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The End Is Surely Nigh For Afren Plc

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Over the past year, whenever I’ve looked at Afren (LSE: AFR) I’ve thought things probably couldn’t get much worse — but sadly, we know they did.

The restructuring plan that the troubled oil explorer had in place looked likely to save the company. Though it would hand the bulk of the equity over to its creditors and leave very little for existing shareholders, it was almost certainly the best deal they were going to get — even though a last-minute rebellion could possibly have thwarted it.

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But even that deal is surely back up in the air again now, after Afren shocked the markets on 15 July by announcing that a review of its business had revealed that “near-term oil production is likely to be materially lower” than estimates upon which the restructuring plan was based. The shares were suspended on the day at 1.785p, down almost 99% over the previous 12 months. So would the rescue deal actually happen?

Vote delayed

It’s looking a lot less likely after the company’s latest missive, delivered on 21 July after markets had closed. The upcoming General Meeting scheduled for 24 July and its Scheme Meeting scheduled for 29 July have been postponed until further notice, as Afren needs to work out the full horrors of its production prospects and what they’ll mean for the bottom line.

One thing for sure is that there’s a “requirement for further significant funding” with the company telling us that the postponement “will allow Afren to finalise the review and engage with the relevant stakeholders to discuss the implications of the revised assumptions on the restructuring“.

Given that Afren is still “unable to assess accurately its financial position and inform the market accordingly“, it comes as no surprise that its shares are to remain suspended.

So far, Afren has been unable to offer any updated estimates for production, and that’s really quite shocking so soon after its upbeat first-quarter production boasts — as recently as 29 May, the firm was telling us of “average net production at 36,035 bopd in line with expectations to meet our guidance range for 2015, averaging 23,000 – 32,000 bopd“. It’s hard to understand what could have gone so horribly awry in such a short time, or how the company could have got it so badly wrong in May.

Nothing left

Afren is currently negotiating a short-tern loan of $30m to keep it going at least for a while, but whether it can produce an updated restructuring deal that its lenders will accept is very much up in the air again now — both in terms of the ultimate ownership of the company and the timescale of any possible rescue plan. We’ll need to get the updated production guidance, but we surely can’t be far away from the possibility that bankruptcy and a sale of assets would provide a better financial deal.

Whatever happens, there surely is nothing left for existing shareholders now.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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