Fallen angel Afren (LSE: AFR) issued an interim management statement for the three months to March 2015, and it appears that things are not improving for the company.
Revenue for the period declined by 52% year on year due to a significantly lower realised oil price. Revenue fell to $130.3m, compared to $269.0m as reported in the year-ago period.
Higher admin costs, which were a direct result of Afren’s recapitalisation and write-off of expenditure on certain assets pushed the group into a pre-tax loss for the period of $48.1m.
During the period, the company generated $59.1m in operating cash flow. Capital spending during the period amounted to $212m.
Overall, these figures are quite concerning. Also, Afren spent nearly four times more on capital projects during the first quarter than cash generated from operations.
As a result, Afren net debt increased by 12% from the fourth quarter of last year. Net debt rose from $1.1bn to $1.2bn.
Funding requirements
Alongside its interim statement Afren announced today that, as part of its recapitalisation plan, it will be provided with $200m of net interim financing. The proceeds of this will be used for general corporate purposes and capex.
Further, Afren stated that it expects the group’s wider recapitalisation programme to be completed by the end of July 2015.
Luckily, Afren’s bondholders have agreed to support the company’s restructuring. Holders of the company’s 2016, 2019 and 2020 notes have agreed to subscribe for new senior notes up to the maximum permitted level of $369m, $93m more than management had expected.
Cloudy outlook
Unfortunately, Afren’s outlook for the rest of the year is hardly anything to get excited about.
Production is expected to decline slightly, averaging 23,000 to 32,000 barrels of oil per day throughout the rest of the year. First-quarter average net production was 36,035 bopd.
What’s more, the group is planning to cut capital spending for the rest of the year. Management is guiding for full-year 2015 capital spending of $0.4bn.
Uncertainty prevails
Today’s interim management statement really showcased Afren’s weaknesses.
Falling oil prices have hit the company hard and throughout the rest of 2015 production is expected to fall. It seems things will only get tougher for the group in the near-future.
And even after Afren completes its recapitalisation programme, it’s unclear how much longer the group will survive.
Indeed, Afren is still spending more than it can afford on development projects. Even the firm’s reduced capital spending budget is set to exceed cash flow from operations by around $170m this year, based on first quarter figures.
Afren will have to borrow to fund the shortfall, heaping more debt on top of the group’s already towering debt pile.
Recovery will take time
Today’s update from Afren has made it clear that the company’s recovery has only just begun, and there is still plenty of work to do. Only time will tell if management can turn things around before it’s too late.
