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1 Afren plc

2 contents 01 Overview 14 Business Review 61 Governance 78 Financial Statements 01 Commitment to Africa 02 Our Highlights 04 Our Business at a Glance 06 What We Do 08 Delivering on our Strategy 10 Overview of our Strategy 12 Key Performance Indicators (KPIs) 14 Chairman and Chief Executive s Statement 24 Where We Operate 24 Nigeria 26 Côte d Ivoire 28 Ghana 29 Congo 30 Review of Operations 30 Production 34 Appraisal and Development 40 Exploration 44 Corporate Social Responsibility 52 Financial Review 56 Board of Directors 58 Senior Management 60 International Advisory Board 61 Index to the Report 62 Directors Report 66 Corporate Governance Statement 71 Directors Remuneration Report 76 Statement of Directors Responsibilities 77 Independent Auditors Report 78 Group Income Statement 79 Group Statement of Comprehensive Income 80 Balance Sheets 81 Cash Flow Statements 82 Statements of Changes in Equity 84 Notes to the Consolidated Financial Statements For more information see our website: Shareholder Information 115 Licences 116 Oil and Gas Reserves 117 Glossary of Terms 118 Advisers and Company Secretary

3 Commitment to Africa Overview Afren is a dynamic oil and gas exploration and production company listed on London s main market. Focused on Africa we have operations in several African countries encompassing the full-cycle E&P value chain of production, development, appraisal and exploration. Today, Africa is the fastest-growing source of natural resources and a major supplier to the world s leading markets. We hold a unique position on this continent and not only have close relationships with indigenous companies and suppliers but also a strong African representation on our Board and management teams. We firmly adhere to a strong ethical policy that channels significant resources back into local economies. A clear strategy, coupled with robust and effective management processes, has allowed Afren to enjoy continued growth since IPO in 2005 consistently exceeding targets. Achieving first oil at our maiden operated development, Okoro, in Moving from AIM to the main market in 2009 and FTSE 250 index inclusion. Exceptional recent appraisal drilling results. All these factors place us in a strong position to deliver further growth and shareholder value, positioning Afren at the top end of the London listed E&P universe. Afren plc 01

4 Our Highlights Consistent progress In 2009, Afren continued to build on its strong foundations and operational momentum despite a challenging economic climate. A robust platform of producing and development assets, material reserve additions through the drill bit and potentially transformational exploration opportunities are the bedrock of our organisation. Financial highlights For more info see page 52 Revenue (US$m) Operating profit/loss (US$m) US$336m +690% (44.1) US$46m +US$90m Normalised profit (1) (US$m) Operating cash flow (US$m) (95.9) 50.7 US$51m (US$96m loss) (26.8) US$278m +US$305m Operating costs per boe Price per barrel (US$) Basic loss per share (cents) US$ % c 2.6c 2.6c +12.4c (1) See note 7 to the financial statements. 02 Afren plc

5 Right: Afren employees onboard the Armada Perkassa FPSO at Okoro. Overview Operational highlights For more info see page 15 c.22,100 boepd working interest production. FTSE 250 Index inclusion achieved in March Assets in five West African countries was the Group s first full year of production with 22,100 boepd working interest upstream production and NGL output over the period. Okoro is producing ahead of pre start-up expectations with an average gross rate of 18,800 bopd achieved in Stable operations in Côte d Ivoire, with average gross rates of 30 mmcfd and 1,230 bopd achieved at CI-11 and 1,140 boepd output at the Lion Gas Plant. 100% appraisal drilling success at the Ebok field in Nigeria, progressively de-risking upside potential and increasing gross independently certified reserves to mmbbls. Commencement of Ebok development Phase 1 and acceleration of Phase 2 planning, with first oil expected in October Net working interest 2P reserves and contingent resources of 113 mmboe, independently certified by Netherland Sewell & Associates, Inc (NSAI). Acquisition of interests in the Okwok field, OPL 310 and OML 115 (post period end) in Nigeria, expanding Afren s footprint around the core Ebok development and increasing exposure to the prolific West African Upper Cretaceous fairway. Strengthened balance sheet with gearing significantly reduced and continued debt repayment (US$148 million in 2009). Listing on the Main Board of the London Stock Exchange with FTSE 250 Index inclusion achieved in March Afren plc 03

6 Our Business at a Glance Where we operate in Africa Afren is proud to be based exclusively in Africa. We have 15 assets across five West African countries and a strong African representation on our Board, management teams and throughout our organisation. Our African heritage means we forge strong bonds not only with the communities in which we operate, but also with governments and indigenous companies alike. Africa is one of the most prospective areas in the world from an oil and gas perspective. Our carefully configured portfolio designed to balance risk and maximise opportunities puts us at the heart of this vibrant continent. Côte d Ivoire Ghana São Tomé & Príncipe Nigeria Congo Nigeria Overview: A balanced portfolio of nine assets offering production, development, appraisal and exploration opportunities. Location: Offshore shallow water and onshore. Work programme: Production operations and infill drilling at Okoro; Ebok first oil phased development and appraisal/ exploration on Ebok/Okwok/OML 115; exploration drilling at OPL 310 and OPL 907/917. Highlights: Strong production performance at Okoro, averaging 18,800 bopd in 2009; 100% appraisal drilling success achieved at Ebok with gross field reserves independently certified at mmbbls by NSAI. For more info see page Afren plc

7 Group highlights Overview 22,100 boepd Working interest upstream production and NGL output. 6,360 boepd Gross daily production at Côte d Ivoire, from upstream operations in ,800 bopd Gross daily production at the Okoro field in Nigeria in ,140 boepd Daily NGL output at the Lion Gas Plant in Our partners PETROCI Ghana Overview: Operated interest in the highly prospective Keta Block, located along the prolific West African Transform Margin. Location: Deep water offshore eastern Ghana. Work programme: One commitment exploration well in 2011; ongoing studies in 2010 to finalise prospect selection. Highlights: Analogous play type to the nearby Jubilee and Odum discoveries; multiple targets in Upper Cretaceous reservoirs with structural and stratigraphic traps offering giant field potential. Côte d Ivoire Overview: Established oil and gas production at Block CI-11, with associated midstream gas processing and NGL extraction; development opportunity at Block CI-01 with significant appraisal and exploration upside. Location: Shallow water offshore southern Côte d Ivoire (CI-11); shallow to deep water offshore south east Côte d Ivoire adjacent to the Ghana maritime boundary (CI-01). Work programme: Production maintenance at CI-11 with wireline workovers, and infill drilling target selection to increase reserves and production; seismic and electromagnetic studies at CI-01 leading to appraisal drilling. Highlights: Gross daily production of 6,360 boepd from upstream operations in 2009 and 1,140 boepd NGL output. Nigeria São Tomé & Príncipe JDZ Overview: Deep water high impact exploration block; the Obo discovery encountered 150ft of oil pay in Location: Deep water offshore Gulf of Guinea. Work programme: Entering next exploration phase that requires one commitment well by end Highlights: Six prospects currently identified. Congo Overview: Non-operated interest in the La Noumbi permit adjacent to and on trend with the M Boundi field, one of Africa s largest onshore discoveries. Location: Onshore Congo Brazzaville. Work programme: Committed work programme fulfilled, likely to enter next exploration phase. Highlights: Working petroleum system demonstrated on the block, with prospectivity identified at several intervals. For more info see page 28 For more info see page 26 For more info see page 25 For more info see page 29 Afren plc 05

8 What We Do Exploration and production Afren has built a portfolio of production, development, exploration and appraisal assets all focused on delivering long-term and sustainable growth. The diversity of our portfolio puts us in a strong position to manage risks and maximise potential. Exploration and appraisal Afren achieved a 100% appraisal drilling success rate at the Ebok field in 2009 as we successfully proved the existence of additional reserves in the Central Fault Blocks, West Fault Block and Southern Lobe area of the field. The impact on project reserve estimates has been considerable, with NSAI independently certifying gross 2P reserves of mmbbls with additional gross unrisked upside potential of mmbbls. We have put in place the necessary capital and human resources to develop the Ebok field, and we have a proven track record of project delivery we are on track to achieve first oil in October NSAI 2P Reserves and Contingent Resources 113 mmboe NSAI Prospective Resources 1,054 mmboe 2P Developed 2P Un-developed Contingent Resources Keta OPL 310 OML 115 Ebok CI-01 La Noumbi JDZ Block 1 Recognising the substantial hydrocarbon potential in the area, we were quick to expand our footprint with the acquisition of interests in and commitment to explore, appraise and develop the Okwok field, located 16 km east of Ebok, and the surrounding OML 115 acreage. We have established a sizeable acreage position in a prolific part of the offshore Niger Delta with near term development, appraisal and exploration upside. Through establishing early production and installing the required infrastructure at Ebok, we are well positioned to leverage on our advanced understanding of the subsurface and operational synergies across the assets to unlock the true potential of this core area. Exploration is fundamental to the organic growth of Afren. We have built a balanced, high-grade portfolio of exploration assets that offer exposure to multiple potentially transformational drilling opportunities. These have been selected to provide a mix of options across different play types. One of the key areas for Afren is the West African Transform Margin and Upper Cretaceous fairway where we have secured world-class acreage positions in the Keta Block offshore Ghana, Block CI-01 offshore Côte d Ivoire and OPL 310 offshore South East Nigeria in the Benin Basin. We focus our exploration efforts on areas where we have advanced geological knowledge and within basins that are under-explored yet which have proven, working hydrocarbon systems. This means we are active in areas where there is potential for large discoveries but also in areas in which we have a competitive advantage through our collective knowledge and expertise. 06 Afren plc For more info see page 34

9 Overview Production and development Strong production performance We have established production operations in both Nigeria and Côte d Ivoire, where we are producing both oil and natural gas with additional natural gas liquid (NGL) output from our wholly owned midstream gas processing plant. In 2009 we benefited from our first full year of production, achieving an average rate of 22,100 boepd working interest upstream production and NGL output over the period. US$59.3 Realised oil price per barrel in Okoro Okoro has consistently produced ahead of pre start-up expectations with an average gross rate of 18,800 bopd achieved in 2009 (17,900 bopd working interest share). Better than forecast reservoir properties and good aquifer support mean that production is now expected to decline at a slower rate than previously thought, which in turn has had a positive impact on the volumes that can be ultimately recovered. Furthermore, our production experience to date and additional data gathered has allowed us to identify at least two infill well locations that should further increase reserves and add incremental production in the future. CI-11 We have two producing fields on Block CI-11, the Lion and Panthère oil and gas fields which currently produce approximately 1,230 bopd and 30 mmcfd (on a gross basis; 590 bopd and 14 mmcfd working interest share). In 2009 we undertook a re-evaluation of the subsurface, integrating all available log, core and seismic data. This has revealed a number of potentially productive new reservoirs as well as other infill drilling and missed pay opportunities. Lion Gas Plant The Lion Gas Plant receives and processes gas from Block CI-11 and also the Canadian Natural Resources operated Espoir and Baobab fields. We strip both gasoline and butane from the rich gas stream, with the ability to handle up to 75 mmcfd of inlet gas volumes. The butane is sold locally, meeting approximately 35% of domestic demand, whilst the gasoline is spiked into the Lion crude stream and sold internationally. Average output at the plant in 2009 was 1,140 boepd. Outlook The Ebok field is due onstream in October 2010 and is set to provide a step change to our production outlook. With Ebok development drilling expected to continue throughout 2011, supplemented by an exciting inventory of appraisal and exploration drilling targets, the Group has visibility over a growth trajectory that is set to more than double Group production over the next 12 months. For more info see page 30 Afren plc 07

10 Delivering on our Strategy An update on our progress Afren s strategy is clear and consistent: to consolidate our position as the premier pure-play exploration and production independent in Africa, through indigenous partnerships and strategic acquisitions. At the heart of this strategy are four key factors against which we measure our progress. Measuring progress 01 Production growth 02 Organic reserves growth 04 Strong cost control and financial discipline 03 Pursue materially accretive acquisitions 08 Afren plc

