Afren plummets as CEO and COO suspended

Africa focused oil and gas explorer, Afren (AFR) is currently down 28% to 107p and fell as low as 97p this morning on news that the CEO and COO have been suspended for “the receipt of unauthorised payments potentially for the benefit of the CEO and COO”. Currently it is not clear what these payments are but presumably in connection with contacts with some of its African assets. The board has announced that the financial results are being postponed for a full investigation to take place.

Afren chief executive Osman Shahenshah

Afren is currently producing from its assets offshore Nigeria and Côte d’Ivoire and holds further interests in the Kurdistan region of Iraq, Ghana, Nigeria, Côte d’Ivoire, Congo Brazzaville, Kenya, Ethiopia, Madagascar, Seychelles, Tanzania and South Africa. In May the company confirmed first quarter net production at 35,465 barrels of oil per day, in line with expectations, and sales revenue of US$269m (Q1 2013: US$386m).

The announcement seems to have triggered a wave of selling helped by stop losses being triggered and the scale of the fall below £1 seemed excessive given its seems unlikely that the company’s financial results will be impacted. However, risk clearly exists with both the CEO and COO being involved and the investigations may uncover further problems or clarifications. Watching with interest that’s for sure!

Canaccord Genuity said this morning, “The news raises plenty of questions which are unlikely to be answered in the near term. Afren’s corporate governance reputation has not been amongst the best in the sector, and investor scepticism in some quarters would appear to have been vindicated by today’s news. Since the payments were not made by the company but by outside parties, and since the board sees no reason to believe the financial and operational position of the company will be affected by this news, there is no reason for us to believe the company’s valuation will be directly impacted by this announcement. Clearly, the announcement substantially increases the risks around investing in Afren. Whilst the statement says there is no evidence that any other board members are involved, we have been unable to find out if this also means no-other employees are involved.”

The full text of this mornings RNS reads as follows:

Afren plc (“Afren” or the “Company”) announces that the Board has temporarily suspended the CEO, Osman Shahenshah and the COO, Shahid Ullah.

In the course of an independent review on the Board’s behalf by Willkie Farr & Gallagher (UK) LLP of the potential need for disclosure of certain previous transactions to the market, evidence has been identified of the receipt of unauthorised payments potentially for the benefit of the CEO and COO. These payments were not made by the Company. The investigation has not found any evidence that any other Board members were involved.

No conclusive findings have yet been reached and the investigation is ongoing.

Egbert Imomoh has agreed to become Executive Chairman and the Board has appointed Toby Hayward, currently Senior Independent Director, as Interim CEO while the investigation continues. Whilst the Board has no reason to believe that this will negatively affect the Company’s stated financial and operational position, the publication of the Company’s Half Year Results due on 4th August 2014 will be postponed. The company will announce in due course a new date for the half year results, which will be no later than the end of August.The Board has notified the relevant regulatory authorities that the review is taking place and will update the market as appropriate.

Contrarian Investor UK

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