July 5, 2013 6:58 pm

Afren increases stake in Nigerian partner

Afren, the Africa-focused oil explorer, has extended its interest in a Nigerian exploration licence by lifting its stake in local partner First Hydrocarbon Nigeria to close to 80 per cent.

Under the terms of a series of planned transactions announced on Friday, Afren’s chairman and other leading directors and executives also undertook to sell individually controlled stock representing about 10 per cent of FHN’s share capital at a discount.

Analysts, who described the extension of Afren’s corporate stake in the local exploration vehicle as “value neutral”, suggested the agreed sale of stakes held directly by directors in FHN was an attempt to tackle corporate governance issues at the FTSE 250 constituent.

Afren is paying an average of $3.10 a share to extend its interest from 54 per cent to 78 per cent in FHN for a total of $105m. It has also struck a deal that allows it to acquire a further 12.5 per cent in FHN at $3.32 a share in 2015.

Directors and executives holding stock directly in the Nigerian vehicle have undertaken to use the net proceeds of the sale, that will gross $30m, to acquire Afren shares and hold them for a minimum of two years.

The sales price of $2.47 a share, although less than that offered on Friday to extend its stake, is the same level paid by Afren when it agreed to buy a further tranche of shares in March.

Afren helped establish FHN in 2009 as an local oil and gas company that was majority Nigerian owned and thus more likely to be successful in bidding to operate licences put up for sale by foreign operators.

In December 2011, FHN acquired a 45 per cent interest in the OML 26 portfolio of assets in Nigeria from Royal Dutch Shell, Total of France and Agip, part of Eni of Italy.

However it emerged ahead of this year’s annual meeting that Afren’s top management had been left sitting on a paper profit of close to $23m after the company completed the purchase of a further stake in FHN in April.

Under the terms of the original purchase, Afren’s top directors and executives in 2010 personally acquired 15 per cent of FHN’s then issued share capital at a price of $0.13 a share at a time when the company had no assets.

Investor disquiet led to a rebuke from shareholders who voted down Afren’s remuneration report in a non-binding poll by a margin of four to one at its annual meeting in June.

On Friday, Dragan Trajkov, analyst at Westhouse, said the amount to be paid for the additional tranche of FHN was consistent with a $425m valuation he had recently put on the Nigerian venture. But he described the share sale agreement by directors as more important as “an apparent effort to rectify a recent situation in which management and directors were publicly criticised for acquiring shares in FHN”.

Shares in Afren, up by a quarter over the past year, edged up by 1p to 136p on Friday.

Additional reporting by Sylvia Pfeifer

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