11 01 Production growth 02 Organic reserves growth 03 Pursue materially accretive acquisitions 04 Strong cost control and financial discipline Overview In 2009, our producing assets in Nigeria (Okoro) and Côte d Ivoire (CI-11 and the Lion Gas Plant) provided oil, natural gas and natural gas liquids from both upstream and midstream activities. In 2009 we achieved net working interest production including NGLs of 22,100 boepd, compared with an average rate of 3,900 boepd in Production is set to increase further with the start-up of Ebok scheduled for October 2010, and infill drilling at Okoro. Today, only 19% of our reserves and contingent resources have been developed and are onstream. This means we are in a position to deliver strong production growth over the near to medium term from development and appraisal activities across our existing asset base alone. In 2009 we made significant reserve additions at the Ebok field having completed three appraisal wells in the period. Also, with net prospective resources estimated at over 1 billion barrels we have an exploration opportunity set that offers multiple drilling opportunities of transformational scale. Continued appraisal and exploration drilling across the core Ebok/Okwok/OML 115 area Prime acreage positions along the prolific West African Transform Margin and Upper Cretaceous fairway High impact wells planned at OPL 310 (Nigeria) and the Keta Block (Ghana). A key factor behind Afren s growth has been our acquisition strategy, and in particular accessing and developing discovered but undeveloped assets in partnership with indigenous companies. In Nigeria alone we see in excess of 170 such opportunities, typically residing as fallow fields in the shallow water and onshore areas of the Niger Delta. In 2009, we also jointly established First Hydrocarbon Nigeria Limited (FHN), an indigenous platform from which we will pursue larger-scale opportunities that may arise out of the Major IOC s portfolios in particular. We have also made selective, opportunistic acquisitions where we have been strategically advantaged, such as our portfolio of assets in Côte d Ivoire acquired from Devon Energy. Targeted acquisitions of discovered but undeveloped fields Capitalise on our indigenous platform in Nigeria (FHN) to pursue large-scale Nigerian acquisitions The uncertain economic climate in 2009 had a far-reaching impact across the entire oil and gas industry. High commodity price volatility alongside a difficult credit environment made it a challenging period. Afren responded by quickly taking steps to ensure stability and drive greater efficiency into every aspect of the business. Emphasis on operational efficiency and cost savings at all levels Continued debt repayment Field operating costs at Okoro reduced by 13% in 2009 Selective addition of further high grade exploration opportunities Pursue selective corporate situations Okoro Setu By the end of 2009, the Okoro field had produced 8.1 mmbbls of oil. Better than forecast reservoir performance and good aquifer support have meant that the field is declining at a slower than forecast rate. These factors, combined with the impact of planned infill drilling have led to an increase of estimated recoverable reserves at the field, to 24.8 mmbbls. Ebok development Phase 1 of the Ebok development, targeting the Central Fault Blocks, commenced in December 2009 following completion of a three-well appraisal campaign. First oil is expected in October 2010 with development Phase 2, targeting the West Fault Block, to follow soon after. The Okwok field In August 2009, we extended our partnership in Nigeria with Oriental Energy Resources Limited through the agreement to farm-in and jointly develop the Okwok field. The technical knowledge gained on the Ebok field provides significant subsurface and development synergies. Driving profitability We significantly enhanced the normalised profitability of the business in 2009, driving down average field operating costs to US$11.6/boe (from US$29.7/boe in 2008) and administrative expenses to US$27.2 million (from US$32.5 million in 2008). We ended the period in a net cash position (with operating cash flow of US$278 million in 2009), and have secured an up to US$450 million RBL facility on Ebok reserves. We have the capital structure and flexibility to deliver our 2010 work programme. For more information see page 23 For more information see page 16 For more information see page 19 For more information see page 20 Afren plc 09

12 Overview of our Strategy Why Africa? Vast, untapped potential in Africa In 2008, 12% of the world s oil produced came from Africa *. Afren holds a unique position within this continent and the roots of our business grow deeper here every year. Africa s importance in terms of global oil supply and that of West Africa especially is predicted to expand substantially over the near to medium term. Potential of Africa Over the last two decades, proven oil reserves in Africa have increased by 112% while in West Africa, the increase has been 187%. There is no other region in the world that has matched this expansion. In fact, many established producing areas resource base has contracted over the same period. However, it is not just the vast, largely untapped, natural resources that give Africa such strong potential it also has a supportive political climate. The governments of the countries in which we operate understand the value of their resources and recognise that a stable structure is vital to allow local and international stakeholders to work together, responsibly. Nigeria also offers a stable fiscal environment. It yields high-margin barrels and has several established oil industries that are at an earlier stage of maturity than other hydrocarbon provinces. As a region, it also offers longerterm gas commercialisation opportunities of significant scale. Africa s importance in terms of global oil supply and that of West Africa especially is predicted to expand substantially over the near to medium term. West Africa already supplies the US with 15% of its oil and gas and this is expected to increase to 30% over the next decade. West Africa in particular is set to substantially expand its market share over the next few years and Afren is well placed to capitalise on this growth. Future focus Afren is particularly interested in the large number of discovered yet undeveloped oil and gas fields, especially in Nigeria. The majority of these fields reside as fallow assets within the Major oil and gas producers portfolios they typically fall below the materiality and economic thresholds at which these companies would actively progress development. Yet to a smaller, more agile producer, such as Afren, they represent significant opportunities of scale. There are positive signs that a secondary market is opening up in Africa. Governments are focusing more on the potential of their natural resources and seeking to stimulate greater local involvement. Acreage is increasingly being awarded to indigenous companies who seek to work with independents, that bring both technical expertise and financial resources. Afren is in a unique position to capitalise on this situation having proved our technical, operational and financial capabilities and having strong roots in Africa. 10 Afren plc *Source: BP Statistical Review of World Energy 2009.

13 Proved oil reserves Total West Africa 56.5 billion barrels 64% Angola Congo (Brazzaville) Equatorial Guinea Gabon Nigeria Proved gas reserves Total 206 trillion cubic feet 89% Nigeria Angola Benin Cameroon Congo (Brazzaville) Côte d Ivoire Equatorial Guinea Gabon Ghana Overview Source: BP Statistical Review of World Energy Source: US Energy Information Administration. Proved reserves growth 1988 to 2008 Over the last two decades, proven oil reserves in Africa have increased by 112% while in West Africa, the increase has been 187%. Billion barrels growth (%) Total North America Total South and Central America Total Europe and Eurasia Total Middle East Total Asia Pacific West Africa Other Africa Source: BP Statistical Review of World Energy In 2009, Afren established First Hydrocarbon Nigeria Ltd (FHN), a majority Nigerian owned, indigenous oil and gas company. In direct response to the Nigerian government s objective to increase the level of local participation in the Nigerian oil and gas sector, and in line with our strategy of working with indigenous partners and developing indigenous capabilities, we have established FHN in conjunction with two leading Nigerian financial institutions First City Monument Bank Plc (FCMB) and Guaranty Trust Bank Plc (GTB). We value our strong track record of working with Nigerian contractors and financial institutions, fully capitalising on local expertise and resources in the oil and gas sector an objective driven and supported by the Nigerian government. FHN has been created to build on, and extend, this platform. FHN will fulfil the Nigerian government s criteria for local operators, and has been set up as an indigenous champion that will be used as a vehicle to acquire substantial oil and gas assets in the country. This will include assets that are currently held by joint ventures between the Nigerian government and Major international oil companies. It may also include assets that could be divested in connection with indigenous licensing rounds, together with the acquisition of assets of other Nigerian companies if appropriate. Over time, it is planned for FHN to be owned by a wider Nigerian stakeholder base, ensuring diversity of ownership and also a reflection of Nigeria s national character. Subject to market conditions, FHN will seek a listing on the Nigerian Stock Exchange in due course. Afren plc 11

14 Key Performance Indicators (KPIs) How we measure our progress Afren has seven KPIs which monitor the Company s growth strategy. Net working interest production boepd , , ,100 boepd +470% Year on year increase 2009 benefited from a full year of production from Okoro in Nigeria as well as CI-11 and the Lion Gas Plant in Côté d Ivoire. Outlook Field decline and the end of cost recovery on Okoro is expected to be offset by the Ebok start-up, with further growth in 2011 and beyond. Reserves replacement ratio % Year on year increase Reserves increases have been significant, mostly driven by the recent Ebok appraisal programme. The ratio is calculated using the last three year s reserves additions over the period s production Outlook With a significant drilling campaign planned and relatively low risk prospects included, 2010 should maintain a relatively high reserves replacement ratio. Realised oil price US$/bbl US$/bbl +40% Year on year increase Average realisations increased by 40% following the low oil price in late 2008 and early The recovery in the second half of 2009 significantly increased the average price. This excludes the impact of hedging, which averaged a gain of US$7.40 per hedged barrel. Outlook Following the move to export Okoro oil from the Ima terminal and the larger parcels available, we expect average realisations compared with Brent to improve by around US$2-3 per barrel due to lower lifting and freight costs. 12 Afren plc

15 Overview Operating cash flow US$ million (27) US$ million +US$305 million Year on year increase 2009 benefited from a full year of production from both CI-11 and Okoro and the results of the cost reduction strategies implemented. Outlook Higher average prices and continued strong performance from Okoro, coupled with the start-up of Ebok production, should lead to another strong performance in 2010 and beyond. Operating cost per barrel US$/boe US$/boe -60% Year on year decrease Cost reduction initiatives and plateau production combined to produce a significant reduction in costs per barrel. Outlook Although production decline will add pressure to the rates, further cost reduction initiatives and the higher reserves should enable the rates to remain relatively stable looking ahead. Our aim is to ensure the most efficient and cost-effective practices are imbedded that focus on ensuring safe and environmentally aware operations. Normalised profit/(loss) after tax US$ million (95.9) US$ million +US$147 million Year on year increase Normalised profit was significantly better due to a full year of operations with lower overheads and exploration costs. Outlook With continued good production from Okoro and the start-up of Ebok, normalised profit is expected to continue to grow. Afren is aiming for year on year growth into the foreseeable future with a flat oil price outlook. Total Recordable Injury Rate and Lost Time Injury Frequency TRIR LTIF 2.45 and 1.63 TRIR LTIF Improvement year on year Year on year decrease We monitor our safety performance using well recognised industry KPIs, namely total recordable injury rate (TRIR) and lost time injury frequency (LTIF). Both KPIs showed improved performance in 2009 over the 2008 results. Outlook We will use industry benchmarks to target further performance improvements during Afren plc 13

16 Chairman and Chief Executive s Statement Egbert Imomoh Chairman 2. Osman Shahenshah Chief Executive 14 Afren plc

17 2009 Highlights 100% appraisal drilling success Significant production growth in 2010 Results reflect first full year contribution of production operations In 2009, the Company s financial results were up compared with 2008 as a result of the first full year of production contribution from operations in Nigeria and Côte d Ivoire. Good progress was also made on cost reduction initiatives which were implemented earlier in the year, enhancing the normalised profitability of the business. With first oil expected from Ebok in October 2010 and an aggressive drilling campaign scheduled for the year ahead, Afren is positioned to deliver large scale production growth that will be fully realised in 2011 and beyond. Solid platform of producing assets In Nigeria, an average gross production rate of 18,800 bopd was achieved at the Okoro field with uptime of 99.6%, exceeding pre start-up expectations due to better than forecast reservoir performance and good aquifer support. Two infill drilling opportunities have been identified that are expected to deliver incremental production in NSAI has increased its 2P reserves estimate for Okoro to 24.8 mmbbls from 15.5 mmbbls. In Côte d Ivoire, average gross production for the year from upstream operations at CI-11 was 30 mmcfd and 1,230 bopd, whilst midstream NGL output at the Lion Gas Plant was 1,140 boepd. 100% Ebok appraisal drilling success rate We successfully completed three appraisal wells in The Ebok 4 well encountered oil within the D series reservoirs, delineating a reserves base well in excess of minimum economic requirements, confirming a commercial development project. The Ebok 5 and Ebok-6 appraisal wells both encountered oil in their target objectives as planned, and in particular established three new oil bearing reservoirs. NSAI has independently confirmed a gross 2P reserves base of mmbbls. Ebok development underway The first phase development commenced in December 2009 and is expected to deliver production of 15,000 bopd in October The necessary production and storage infrastructure has been contracted with the selected configuration, comprising a Mobile Offshore Processing Unit (MOPU) and Floating Storage Offloading vessel (FSO), providing an estimated cost saving of US$51 million compared with an alternative Floating Production Storage Offloading vessel (FPSO) development solution. Acceleration of Ebok West Fault Block The West Fault Block development has been accelerated in response to the Ebok-5 well proving a materially greater than expected reserves base of good quality 30 API oil, and will incorporate a separate dedicated wellhead platform (WHP) tied back to the central MOPU and FSO. Phase 2 is expected to deliver a further 20,000 bopd by end The development philosophy at Ebok is one of ongoing development and appraisal, with continued phasing in of additional volumes from other parts of the field in 2011 and beyond, offering progressive and sustainable growth to Afren. Update of Independent assessment of reserves NSAI has updated an independent assessment of Afren s reserves and resources, which supports management estimates: Ebok gross 2P reserves of mmbbls certified (vs Management 116 mmbbls) Okoro gross 2P reserves of 24.8 mmbbls certified (vs Management 20.8 mmbbls) Strengthened balance sheet The Company strengthened its balance sheet in 2009, ending the year with a net cash position of US$54.2 million. The net cash from operations of US$278 million was supplemented by US$313 million raised in equity funds. Net investment of US$209 million mostly comprising capital expenditure on Ebok was accompanied by debt repayments of US$148 million. In March 2010 (post period end), the Company signed a facility agreement for an up to US$450 million reserves based lending facility, secured against the Ebok project reserves. The facility provides added financial flexibility and will be used to fund development activities across the broader Ebok/Okwok/OML 115 area. Outlook Under difficult circumstances at the start of the year, the team has delivered excellent operational results and operating cash flow, profitability ahead of company expectations and strengthened the balance sheet. Looking ahead, the Company is in a position of strength with the necessary resources in place to deliver the planned 2010 work programme. With the move to the Official List and FTSE 250 inclusion effected, Afren intends to further establish itself as a leading main board listed African independent E&P company and leverage its differentiated strategy to deliver progressive and sustainable growth. Business review Afren plc 15

