences in January and comments it made in February about wanting to offload more assets. First Hydrocarbon Nigeria, in which Afren owns a 45 percent stake, was formed in 2009 to take advantage of Nigeria’s drive to increase the level of local involvement in its oil and gas industry, the biggest in Africa by daily production. Afren, which has assets elsewhere in West Africa and in East Africa, will be generating more than $500 million of cash in 2011 from bringing its Ebok field in Nigeria into production, giving it the firepower to pursue further acquisitions.

Afren, which has a market value of 1.17 billion pounds ($1.85 billion), said the OML 26 field, which includes two producing and three undeveloped assets, produced 5,000 barrels of oil per day but plans were in place to increase production to 40,000 over the next four years. Of the $187.5 million total cost, Shahenshah said the price of the stake cost $147.5 million, with the balance to be spent on developing the assets. “It’s a very attractive deal for First Hydrocarbon Nigeria with the acquisition of reserves at less than $2 per barrel,” he said. The deal is subject to regulatory approval, said Afren, which also said it had agreed terms with BNP Paribas for a $130 million credit facility towards the acquisition cost.