18 01 Our strategy Production growth Okoro Field production continuing to outperform Production at the Okoro field remained strong throughout 2009 at an average gross rate of 18,800 bopd. We maintained excellent operational efficiency throughout the year, with a process uptime of 99.6%. In fact, field performance at Okoro has surpassed our pre start-up projections. This has been due to reservoir properties being better than expected and good aquifer support among other factors. We have also identified at least two infill opportunities that we aim to pursue in Taking into account historical production data and incremental volumes from infill targets, NSAI has increased independently certified gross remaining 2P reserves to 24.8 mmbbls at Okoro as at 31 December Afren plc Okoro Setu

19 Chairman and Chief Executive s Statement continued The Afren management and Board have a single, all encompassing vision to become the leading African exploration and production company. The vision is not only focused on the vast opportunities that Africa holds but also on long-term, sustainable growth for our business and the wellbeing of the communities in which we operate. Corporate overview A clear strategic vision The Afren management and Board have a single, all encompassing vision to become the leading African exploration and production company. This vision is not only focused on the vast opportunities that Africa holds but also on long-term, sustainable growth for our business and the wellbeing of the communities in which we operate. As part of this commitment, we will continue to draw upon the in-depth African experience of our management and leverage our access to strong deal flow. We will consolidate vital partnerships with governments, NOCs and indigenous companies. We have consistently delivered on our promises in the past, and will continue to do so into the future. Responsible management in a difficult economic climate The uncertain economic climate in 2009 had a far reaching impact across the entire oil and gas industry. Highly unpredictable commodity prices alongside a difficult credit environment made it a challenging period. We responded proactively by reducing our cost base and driving greater efficiency across all areas of the business. On Okoro, we managed to reduce operating costs by 13% in 2009 to US$73.4 million compared with annualised costs for 2008 estimated at US$84.7 million. However, we realise that short-term priorities need to be balanced with investing in long-term future growth. In this respect, we strengthened our portfolio in two core regional plays adding the Okwok field, OML 115 and OPL 310 to our asset base. As a result, today we have a portfolio of 15 assets spanning the full E&P value chain and the necessary resources in place to progress this carefully assembled opportunity set. Move to the main market of the London Stock Exchange and inclusion in the FTSE 250 On 3 December 2009, Afren shares moved from the Alternative Investment Market to the London Stock Exchange main market. The prevailing nature of the Company including reserves and resource base, operations and production outlook makes the main market a much more suitable platform for our business and puts us on a platform more appropriate for our size. We have also been recently included in the FTSE 250 this will further raise the profile of the Group and provide further liquidity benefits for ordinary Afren shares. Business review Right: Approaching the Armada Perkassa FPSO at the Okoro field. Far right: An Afren employee at the Ebok field during appraisal drilling operations. Afren plc 17

20 Chairman and Chief Executive s Statement continued Top: Routine safety inspection at the Lion Gas Plant. Above: Development work at the Ebok field. We significantly strengthened our balance sheet in 2009, ending the year with a net cash position of US$54 million, compared with a net debt position of US$287 million at the end of operations and business review Financial highlights First profit before tax (US$0.5 million) with normalised profits before tax of US$68 million (excluding unrealised hedging losses, share related charges, exchange rate losses, losses from associates and main market move costs); Realised oil price of US$59.3 per barrel and gas price of US$5.1 per mmscf (before royalties); Turnover (after royalties) of US$336 million; Cash flow from operations of US$278 million; Gross profit of US$106 million; Normalised net profit as above of US$51 million (see note 7); Net loss as reported of US$17 million; Capital additions in the year of US$150 million; Debt repayments of US$148 million, with outstanding principal reduced to US$267 million (US$ 281 million excluding amortised issue costs); Net cash position of US$54 million; and Zero gearing at year end (2008: 82%). Financial strength and resources in place to deliver our work programme The normalised profit was driven by turnover of US$336 million (2008: US$43 million) of which US$292 million was related to the Okoro field. We also made substantial progress with our cost reduction initiatives in 2009, driving down average field operating costs to US$11.6 per barrel compared with US$29.7 per barrel in 2008, though 2008 included higher costs per barrel related to the field start-up. Administrative expenses also fell to US$27 million in 2009, from US$32 million in These measures have significantly enhanced the normalised profitability of the business. Additionally, the finalisation of an insurance claim relating to the Cuda-1x well more than offset the write-offs in the year and led to a small exploration write-back for the year of US$1 million (compared with a US$38 million write-off in 2008). We strengthened our balance sheet in 2009, ending the year with a net cash position of US$54 million, compared with a net debt position of US$287 million at the end of This was due to a net cash yield from operations of US$278 million (2008: US$27 million used) and US$313 million raised in net equity funds more than covering our net investment of US$209 million which mostly comprised capital expenditure on Ebok and other oil and gas assets (US$198 million) and debt repayments of US$148 million. Underpinned by a platform of production During 2008 we proved our ability to develop and bring Okoro, a major upstream project, onstream. In 2009, we went one step further, demonstrating our operating and production management capabilities at producing assets in Nigeria and Côte d Ivoire. In Nigeria, we achieved an average gross production rate of 18,800 bopd and maintained a 99.6% process uptime. Field performance has exceeded our expectations pre field start-up. This is due to a combination of factors including better than forecast reservoir properties and good aquifer support. We have also identified at least two infill opportunities that we intend to pursue in Having history matched production data and revised our forecasts, together with the proposed infill drilling in 2010, independently certified 2P reserves have increased to 24.8 mmbbls. In Côte d Ivoire, gross production from upstream operations at CI-11 was 30 mmcfd and 1,230 bopd, whilst midstream NGL output at the Lion Gas Plant was 1,140 boepd. Our technical team has undertaken a re-mapping and re-interpretation exercise of CI-11, applying current understanding of regional Cretaceous depositional systems. This has allowed us to identify areas of the field where recovery efficiency is below what should be achievable, as yet unproduced pay zones and other undrilled parts of the structure that have upside potential. The next step is for us to finalise targets and plan an infill and rig-based workover campaign. 100% appraisal drilling success rate at Ebok In February we completed the Ebok-4 appraisal well, confirming the Ebok field as a commercial development project. We subsequently secured the Transocean Adriatic lx jack-up drilling unit under a long-term contract to undertake further appraisal and development drilling. The rig arrived on location in November 2009 and we subsequently drilled the Ebok-5 and Ebok-6 wells back-to-back. The Ebok-5 well encountered a 377ft gross column and established the presence of two new reservoirs in the West Fault Block. The Ebok-6 well encountered a 107ft gross column and established the presence of one new reservoir in the Southern Lobe. In March 2010, we signed a contract for a second drilling rig, the GSF Highland VII, with Transocean. The rig has been secured for a period up to 210 days at an operating rate of US$84,000 per day. 18 Afren plc

21 Business review 02 Our strategy Organic reserves growth Reserves growth at Ebok In February we completed the Ebok-4 appraisal well. It successfully proved a reserves base well in excess of minimum economic requirements and confirmed Ebok as a commercial development project. Netherland Sewell & Associates Inc. has independently certified gross 2P reserves of mmbbls, around 330% greater than our original estimate at point of entry; success driven by a combination of a detailed understanding of the regional subsurface and an excellent indigenous partnership with Oriental Energy Resources. This has been made possible by our team s hard work and detailed understanding of the regional subsurface. Ebok has been a valuable learning experience one that will help us maximise the potential of the entire Ebok/Okwok/ OML 115 complex. Above: Onboard the Adriatic IX offshore drilling rig at Ebok. Afren plc 19

22 03 Our strategy Pursue materially accretive acquisitions Reservoir continuity through to Okwok and OML 115 from Ebok Following the farm-in to develop the Ebok field with Oriental in March 2008, we had entered into a collaborative agreement with Oriental Energy Resources Limited to pursue other assets in the region; this has been successfully achieved with the addition of Okwok and OML 115 to our portfolio of assets in We are excited by the potential at Okwok and OML 115 especially as it means we can turn our knowledge of the area into commercial advantage. Okwok and OML 115 are located adjacent to, and surrounding, the Ebok field, offering an attractive mix of discovered oil reserves with substantial appraisal and exploration upside. Even more important is that they are in an area where we have a detailed and proven understanding of the subsurface. Because Okwok and OML 115 are adjacent to Ebok we will have the advantage of an export solution for future production already in place. We will also have benefits of scale and efficiency of joint operations as we establish a new core production hub. Ebok mmbbls Total gross 2P oil reserves independently certified by NSAI. Ebok/OML mmbbls Total resource potential estimated by NSAI. 20 Afren plc Above: Maintenance onboard the Ebok drilling platform.

23 Chairman and Chief Executive s Statement continued Business review Right: Rigorous systems control. We believe that excellence is achieved through recognising the value of every individual member of staff. Our reputation is built on the commitment and talents of our employees, and we place great importance on recruiting and developing a diverse, highly skilled and passionate team. Significant reserves additions driving long-term growth As a consequence, total gross 2P Ebok reserves (independently certified) today stand at mmbbls, approximately 330% greater than estimated when we entered the project. This reserves growth has resulted from much hard work and a detailed understanding the Afren team has developed of the regional subsurface. We are continually learning from our experiences, and will deploy the valuable insight gained from Ebok to progressively de risk remaining potential across the entire Ebok/Okwok/OML 115 complex. Ebok development on track We have secured the necessary drilling, production, processing and storage infrastructure for the Ebok development and expect to deliver first oil in October Following the Ebok-5 appraisal success in particular, we have accelerated development of the West Fault Block alongside the Central Fault Blocks. Our development philosophy at Ebok is one of ongoing development and appraisal, it being a project we will continue to phase in additional production from other parts of the field in 2011 and beyond, offering progressive and sustainable growth to Afren. Business development shaping the future of Afren and creating value A diverse portfolio and opportunity pipeline is essential for the sustained growth of our business. We are constantly seeking to grow the portfolio with the addition of high potential assets that are of sufficient scale to the business, appreciating that our materiality threshold has grown alongside our development. This activity continued in 2009 with the addition of the Okwok field and OPL 310 in Nigeria, and more recently the addition of OML 115 in Nigeria. Located adjacent to and surrounding the Ebok field, Okwok and OML 115 offer an attractive mix of discovered oil reserves with substantial appraisal and exploration upside. In an area where we are advantaged through an advanced and proven understanding of the subsurface, the close proximity of Ebok will provide a pre-existing export solution and operational synergies for future field developments. Located offshore south east Nigeria in the Benin Basin, OPL 310 lies adjacent to the Chevron operated and recently declared commercial Aje discovery. The block represents a high impact exploration opportunity, complementing our existing acreage positions in Ghana and Côte d Ivoire along the prolific West African Upper Cretaceous fairway and Transform Margin. We have upgraded our view of prospectivity of OPL 310 to gross resources of 521 mmboe, in line with NSAI s independent assessment, from a previously estimated 329 mmboe. Our people, the key to success We believe that excellence is achieved through recognising the value of every individual member of staff. Our reputation is built on the commitment and talents of our employees, and we place great importance on recruiting and developing a diverse, highly skilled and passionate team. As a firm believer in building and developing indigenous capability, we actively encourage and support training and development assignments and awareness programmes. Afren plc 21

24 Chairman and Chief Executive s Statement continued The tremendous commitment and hard work of our employees has enabled our business to enjoy continued growth and success. The Board would like to thank them for their valuable support. The Board In June 2009, Guy Pas stepped down from the Board to pursue other interests. It has been an honour to work closely with Guy, who brought a wealth of experience and skilled leadership to the initial development of the Company. Ennio Sganzerla was appointed to the Board as Non-executive Director in June Ennio has a wealth of international oil and gas experience, having fulfilled senior technical and management roles at ENI over a career of 35 years. Toby Hayward was also appointed to the Board as Non-executive Director in June Toby is a qualified accountant and was previously Head of Oil and Gas Equity Capital Markets at Canaccord Adams, where he led a range of Initial Public Offerings (IPOs), including being responsible for Afren s IPO in March Darra Comyn was appointed to the Board as Group Finance Director in March 2010, and is responsible for leading and directing Afren s group-wide finance function. Darra brings significant international experience as a finance practitioner, gained over 24 years in various senior positions including with Chevron Oil UK and Dragon Oil. Darra holds responsibility for the review and maintenance of internal financial control systems and processes, cost control, corporate planning, taxation and ensuring strict compliance to all corporate governance requirements. Outlook The Company s focus in 2010 is clear: production start-up at Ebok, maintain optimal production performance at Okoro and CI-11 and undertake appraisal and exploration drilling on the core Ebok/Okwok/OML 115 areas and OPL 310. From this position of strength we are ideally placed to meet our stated objectives. We now have significant operational momentum and a firmly established track record, the financial means and the right team in place. Put all this together and 2010 promises to be the most active year in Afren s history. One where we will continue to enjoy progressive and sustainable growth. Egbert Imomoh Chairman and Founder Osman Shahenshah Chief Executive and Founder A diverse portfolio and opportunity pipeline is essential for the sustained growth of our business. We are constantly seeking to grow the portfolio with the addition of high potential assets that are of sufficient scale to the business, appreciating that our materiality threshold has grown alongside our development. Right: On board the Armada Perkassa FPSO. 22 Afren plc

25 04 Our strategy Strong cost control and financial discipline A strong, focused management team delivering stakeholder value Business review Share price performance since Jan 2009 Afren vs. the market Rebased to Jan-09 Mar-09 May-09 Jul-09 Aug-09 Oct-09 Dec-09 Afren (+208%) AIM Oil & Gas (138%) AIM All Share (128%) Ernst and Young Oil & Gas Index (148%) The economic climate in 2009 presented challenges across all industries and the oil and gas sector was no exception. Commodity prices were highly volatile and the credit environment difficult. Afren responded, and demonstrated resilience to the economic downturn, driving greater efficiences in every possible aspect of the business, cost savings were made at all levels and a substantial portion of debt was repaid during the year. The results of Afren s cost reduction initiatives helped enhance the normalised profitability of the business in We drove down average field operating costs to just US$11.6/boe, from US$29.7/boe in We also reduced administrative expenses from US$32.5 million in 2008 to US$27.2 million. Also during the period we substantially strengthened the balance sheet, ending the period with a net cash balance of US$54 million and having reduced gearing to zero (from 82% at the start of the year). With an additional up to US$450 million RBL facility secured on Ebok reserves, we have the capital structure and reserves to deliver our work programme in Source: Bloomberg Above: Production at Okoro. Afren plc 23

26 Where We Operate Regional overview Nigeria Nigeria Nigeria s potential Nigeria holds the largest oil and natural gas reserves base in Sub-Saharan Africa with an estimated 36 billion barrels of proved oil and 184 tcf of proved gas. Source: BP Statistical Review of World Energy % Appraisal drilling success at the Ebok field in Nigeria. Licences Nigeria Working Interest Local Partner Work Programme Okoro Setu 50%* Amni Production Ofa 32.5% IEL Under review OPL % Optimum Exploration OPL %** GEC Exploration OPL %** GEC Exploration Ebok 50%* Oriental Development Okwok 56%* Oriental Appraisal/Development OML %*** Oriental Exploration/Appraisal Adebayo Ayorinde Technical Director, Afren Nigeria Afren s Nigerian Office Taiwo Olushina Group Drilling Manager, Afren Nigeria At each asset we have forged vital partnerships with indigenous companies and are over 90% staffed locally in our Nigerian office. * Share of Profit Oil after cost recovery. ** AGER working interest; AGER is owned 50% by Afren, 50% by Global Energy Company (GEC). *** Assumed effective average working interest. 8.1 mmbbls Of oil produced from the Okoro field at the end of Afren in Nigeria We have nine assets within Nigeria, spanning the full cycle E&P value chain right through from exploration, appraisal and development to production. Afren achieved first oil production in Nigeria through development of the Okoro field, which was successfully commissioned in June In a demonstration of the Company s technical and financial capabilities, the two-year lead time from farm-in to first oil represents one of the fastest developments of an oil field in Nigeria by an independent to date. The field today continues to outperform pre-development expectations, there being a firm focus now on maximising the economic recovery factor at the field through infill drilling, prudent reservoir management and efficient operational delivery. Our near-term organic growth in Nigeria will be driven primarily by the Ebok/Okwok/OML 115 complex, located offshore south east Nigeria. We farmed into the Ebok field in early 2008, and acquired stakes in Okwok and OML 115 in August 2009 and January 2010 respectively. We have achieved a 100% appraisal drilling success rate in the area to date, and NSAI has increased its total 2P recoverable reserve estimates at Ebok to mmbbls. We expect first production from Ebok in October results highlights Total Production Total Reserves* Sales Revenue 2009 Investment and Resources 18,800 bopd 734 mmboe US$292.1m US$136.0m * Net working interest; includes management estimates for Okwok and OPL 907/917 not yet evaluated by NSAI. 24 Afren plc

27 Nigeria São Tomé & Príncipe At each asset we have forged vital partnerships with indigenous companies and are over 90% staffed locally in our Nigerian office. We place community relations at the heart of what we do in Nigeria, where we have a full team dedicated to and constantly engaging with our local host communities. We are committed to delivering sustainable benefits to people in the local communities that have a long-lasting and positive effect. Reserves Netherland Sewell & Associates Inc. has independently certified net 2P reserves and contingent resources in Nigeria of 82 mmbbls at 31 December Nigeria Offshore Nigeria and São Tomé & Príncipe (JDZ Block 1) Regional overview The São Tomé & Príncipe JDZ occupies a central offshore area in the Gulf of Guinea. The Gulf of Guinea is regarded by industry sources as one of the world s top oil and gas exploration regions with substantial remaining resource potential. Afren in Nigeria and São Tomé & Príncipe (JDZ Block 1) Afren established a presence in Nigeria and São Tomé & Príncipe (JDZ Block 1) in 2005 through the acquisition of an effective 4.41% interest. Chevron is the operator. The potential of the area lies in an extension of the proven and prolific deep water plays discovered to the north and west in Nigerian waters. Close by is the large Akpo field which is reported to contain in excess of 1 billion boe. Previous exploration drilling was undertaken in 2006, which resulted in the Obo oil discovery. Afren and its partners are currently moving into the next exploration phase on the Block that will require the drilling of one commitment well by end mmbbls Net working interest unrisked resources. Business review 9 assets Spanning the full E&P value cycle. Above: The Armada Perkassa FPSO during a resupply by its support vessel. Left: Fire Warden on board the Armada Perkassa during a staff transfer. Our local partners in Nigeria Afren plc 25

28 Where We Operate continued Côte d Ivoire 1,230 bopd Gross oil production at the CI-11 field in Côte d Ivoire 30 mmcfd Gross gas production at the CI-11 field in Licences Côte d Ivoire Working Interest Operator Work Programme Block CI % Afren/PETROCI Production Block CI-01 65%* Afren Exploration/Appraisal/ Development Lion Gas Plant 100% Afren Production** * Direct participating interest, Afren also holds rights over an additional 15% interest. ** Butane extracted from gas stream at a rate of 12 bbls/mcf. Gasoline extracted from gas stream at a rate of 9 bbls/mcf. Koffi Adje General Manager, Afren Côte d Ivoire Sirima Bassina Partner Relations, Afren Côte d Ivoire Côte d Ivoire s potential Recent estimates put Côte d Ivoire s recoverable oil reserves at 100 mmbbls and recoverable gas reserves at 1.1 tcf (source: US Department of Energy, Energy Information Administration). The main producing fields include Lion, Panthère and Foxtrot. Significant gas reserves discovered in the 1980s have been developed and used for thermal power generation. Afren in Côte d Ivoire We established our operations in Côte d Ivoire in September 2008 when we completed the acquisition of Devon Energy s assets, comprising production at Block CI-11, the Lion Gas Plant and Block CI-01 which hosts a number of undeveloped oil and gas discoveries. At the same time as completing the acquisition, we forged a strategic partnership with PETROCI (the National Oil Company of Côte d Ivoire) which jointly operates Block CI-11. Gas is the main source of power generation in Côte d Ivoire. Whilst existing domestic production largely satisfies current demand, it is unlikely to meet growth in demand over the medium to longer term. Current gross production at Block CI-11 is approximately 1,230 bopd and 30 mmcfd with NGL output of around 1,143 boepd at the Lion Gas Plant. Reserves Netherland Sewell & Associates Inc. has independently certified net 2P reserves and contingent resources in Côte d Ivoire of 28.6 mmboe at 31 December 2009, with further upside of 57 mmboe identified. 26 Afren plc

29 1,140 boepd NGL output at the Lion Gas Plant in Business review 2009 results highlights Total Production (including NGLs) Total Reserves* and Resources Sales Revenue 7,500 boepd 85 mmboe US$43.7m US$7.9m *Net working interest Investment Our local partner in Côte d Ivoire Top right: A worker on board the Gulftide production platform. Top left: Approaching CI-11 by boat. Above: Lion Gas Plant. Above left: Management briefing Abidjan. PETROCI Afren plc 27

30 Where We Operate continued Ghana 411 mmbbls Net unrisked prospective resources. Ghana 1,600 km 2 Of good quality 3D seismic covers the Keta Block. Licences Ghana Working Interest Local Partner Work Programme Keta Block 68% GNPC Exploration Above: Offshore in the Gulf of Guinea. Ghana s potential Ghana has recently experienced considerable exploration and appraisal success, with discoveries in the deep water Cretaceous fairways opening up a world class hydrocarbon exploration province. The Jubilee field was the largest discovery to be made in Sub-Saharan Africa during 2007, and is estimated to hold in excess of 1.2 billion barrels of oil. Although its upstream oil industry is in a formative stage, Ghana is one of four West African countries with an oil refining industry. The Tema refinery has an operating capacity of 43,000 bopd, and currently runs on crude imported from Nigeria. Afren in Ghana In June 2008 we acquired the Keta Block (located offshore Eastern Ghana, in the Volta River Basin) from Devon Energy Corporation. It covers an area of 5,500 km 2, in water depths ranging from 1,000 metres to 2,800 metres. Previous exploration activity in the area was focused on the shallow water and onshore area. This mainly targeted Tertiary plays and was unsuccessful. The most attractive potential on the Keta Block lies within the sandstones of the Upper Cretaceous section. This play type is very similar to that successfully proven by recent drilling at the Jubilee and Odum discoveries. The Keta Block is covered by 1,600 km 2 of good-quality 3D seismic. This has recently been reprocessed with a marked improvement in data quality. Further technical evaluation of the reprocessed seismic data is ongoing, prior to drilling. Material resource base in Ghana Net unrisked prospective resources in Ghana are estimated at 411 mmbbls. 28 Afren plc

31 Congo Congo La Noumbi La Noumbi permit adjacent and on trend with the large M Boundi field. 35 mmbbls Of net unrisked prospective resources. Business review Licences Congo (Brazzaville) Working Interest Partners Work Programme La Noumbi 14% Maurel et Prom/ENI Exploration Congo s potential All the productive oil fields in Congo- Brazzaville are located within the prolific Congo Basin. The Congo Basin contains a widespread evaporate (salt) layer that separates two distinct sedimentary sequences (the pre-salt and the post-salt sequences). Both the pre-salt and post-salt sediments are oil bearing. Congo produced an average of 249,000 bopd in 2008, approximately 2.4% of Africa s total. Congo also contains the fourth largest proven natural gas resource in Sub-Saharan Africa. Afren in Congo Afren established its operations in Congo via the acquisition of an interest in the La Noumbi permit in Afren is partnered with Maurel et Prom, the operator, and ENI. An exploration well, Tie Tie NE, was completed in February The well was plugged and abandoned without testing, having encountered sub-commercial quantities of gas. We are currently reviewing available data to determine future activity on the Block. Reserves Net unrisked prospective resources in Congo are estimated at 35 mmbbls. Left: Afren is commited to training and employing indigenous staff in all its locations. Afren plc 29

32 Review of Operations Production An established platform in place Afren produces oil, natural gas and natural gas liquids from its upstream and midstream operations in Nigeria (Okoro) and Côte d Ivoire (CI-11 and Lion Gas Plant). We have identified infill opportunities at Okoro to deliver additional volumes in 2010, and are focused on defining steps to enhance productivity at CI-11. Asset table Asset Gross Production Reserves* Turnover Okoro 18,800 bopd 24.8 mmboe US$292.1 million CI-11 6,360 boepd 9.1 mmboe US$27.7 million Lion Gas Plant 1,140 boepd US$16.0 million * Gross remaining 2P reserves at 31 December US$12 million (13%) Approximate saving of operating costs at Okoro. Okoro Setu The Flagship Okoro Setu development Nigeria OkORO Working interest 50%* Local partner Amni Gross production 18,800 bopd Gross 2P certified reserves 24.8 mmbbls** (31/12/09) 2009 Net turnover US$292.1 million 2010 Work programme Production/ Infill Drilling * 50% effective working interest post cost recovery; 95% effective working interest pre cost recovery. ** Source: NSAI. Strong production performance By the end of 2009, the Okoro field had produced 8.1 mmbbls of oil. Production averaged 18,800 bopd throughout 2009 with minimal water production. This result was above pre start-up expectations and is due to: water breakthrough from the existing production wells occurring much later than predicted; better reservoir quality than incorporated into the original field simulation model; and good aquifer support, evidenced by production history to date. Improved production outlook and infill targets identified Using this new information, the field reservoir model has been updated for both producing intervals, as reflected in the NSAI reserves upgrade to 24.8 mmbbls. Production is now expected to decline at a slower rate, and therefore the ultimately recoverable reserves have increased. The updated reservoir model has also allowed us to identify at least two infill drilling locations. Operational efficiency The off-take and export of the crude oil produced at Okoro continues to run smoothly and without interruption. This has been helped by a change in our export process implemented in November We are using a shuttle tanker to transport the processed Okoro crude to the Amni operated Ima terminal. The increased storage capacity at the Ima terminal, of over 1 mmbbls, will allow the benefit of increased parcel sizes and improved shipping and sales economics. To date, production uptime has been at 99.6% with no incidents or accidents recorded in There was a brief shutdown in the third quarter when a high level of water (above the allowed 0.5%) was detected in the storage tanks. This impacted the timing of one lifting as a result of having to obtain a temporary permit from the government to offload that cargo. An effective chemical programme to treat the oil-water emulsion was immediately put in place and there were no more delays. 30 Afren plc

33 22,100 boepd Average working interest production in We successfully lowered field operating costs in 2009 by 13% to US$73.4 million. The primary reduction came from savings in the cost of supply vessels, where we renegotiated lower rates early in the year. Further savings will be made through cost sharing initiatives with the Ima field and an additional lowering of supply vessel costs late in work programme In 2010, the Okoro partners plan to drill two infill wells targeting the identified zones. We expect these wells to restore gross field production rates to more than 21,000 bopd. We also plan to look at the feasibility of producing oil from the Setu satellite structure, as part of the overall Okoro field production programme. Business review Left: Resupplying the Armada Perkassa FPSO. Afren plc 31

34 Review of Operations continued Production An established platform in place 2 Producing fields Lion and Panthère. 4.4 mmboe Net 2P reserves. CI-11 Côte d'ivoire CI-11 Working interest 47.96% Operator Afren/PETROCI Gross production 6,360 boepd Gross 2P certified reserves 9.1 mmboe* (31/12/09) 2009 Net turnover US$27.7 million 2010 Work programme Production * Source: NSAI. A diversified production base In 2009 we undertook a major subsurface re-evaluation exercise on the Lion and Panthère fields. This involved integrating all available log, core and seismic data to define the Cretaceous depositional systems active over the fields. The results of this detailed work have been incorporated into reservoir geo models and up scaled to reservoir simulation models in order to history match production since The outcome of this work is that a number of potential new reservoirs have been defined in addition to infill drilling opportunities in existing reservoirs. We are also focused on ways to best address low recovery factors in some field reservoirs via sidetracks of current wells. Furthermore, we are also looking at pressure maintenance via water injection as a means of enhancing the productivity of current production wells. Studies are ongoing in all these areas. This work has not yet been independently assessed by NSAI outlook 2010 will see a continuation of the detailed geoscience work undertaken in 2009, which will be combined with reservoir simulation modelling in order to firm-up a work programme that will potentially increase the reserve base and production levels at CI-11. A wireline programme has been initiated to clear potential wax accumulations within the well bores in preparation for work to optimise the gas lift systems, and potentially perform water shut-offs and perforate bypassed oil and gas pay zones. 32 Afren plc

35 Right: Site inspection at Lion Gas Plant. Lion Gas Plant Côte d'ivoire LION Gas PLANT Working interest 100% Operator Afren Gross production 1,140 boepd 2009 Net turnover US$16.0 million 2010 Work programme NGL extraction* * Butane extracted from gas stream at a rate of 12 bbls/mcf; gasoline extracted from gas stream at a rate of 9 bbls/mcf. Afren is the sole owner of the Lion Gas Plant, which processes gas from the CI-11 and adjacent CI-26 and CI-40 blocks operated by Canadian Natural Resources. The plant has an inlet capacity of 75 mmscfd and strips gasoline and butane from the rich gas stream it receives. The butane is sold into the local market (meeting approximately 35% of the domestic butane demand) and gasoline is spiked into the CI-11 crude stream and sold on the international market. The plant benefits from tax-exempt status and the average NGL production at the LGP in 2009 was 1,140 boepd. We are also exploring ways to extract propane at the plant, which we would sell locally to industrial customers. 35% Of butane gas used domestically, is produced by the Lion Gas Plant. 100% Working interest at the Lion Gas plant. Business review Afren plc 33

36 Review of Operations continued Appraisal and development Fuelling growth Proven track record of execution and delivery We achieved a 100% appraisal drilling success rate at the Ebok field in 2009, successfully proving up incremental reserves in the Central Fault Blocks, West Fault Block and Southern Lobe areas of the field. Development work at Ebok commenced in November 2009, keeping us on track for first oil in October Recognising the substantial oil potential that exists in the area surrounding Ebok, we have expanded our regional footprint with the acquisition of interests in the Okwok field (located 16 km east of Ebok) and the surrounding OML 115 acreage. We have now established a sizeable acreage position in this prolific part of the offshore Niger Delta with near-term development, appraisal and exploration upside. Our appraisal drilling to date has confirmed a gross recoverable resource base of mmbbls, an incremental addition of 82.5 mmbbls. This is a reflection of our detailed regional understanding and validation of our subsurface model. Right: Preparations for first oil at Ebok. Ebok Nigeria Ebok Working interest 50%* Local partner Oriental Gross 2P certified mmbbls** reserves (31/12/09) Gross prospective mmbbls** resources 2010 Work programme Development/ Exploration/Appraisal * 50% effective working interest post cost recovery; 100% effective working interest pre cost recovery. ** Source: NSAI. 100% drilling success rate Ebok-4 appraisal well results Drilled by the Transocean Trident IV jack-up drilling unit and completed in February 2009, we achieved positive results with the Ebok 4 well. We recorded net oil pay of 274ft in high-quality reservoir sands ranging in depth from 2,560ft to 3,718ft. Well test analysis and reservoir simulation modelling confirmed that flow rates of around 3,500 bopd per well in a production scenario will be achieved, which is consistent with offset production data from analogous fields in the area. In August 2009, the Transocean Adriatic IX jack-up drilling unit was secured on a long-term contract to undertake further appraisal and development drilling, at a rate of US$97,000 per day. In March 2010, we announced the signing of a rig contract with Transocean for the GSF High Island VII jack-up rig, to carry out planned drilling at the Ebok/Okwok/OML 115 complex and Okoro field. The contract will run for a period of up to 210 days, at an operating rate of US$84,000 per day. Ebok-5 appraisal well results Again, we were pleased to report the successful outcome of the Ebok-5 appraisal well. Drilled to a total depth of 3,743ft on the West Fault Block (FBW), the well encountered a gross oil column of 377ft in four high-quality sands. Ebok-6 appraisal well results The Ebok-6 appraisal well, our third consecutive drilling success, reached a total measured depth of 4,296ft on the Ebok Southern Lobe. The well encountered gross pay of 107ft (comprising 82ft in the D2 and 25ft in the LD 1A reservoirs). 34 Afren plc

37 Above: The Adriatic IX drilling rig on location at Ebok. Right: Onboard the Adriatic IX. Business review 267 mmbbls Total gross Ebok resource potential certified by NSAI. 35,000 bopd Exit production rate in Delivering significant reserves and production growth The pre farm-in gross reserve management estimate was 25 mmbbls for the Ebok field. Our appraisal drilling to date has confirmed a gross recoverable resource base of mmbbls (source: NSAI), an incremental addition of 82.5 mmbbls. This is a reflection of our detailed regional understanding and validation of our subsurface model. The correlation of seismic amplitude responses to actual well results from the appraisal wells drilled to date has enabled us to identify further resource potential in the northern area of Ebok, in particular. There is also a read across to the same D series reservoirs in Okwok and OML 115, where comparable seismic amplitudes are exhibited that are consistent with those that have already been drilled and proven to be oil bearing. In addition to the D series reservoirs, we are also looking at the potential of deeper intervals that could be oil-bearing. We have undertaken detailed subsurface work to evaluate the Qua Iboe, Biafra and Isongo reservoirs, and plan to test some of this deeper potential with an exploration well during Ebok field development facilities contracted The initial phases of the Ebok field are being developed using a single Wellhead Support Structure (WSS) tied back to a Mobile Offshore Production Unit (MOPU). The MOPU is a former jack-up drilling rig that has been converted to a production facility by removing the drilling package and replacing it with a processing unit. The facility will have capacity to handle oil production of 50,000 bopd from Phases 1 and 2, and has been designed to allow for onsite expansion and upgrade to accommodate some production from future additional development phases. The advantages of utilising the converted jack-up is that the installation of the unit does not require a derrick barge, and can be installed whilst drilling operations are in progress, allowing for simultaneous installation and drilling. The MOPU will be tied back to a Floating Storage Offloading (FSO) vessel spread moored nearby. The FSO has been designed to provide a storage volume in excess of 1.2 mmbbls, and will allow for the sale of million barrel cargoes that in turn will enable us to optimise shipping and crude marketing economics. Furthermore, opting for the MOPU and FSO development configuration has provided an estimated total cost saving of US$51 million in upfront costs and day rate charges compared to alternative FPSO development solutions that were considered. It is planned that the MOPU and FSO will become a central facility for the broader Ebok/Okwok/OML 115 area, allowing Afren plc 35

38 Review of Operations continued Appraisal and development Fuelling growth for the economical and rapid tie-back of production from future developments in the surrounding area. A phased development approach Our development strategy is to bring each proven area onstream, and through ongoing drilling continue to increase the reserves base and production from the field. The first development commenced in December Focused on the Central Fault Blocks, it consists of six horizontal production wells and one water injection well for pressure support. All the wells are being drilled from a single field location using the WSS. We will use any gas produced as fuel to generate the facility s power and as gas lift to increase the well productivity. Accelerated development of the West Fault Block Following the successful Ebok-5 well, the decision was taken to bring forward development of the West Fault Block to The second phase will encompass the installation of a separate dedicated wellhead platform at the West Fault Block location, and the drilling of up to six production wells tied back to the central MOPU and FSO facilities. Ongoing development and progressive de-risking of upside potential Once we have completed the first two development phases, 2011 is likely to see additional drilling on the field with efforts focused on remaining proved reservoirs in the Central Fault Blocks and Southern Lobe in particular. We will also undertake further exploration and appraisal drilling with the objective of testing the D series reservoirs in the northern area of the field and also to test deeper targets in the Qua Iboe, Biafra and Isongo formations. Above: Adriatic IX development drilling on Ebok. 36 Afren plc

39 Business review Top right: Securing the top template of the Ebok 12 slot WSS which was set at 30ft above the water. The template was first lowered over the 4x36 piles using the lift boat Tiger Shark and then welded to the conductors to provide permanent structural rigidity. Bottom right: Removing the slings which were used to lift the template. Afren plc 37

40 Review of Operations continued Appraisal and development Fuelling growth 75 * mmbbls Net working interest resources. * Management estimates. Okwok Nigeria Okwok Working interest 56%* Local partner Oriental 2010 Work programme Appraisal * 56% effective working interest post cost recovery (subject to gross volumes lifted); 70% effective working interest pre cost recovery. Establishing a core production hub bolt on asset acquisitions made Our acquisition of equity stakes in both Okwok and OML 115 is highly complementary to our regional strategy. We have gained valuable technical insight from drilling the three Ebok appraisal wells. Most importantly, we have been able to calibrate our interpretation of the relationship between seismic amplitude, reservoir quality and hydrocarbon charge. The benefits of this are not just confined to the Ebok field, there being a direct read across to both Okwok and OML 115 that will assist us as we seek to replicate the Ebok success and move towards planned drilling on both blocks in With the Ebok production infrastructure nearby, we will be able to quickly tie back future projects as satellite developments. This will allow economies of scale and operational synergies, thereby lowering the economic threshold of further developments. In August 2009, we extended our partnership in Nigeria with Oriental Energy Resources Ltd. through an agreement to farm-in and jointly develop the Okwok field. Okwok is located in OML 67, 50 km offshore south-east Nigeria in 132ft of water and 15km east of the Ebok development. The field was discovered by the ExxonMobil/NNPC JV in Two appraisal wells were drilled in 1968 but not production tested. The wells encountered oil in the LD1 and D2 reservoirs with over 100ft of oil pay logged in the Okwok-2 well at the D2 level. This is in addition to multiple 50ft oil bearing sections in the LD1 in the Okwok-1 and Okwok-2 wells. We have been able to deploy the subsurface knowledge gained from work on the Ebok field to identify Okwok as a high-potential opportunity. The same D series reservoirs are present in both fields, as is the relationship of seismic amplitude to reservoir and hydrocarbon distribution. Consequently, we believe there are larger in-place oil volumes than have been previously and independently quoted. Additionally, we have also identified significant potential in the Qua Iboe formation at Okwok. Okwok synergies with Ebok The development strategy for Okwok will be similar to that used for Ebok. We will benefit from joint storage and export operations as well as shared services. This should result in cost reductions and savings for both fields drilling to define next steps We plan to drill one well on the field during Detailed seismic interpretation work for this is already under way that will define a well location and trajectory to deliver minimum economic field size volumes so we can commence early development. 38 Afren plc

41 OML 115 Nigeria OML 115 Working interest 45%* Local partner Oriental Gross prospective resources mmbbls** 2010 Work programme Exploration * Assumed effective average working interest. ** Source: NSAI. CI-01 Côte d'ivoire CI-01 Working interest 65%* Operator Afren Gross contingent and mmboe** prospective resources 2010 Work programme Electromagnetic survey * With rights over an additional 15%. ** Source: NSAI. Business review In January 2010 (post period end), we announced a further joint venture agreement with Oriental to jointly explore, appraise and develop OML 115. OML 115 surrounds the Ebok and Okwok development area, which we also operate with Oriental Energy Resources Limited, and is close to the giant Zafiro Complex in Equatorial Guinea. This block offers us an attractive opportunity to further capitalise on our extensive knowledge of the area gained to date. The southern portion of the Okwok structure (Okwok South) extends into OML 115 and additional prospectivity has already been defined within the Qua Iboe Formation. Drilling in 2010 We will drill an exploration well on OML 115 during the second half of We are currently evaluating the mapped D series reservoirs as well as potential Qua Iboe opportunities, prior to determining the well location and target horizons. Re-mapping and interpretation applying current understanding of Upper Cretaceous systems CI-01 has a proven petroleum system in multiple reservoirs within the Cretaceous. Oil and gas has been found and tested in the Ibex and Kudu fields, while only gas has been found in the Eland field. Most of the oil and gas encountered is in reservoirs that are younger than the Albian structural closures originally targeted in the past. There are 3D seismic surveys covering Ibex, Kudu and Eland, and a 2D seismic grid covers the rest of the block. The block borders the maritime boundary with Ghana, and lies adjacent to the major Jubilee and Tweneboa oil and gas discoveries that have been made in recent years. We have applied the latest understanding of the Cretaceous depositional systems to the existing well and seismic dataset to redefine the distribution of oil and gas in Kudu and Ibex, as well as other accumulations on the block. Consequently, we believe that the discoveries made to date on the block have the potential to be significantly larger than originally mapped work programme We are carrying out detailed subsurface work to establish the optimal location for a well to test the new Cretaceous interpretation. We are also looking at acquiring more 3D seismic over the block. In addition, we are evaluating other techniques such as electromagnetic surveying to aid our understanding of these complex depositional systems. Above: On the Gulftide. Afren plc 39

42 Review of Operations continued Exploration Opportunities for transformational growth We have assembled a balanced, high-grade portfolio of exploration assets that provide a blended mix of exploration options across multiple-play types and basins. In particular, we are continuing to build our presence along the West African Transform margin and Upper Cretaceous fairway, where we have prime acreage positions in the Keta Block offshore Ghana, CI-01 offshore Côte d Ivoire and OPL 310 offshore south-west Nigeria in the Benin Basin. Similiar play type to recent Jubilee and Odum discoveries. 411 mmbbls Of net unrisked prospective resource. Keta Block Ghana keta BLOCk Working interest 68% Operator Afren Gross prospective resources mmbbls* 2010 Work programme Prospect selection for exploration drilling in 2011 * Source: NSAI. Prime acreage in an exciting exploration fairway The Keta Block is in the Volta River Basin in Eastern Ghana, next to the boundary with Benin. The block has both Tertiary and Cretaceous prospectivity, with the principal exploration focus being the Cretaceous Albian to Campanian sections. The block offers multiple prospects and leads, with a variety of trapping and depositional settings. A number of these show potential for significant stratigraphic trapping and giant field potential. Exploration drilling In 2009 we integrated the drilling results from the Cuda-1x well into the existing data set, updating pore pressure analysis and drilling plans. We purchased additional 2D seismic data and have used it to further define a better understanding of the broader prospectivity on the block. The Keta Block partners have elected to enter the second exploration phase on the licence. This required a mandatory acreage relinquishment, equivalent to 10% of the block area. This was agreed with Ghana National Petroleum Corporation (GNPC), and has no impact on the defined block prospectivity. During 2010, the JV partners will continue to define the block prospectivity and plan to start a process to secure an additional partner on the block ahead of planned drilling operations in early Afren plc

43 Left: On the Adriatic IX. Right: Systems control. Business review 364 mmbbls Of net unrisked prospective resource. Adjacent to OPL 113 which contains the Aje oil and gas field. OPL 310 Nigeria OPL 310 Working interest 70%* Local partner Optimum Gross prospective resources mmboe** 2010 Work programme Electromagentic survey/exploration drilling 2010/2011 * Effective economic working interest. ** Source: NSAI. In August 2009 we announced the farm-in to OPL 310, located offshore Western Nigeria in the Benin Basin, in partnership with indigenous company Optimum Petroleum. The block is next to the Chevron-operated Aje field, which has recently been declared commercial. OPL 310 extends from the shallow water continental shelf to deep water, representing an exploration opportunity in an under explored basin with a proven working hydrocarbon system in line with our strategy. It is also in close proximity to the recently completed West African Gas Pipeline (WAGP), allowing gas discoveries to be readily developed. We have good seismic coverage of the block in the form of a 307km 2 3D survey and 483km of 2D data. Prospective acreage with the potential for large discoveries Encouragingly, OPL 310 contains several identified prospects. These lie in the same Cenonian, Turonian and Albian sandstone intervals that have yielded significant discoveries along the West African Transform Margin in Ghana and Côte d Ivoire. The trapping configurations are four-way dip closed structures over basement highs. These have the same characteristics as the Seme, Atacora and Alibori discoveries in neighbouring Benin. So far work has focused on defining the potential of the area covered by 3D seismic data. The key to our understanding of this is the seismic velocity model used to interpret the depth domain. The JV partners are looking to reprocess the seismic data to Prestack Depth Migration (PSDM) format in We will also carry out an Electro-Magnetic (EM) seabed survey over a number of leads identified during the first phase of interpretation work. If successful, the EM survey could reduce the exploration risk associated with the opportunities we have already defined. This process was successful in the adjacent block over the Aje field and has been used in many other areas in Nigeria. Once we have reprocessed the seismic data and integrated the EM work, the JV will most likely look for an additional partner before commencing drilling. Resources upgrade Following our re-mapping of existing prospects, NSAI has increased prospective resources for OPL 310 to 521 mmboe from 329 mmboe. Afren plc 41

44 Review of Operations continued Exploration Opportunities to transform the business OPL 907 and OPL 917 Nigeria OPL 907 OPL 917 Working interest 41%* 42%* Operator AGER AGER 2010 Work programme Seismic reprocessing Seismic reprocessing * AGER working interest; AGER is owned 50% by Afren, 50% by Global Energy Company (GEC). Located in highly prospective Anambra Basin with estimated 5 tcf prospective resources. 40 * mmboe Of net unrisked prospective resources. During 2009, the OPL 907/917 partners acquired original seismic data tapes for OPL 907 which has been reprocessed. We are carrying out the same process on OPL 917 where the original data is being acquired via the Department of Petroleum Resources (DPR). Once all available data has been reprocessed and interpreted, we will seek to identify areas for future seismic investment. It may also lead to early drilling activity if the original dataset shows sufficiently well-defined opportunities. * Management estimates. 42 Afren plc

45 La Noumbi Congo BrazzavILLE La NouMBI Working interest* 14% Operator Maurel et Prom Gross prospective resources mmbbls* 2010 Work programme Ongoing studies * Source: NSAI. The Tie Tie NE exploration well was spudded in December 2009, targeting the Djeno clastics and Toca limestones. The well reached a total depth of 2,550 metres in the Djeno Formation, with hydrocarbon indications recorded between 1,775 and 1,875 metres. Measurements performed on location identified this interval as being composed mainly of gas, which does not suggest viable commercial development due to its distance from potential markets. The well was plugged and abandoned in February The well data will be used to further our regional understanding, helping us to redefine the prospectivity of the block. We still plan to test a number of other attractive prospects on this block. JDZ Block 1 Nigeria São Tomé & PríNCIPE JDZ BLOCk 1 Working interest 4.4% Operator Chevron Gross contingent and mmbbls* prospective resources 2010 Work programme Ongoing studies * Source: NSAI. The Block 1 participants have agreed to enter the next exploration period. A commitment well on the block will be drilled by end Sinopec has recently completed a multi-well drilling programme on neighbouring blocks in the JDZ. The results of this drilling campaign, once available, will assist in deciding the next steps in this area. Business review Afren plc 43

46 Corporate Social Responsibility Right: Office life in Lagos and Abidjan. Letter from the Chief Executive Since its foundation, Afren s vision has been to become the premier pan-african independent oil and gas exploration and production company. We believe this vision is only viable with an unshakeable commitment to responsible business practices. This is why we have a strong African representation on our Board and management. It is why we partner with indigenous companies, national oil companies and governments. Acting responsibly is at the very heart of our corporate strategy. A genuine commitment to Corporate Social Responsibility (CSR) goes much deeper than simply satisfying legislation. It means embedding values and ethical behaviour throughout our organisation and leading from the front setting an example through the conduct of our Board of Directors. It also means adopting the highest standards and encouraging and supporting employees to follow them. While we are engaged in a continuous improvement process, we are proud of what we have already achieved. Despite working in often challenging operating environments, our management of environmental, health, safety and social (EHSS) business aspects has improved year on year. A matter of respect We recognise the potential impact of our business on the environments and the societies in which we operate. And we also know we have a deep responsibility to a wide range of stakeholders from local communities to investors, employees to business partners, as well as regulators and governments. This not only drives us to maintain the most rigorous health and safety procedures, but also to protect the communities and environments in which we work, aiming to carry out our work with minimum impact. Our workforce is made up of people from many different cultural backgrounds. It is their combined skill, knowledge and commitment that make us a successful business. This is something we never take for granted, acknowledging fully that excellence is achieved through recognising the value of every individual member of staff. We have particular pride in our reputation which is built on the commitment and talents of our employees and we place great importance on recruiting and developing a diverse, highly skilled, enthusiastic and passionate team. We believe strongly in the importance of building and developing our indigenous capability in the African countries in which we operate and we encourage training and development assignments to ensure this development. We treat everyone without discrimination and are an equal opportunities employer. We provide competitive terms and conditions of employment in a safe and healthy working environment. But our commitment goes beyond our employees and extends out to the communities in which we operate. In Nigeria, Côte d Ivoire and Ghana, for example, we continue to lend our support to local communities, establishing programmes that tackle some of their biggest challenges including education, health and employment. Committed to better working Our genuine commitment to CSR means we continually monitor and review our policies, procedures and activities. We measure our progress year on year and report in the most open and transparent way to our stakeholders. In 2009 we carried out independent audits of our operations in Nigeria and Côte d Ivoire and used the findings to form the basis of our plans for improving performance in When compiling this year s Annual Report we reviewed our performance against the UN Global Compact framework which we will use in future years as a guide to benchmarking and improving our CSR performance. Osman Shahenshah Chief Executive 44 Afren plc

47 Business review Top: Afren takes its EHSS responsibilities seriously and our employees follow strict rules to ensure both their own and fellow workers safety. Middle left: Safety inspection at Lion Gas Plant. Middle right and bottom: Office life in Abidjan. We have defined how we manage EHSS, ethical and HR issues through a set of corporate policies, management systems and supporting procedures and guidelines available at Afren plc 45

48 Corporate Social Responsibility continued Our approach Responsibility for CSR rests at the highest level within our organisation and encompasses all aspects of EHSS, business ethics and human resources. This structure ensures a robust system of governance within Afren: CSR risks as well as other key risks are considered by the Afren Board as part of our business risk management system. The Audit Committee of the Board, chaired by Peter Bingham, on a regular basis reviews the business risk management system and the corporate risk matrix, highlighting areas for improvement to the main Board. The executive management team and line managers take responsibility for implementing CSR policies, supported by a team of environment and safety professionals. The UN Global Compact The UN Global Compact is a set of guidelines built around 10 universally accepted principles to help businesses meet best practice in the fields of human rights, labour, the environment and anti corruption. At Afren, we have reviewed our systems, using the UN Global Compact, to make sure we are meeting the highest possible performance in CSR. What s more, we have distilled the ten principles into five key areas of focus. 1. Environment. We place value on our relationship with the environment and strive constantly to interact respectfully with it by being mindful of its delicacy. 2. Health and safety. We insist on high standards of performance to ensure our people remain safe and healthy. 3. Social. We appreciate the opportunities to be gained from cooperation with local communities and strive to make connections and foster relationships with all of our stakeholders. 4. Human resources. We reward performance and offer a progressive working environment and development opportunities for our employees. We will not tolerate discrimination of any sort. 5. Business ethics. We conduct ourselves with integrity to ensure that every aspect of our business is operating to high standards of business ethics. Above: Pupils at the SOS Village in Lagos of which Afren is an international sponsor. Right: Children enjoying free time at the Bingerville Orphanage sponsored by Afren. 46 Afren plc

49 Left: Okorinyong Health Centre (Health Officer in Charge). Business review Working for a better future Nigeria Afren-sponsored micro-enterprise schemes in Effiat, Nigeria are helping several hundred women work their way out of poverty. We have been working for some time with the people of Effiat, the host community for our Ebok project. Here we have been engaged in identifying local needs, particularly in the areas of health, education and employment. One of the most vulnerable groups is women with poor education, unstable and low status employment or unemployment, low and infrequent income, poor housing conditions and large families. These factors can all perpetuate poor health, inadequate diet, early entry into motherhood, and so the cycle continues. support through business development services including saving facilities, training, business advice, market linkage, networking and peer support. One such initiative is Afren s women s economic empowerment programme in Effiat, Akwa Ibom which is part of the Ebok project. So far, this programme which has been well received by the local community has trained over 400 women in basic financial literacy and 200 women have been given loans that range from 30,000 Naira to 105,000 Naira (US$200 to US$700). Each woman supports on average five to ten family members, which means that this programme could potentially impact the lives of between 1,000 and 2,000 individuals. 5 to 10 is the average number of family members supported by women who are members of the women s economic programme. Micro-enterprise programmes help tackle these challenges head-on by helping women increase their earning potential and therefore improve their quality of life in a sustainable way. In fact, micro-enterprise programmes are seen by many as the catalyst for sustainable development. Through small loans, the programmes offer funding for people with enterprising projects which helps them get their ideas off the ground and ultimately care for themselves and their families. But the most effective programmes go further than this offering Those supported include food market traders, fish and crayfish smokers and daily provisions sellers. Loans are offered at 0% interest over a 12-month period. Developing a strong base of local microentrepreneurs can have a huge effect on the growth and development of a local economy. The success of the programme in Effiat has led us to evaluate the potential of widening this initiative within Nigeria and across the other countries in which we operate. Afren plc 47

50 Corporate Social Responsibility continued >50 Children will learn art techniques at the art school in Abidjan. We are committed to working with our host communities to ensure that the benefits arising from oil and gas activities in Africa are realised by the people closest to our operations. Shahid Ullah Chief Operating Officer Above and right: Pupils attending school at the Bingerville Orphanage. Working with the community Côte d Ivoire In 2009, we extended our community development programme in Côte d Ivoire especially to work with the communities close to our facilities, including: Azito, where there is a joint agreement with other operators to provide: better health care to children through a newly refurbished sick bay that is regularly stocked with medicine and equipment; and educational opportunities for young children in refurbished classrooms. Jacqueville, where we have helped with the refurbishment of local schools and sponsoring of youth sports activities. We are also engaged in a joint programme with other operators to fund, and administer through the Ministry of Mines and Energy, future community development projects based on an agreed assessment of local needs. include the orphanage in Bingerville where there has been a long-standing relationship and where we have refurbished classrooms and dormitories, provided computers and photocopiers and sponsored the students awards. We will supplement this by providing college scholarships for the most promising students. We have also commenced support of the development of an art school in Abidjan, where more than 50 street children will have the opportunity to learn art techniques, such as painting and sculpture. We are currently refurbishing and equipping a newly acquired house that will provide the teaching facilities. Our involvement in the community is diverse and we work with a number of charitable organisations that are focused on providing education and training to young people. The projects we ve been involved with 48 Afren plc

51 Protecting the environment starts with understanding the delicate balance of nature and what effect our actions could have. Andrew Olleveant Group Head of EHSS Business review Right: Operations at the Lion Gas Plant. Environment Treading lightly while taking big steps We conduct Environmental Impact Assessment (EIA) studies on all our operations to highlight the potential impacts of our work and recommend steps to help minimise any significant impacts on the environment. The studies feed directly into both the design of our production facilities and our environmental monitoring plans. Most recently, we carried out an EIA for our Ebok development project. This was done in collaboration with the Nigerian authorities who reviewed and approved the study. As the project progresses we will continue to monitor the drilling operation to make sure the environmental impact is kept to an absolute minimum. We understand that our environmental responsibilities do not just lie with senior management. We align every member of our workforce and contractors with our environmental systems through induction training both onshore and offshore and through the continual monitoring of performance. We also have waste management and spill response plans in place to effectively manage these key environmental issues. Health and safety Caring for our people Afren is pleased with its safety performance in 2009, with Total Recordable Injury Rate (TRIR) down on the 2008 in line with the industry benchmark for operations in Africa*, and with systems established in all our operations to effectively manage health and safety risks. But if there is even a single accident in a year, there is room for improvement. So we will continue through 2010 and beyond to thoroughly investigate all incidents especially those that could cause severe injury or damage. There are always lessons to be learned from each incident, and we always make sure these lessons are clearly communicated throughout the business. Social Dedicated to investment in people Afren has a strong track record of supporting community projects over the years and 2009 was no exception. The wide range of social and economic development projects we support are all focused on education, health and employment. Crucially, we make sure we have an in-depth understanding of the needs of each local community before we put a programme in place. Programmes are then carefully designed so they have the maximum positive effect. Afren rolling 12-month average Total Recordable Injury Rate (All locations, employees and contractors) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 Rolling 12-month average TRIR OGP Africa TRIR 2008 * Based on data from the International Association of Oil and Gas (OGP) Afren plc 49

52 Corporate Social Responsibility continued Business ethics A responsible philosophy underpinning our business practices We maintain the highest standard of ethics across all of our operations and encourage staff to raise concerns about any actions that contravene our Code of Business Conduct. Toby Hayward Non-executive Director Above and right: Our employees are our most important asset and we provide guidance and support to make sure they have the best possible opportunities. Human Resources Our goal is to ensure that Afren is effectively resourced with talented, skilled and motivated employees who are able to deliver business objectives to the highest standards. Jane Barker Group Head of Human Resources Our employees a core asset For any business to thrive, it needs a workforce that is committed to its strategic goals. This is why, at Afren, we invest in our people making sure we find and attract diverse, high-calibre people to join us and that they are motivated to stay. As the business has grown, we have assembled an appropriately skilled and talented workforce across all areas of our business. We recruit the most suitable employees and crucial for the success of our business all recruitment is based purely on ability. We will not tolerate any form of discrimination in our workplace. We work hard to maintain a positive work/ life balance one that is built on a culture of openness, fairness and consistency across all our different locations. We provide training whenever it is needed alongside guidance and support to all employees to make sure they have the best possible opportunities for continual professional development. Business ethics and human rights At Afren, the highest ethical standards underpin all our work. We operate with integrity and honesty at all times throughout the organisation and with all stakeholders from governments to business partners, shareholders to contractors and local communities. Our commitment to ethics and the standards we maintain are set out in our Code of Business Conduct. We treat all members of staff fairly and encourage diversity within our workforce. We offer equal opportunities at all times, alongside training and career progression. We give every employee the responsibility to challenge any activity that conflicts with our standards on business ethics. Combating bribery and corruption At Afren, transparency and fairness come first. That is why we included a whistle-blowing policy in our Code of Business Conduct that lets any employee raise concerns anonymously without threat of reprisal, should they suspect any wrongdoing within our organisation. We provided all employees with extensive training in the Code and its requirements in Our financial control mechanisms are designed to ensure that payments and revenues are processed in a transparent manner. We also have an established Audit Committee that meets regularly and advises the Board on all matters of corporate governance. If we find that someone has failed to comply with our Code of Conduct, we will take disciplinary action immediately. 50 Afren plc

53 22 Delegates experienced a week of intensive coaching at a course in Accra, educating them on how to deliver effective training. Business review Train the trainer Ghana With the long-term goal of establishing Ghanaian-run educational courses in oil and gas, Afren has been training people to train others. In 2009, we worked closely with the Ministry of Energy, the Ghana National Petroleum Corporation and a number of academic institutes to examine local training needs and to deliver an initial training programme. The idea is to increase the knowledge of oil and gas in Ghana over the long term with universities in the country providing training in the fundamentals of the industry for the nascent Ghanaian market. This project was a spin-off from earlier research that was carried out under the African Energy Institute initiative, which looked at the need for local capacity building. The ability to deliver oil and gas training in Ghana is currently limited. However, the demand for such training is increasing rapidly as the local industry continues to grow and evolve. We believe now is the time to invest in local infrastructure to enable oil and gas training to be delivered in Ghana by Ghanaians, thereby helping local people to enter the industry. We would also like to see innovative and effective training techniques used in the provision of oil and gas training. To this end we have been working closely with the Business Performance Institute. Together we have designed and delivered a training course aimed at teaching a group of professionals from the energy sector in Ghana, together with a number of academics from local universities and polytechnics, the basic principles of experiential learning a technique whereby course delegates actively participate in the learning process. This increases the level of retention and understanding of the material being taught. The focus of this training was to enable the participants to train others in the fundamentals of the oil and gas industry. The course was held in Accra and the 22 delegates experienced a week of intensive coaching on how to deliver effective training. The output from the week was an outline teaching plan for modular course units introducing the fundamentals of the oil and gas industry, from exploration through to refining and marketing. The plan is to develop this course outline to allow selected trainers to deliver oil and gas fundamentals courses for engineering students within the existing education system during The success of this programme will mean there is a core of Ghanaian trainers available to train and mentor the next generation of industry professionals in the country. Above: Delegates at the Accra intensive training week. Afren plc 51

54 Financial Review Darra Comyn Group Finance Director Afren benefited from the first full year of production from Okoro in Nigeria as well as a full year of production in Côte d Ivoire, following the acquisition in September Production in Okoro was ahead of expectation leading to an average production rate for the field of 18,800 bopd, significantly higher than forecast. US$336 Million of turnover in US$278 Million of operating cash flow in Financing Since Afren s inception in late 2004, in acquiring and developing the portfolio, Afren has relied on a combination of equity and debt financing. However, in Afren s first full year of production the Company realised an operating cash flow of US$278 million under a turbulent oil price environment. With forecast 2010 exit production of 35,000 bopd, the Ebok development will add to the existing production base, and will be significantly cash generative for the company in 2011 and beyond to the point where capital expenditure in subsequent development phases will be financed from a combination of operating cash flow and the financial flexibility afforded by the US$450 million Reserve Based Lending facility recently secured on the Ebok project reserves. Afren recapitalised the balance sheet in May 2009 raising approximately US$126 million of equity funds (before expenses) and subsequently raised a further US$200 million (before expenses) on the move to the Main Board following the successful appraisal of the Ebok area and the signing of the Okwok agreement with Oriental Energy Resources Ltd. Cash reserves across the Group at the year end amounted to US$321 million. Following repayments relating to the Okoro and Côte d Ivoire facilities, gross debt at the year end amounted to US$281 million (2008: US$430 million). These are before deducting unamortised costs of issue of US$14 million and US$25 million respectively. It is expected that circa US$118 million will be repayable during Overall Afren had net cash of circa US$40 million at 31 December 2009 (US$54 million net of debt issue costs). Production and revenue Production at Okoro was ahead of pre production expectation leading to an average gross production rate for the field of 18,800 bopd. Production from CI-11 in Côte d Ivoire was stable, with average gross rates of 30 mmscfd and 1,230 bopd. Total revenue after royalties came to US$335.8 million (2008: US$42.5 million). The average sales prices before royalties achieved were US$58.7 per barrel for Okoro and US$65.0 per barrel in CI-11. The total contribution to the revenue from gas sales from CI-11 came to US$19.7 million in the year or around 6% (2008: US$1.6 million and 4%). A further US$4.3 million related to sales of butane from the Lion Gas Plant (2008: US$2.4 million). Operating costs, depreciation and impairments Total operating costs for the year were US$90.0 million (2008: US$41.0 million, both excluding any stock adjustments), of which US$73.4 million related to Okoro (2008: US$38.7 million). This followed an opex reduction initiative, against expectations at the start of the year of US$85 million. On a per barrel basis, the rates fell considerably, also due to plateau production from Okoro. Operating costs per barrel averaged US$11.6 for the Group, compared with US$29.7 per barrel in Total oil and gas depreciation for the Group in 2009 was US$152.2 million (2008: US$28.7 million restated). Since Afren funds the full field development cost and recovers out of sales revenues, there is a relatively high depreciation rate on a net barrel US$20.6 per bbl. The total charge relating to Okoro came to US$134.2 million, compared with US$24.7 million in The increase reflects the significant step up in production (from 1.2 mmbbls in 2008 to 6.9 mmbbls in 2009 gross). CI-11 depreciation came to US$13.6 million at an average rate of US$16.3 per barrel. The Lion Gas Plant is depreciated over its expected life and a charge of US$4.4 million was booked for Barrels produced but not sold as at the end of the period are valued at the lower of cost or net realisable value and the cost of sales adjusted accordingly. In December, the Okoro offtake was switched to a terminal on a nearby field. This has the capacity to offload on to much larger vessels, enabling the Okoro crude to be sold in bigger parcels attaining a higher price. With this new system, there is now a longer period between liftings and consequently at the year end there was over 600,000 barrels of oil in storage compared with less than 200,000 barrels at the start of the year. The end of period stock barrels are valued at cost and this amount is deducted from the cost of sales. In total, the cost of sales were reduced by US$12.8 million (2008: US$5.6 million), relating to the difference between the stock value at the start of the year and the much larger stock value at the end of the year. Gross profit for the year was US$105.8 million, compared with a loss of US$28.0 million for Total administrative expenses have decreased from US$32.5 million in 2008 to US$27.2 million in This decrease reflects the cost control initiatives put in place at the start of the year and the benefit from the relatively stronger US dollar as a significant proportion of the administrative costs are denominated in sterling or Nigerian Naira. 52 Afren plc

55 In December 2008 Afren announced that the deep offshore Cuda-1x well on the Keta Block in Ghana had been plugged and abandoned after encountering an unexpectedly severe high pressure zone. The costs of the well were written off as it is unlikely that a significant part of the well will be reused. The total cost to Afren, expensed in 2008, was US$23.8 million. This has been subject to an insurance claim which was recently settled. The net effect of the insurance claim is a credit in the 2009 income statement of US$7.8 million. Following a review of the Ogedeh opportunity in Nigeria and given the near-term focus on the enlarged Ebok development, Afren sees limited potential in the project and has formally agreed with its partner Bicta to relinquish its interest. All remaining costs of approximately US$2.5 million relating to the asset have been written off. The Iris Marin licence in Gabon is due for renewal in May Following the analysis of the well results on the block from 2008, the operator made a formal recommendation to relinquish the block. Afren reviewed its position in the last quarter of 2009 and expects to formally relinquish its interest in the licence. As the partners are unlikely to go ahead with the Ibekelia TEA if there is no interest in the Iris Marin licence, Afren has written off all costs related to the remaining Gabon licences (US$2.1 million). Following the results of the Tie Tie NE well on the La Noumbi licence in Congo, all costs incurred on the well in 2009 (US$2.1 million) have also been expensed. An additional US$0.6 million of additional costs are expected to be incurred and expensed in 2010 in respect of this well. Net Income The Group made a pre-tax profit for the first time in 2009, as the benefits of full production and the recovery of the oil price led to a profitable second half of the year. The profit of US$0.5 million compares with a pre-tax loss in 2008 of US$55.6 million. The normalised profit for the year (after excluding unrealised hedge movements, share related costs, exchange movements and the share of loss from associates) was US$50.7 million, see note 7 to the financial statements for a full reconciliation of this figure (2008: loss of US$96.0 million). The reported loss after tax was US$16.8 million, compared with a loss of US$56.1 million for 2008 and a loss in the first half of 2009 of US$38.5 million, as the Group made a profit in the second half of the year. The loss per share for the year was 2.6c compared with 15.0c in 2008 (restated). Derivative financial instruments hedging In May 2007, as part of the financing arrangements for the Okoro field, Afren entered into a series of swaps and call options to economically protect against exposure to the variability in the price of around 14% of expected Okoro oil production through to the end of This arrangement partly protects the Group against the risk of a significant fall in the price of crude by establishing a minimum swap price for a proportion of the Okoro crude. However, the Group will receive a set discount from the market price if the oil price is above that minimum. In this way, no up-front costs are payable and the Group enjoys the benefits of the majority of any oil price upside whilst there is only a cost to the Group if the oil price is sufficiently firm. In September 2008, a similar set of instruments was entered into in relation to the oil production from the Côte d Ivoire assets covering the period from October 2008 to mid Essentially all the base net CI-11 oil production is hedged in this period (approximately 925,000 barrels) at prices between US$79 and US$85 per barrel. In June 2009 a further set of instruments were entered into related to an additional tranche of Okoro production, covering around a further 10% of production and extending out to the end of The value of these derivative instruments are marked to market for each period and the gains and losses arising out of the changes in fair value are accounted for in the income statement. During 2009 the oil price strengthened, reducing the value of these instruments, with Brent moving from circa US$40 per barrel in December 2008 to circa US$80 per barrel in December The change in fair value of the instruments equates to a loss of US$15.3 million relating to Okoro and a loss of US$18.3 million relating to Côte d Ivoire net of actual realisations (2008: a gain of US$13.4 million and a gain of US$41.3 million respectively). The actual realisation from these instruments for 2009 was a gain of US$11.4 million, compared with a gain in 2008 of US$3.6 million, as market prices have been consistently below the hedged price for Côte d Ivoire production and were below the hedged price for Okoro production until the third quarter. These positions are likely to remain volatile as they are marked to market at each balance sheet date and their value will depend on both the spot price and the forward curve. Business review Afren plc 53

56 Financial Review continued Net interest and other gains and losses Net interest, financing costs and other gains and losses for the Group in 2009 amounted to US$45.3 million (2008: US$11.5 million). Total gross interest expense (including facility fees, amortisation of costs and unwinding of discount where applicable) amounted to US$37.7 million (2008: US$33.0 million), of which US$1.8 million was capitalised relating to the Ebok development (2008: US$16.9 million, relating to the Okoro development) also had a one-off charge relating to the early conversion of a convertible bond (US$9.3 million). The charge relating to the unwinding of discount from the abandonment provisions for the Okoro and CI-11 fields amounted to US$1.1 million (2008: US$0.4 million). Interest income came to US$0.6 million (2008: US$5.3 million), reflecting the significantly lower rates paid on deposits. All Afren s cash is retained in short-term or immediately available deposits with a selected group of banks and financial institutions. Afren made a loss of US$2.8 million (2008: US$15.4 million) due to foreign exchange differences in the year. This mostly related to sterling funds where the exchange rate fell to the year end. The bulk of the sterling funds have since been transferred into US dollars removing any significant risk from the rates going forward, as the Group s costs are largely US dollar denominated. Certain warrants held in Afren shares are not convertible at a fixed price in the Company s functional currency (due to the fluctuation of the exchange rates from sterling to US Dollar) so are marked to market at each balance sheet date and the increase or decrease in the liability is taken to net income. As Afren shares moved significantly between 1 January 2009 and 31 December 2009 (from 26.5 pence to 85 pence), there was a significant increase in the value of the warrants to the warrant holder and hence the deemed liability to Afren. This led to a US$5.0 million charge in the income statement, compared with a US$26.6 million gain made in The effect of these warrants is likely to remain volatile, with any further increases in value of the share price creating a charge in the financial statements as the value of the warrants to the warrant holder increases. In 2009, Afren invested a further 1.5 million in Gasol and Afren s current interest is 20.9%. Since 11 February 2009 when Afren made the initial increased investment it has accounted for Gasol as an associate. Afren s share of Gasol s losses over the period amount to US$1.3 million. Tax The tax charge for the year of US$17.3 million arises from the Group operations in Nigeria and Côte d Ivoire. The charge reflects the current and deferred tax expense for the Okoro field and the current tax expense for the CI-11 operations. This represents the charge for a full year of operations for both assets and the use of tax losses applicable to the Okoro project. Reallocation of acquisition costs on Côte d Ivoire assets The 2008 annual report reflected our provisional estimates of the fair values of the assets acquired from Devon in September Following the receipt in March 2009 of the full data set relating to these assets, Afren has been able to reassess the reasonableness of these initial calculations. The technical analysis to date on the full data set has now been reviewed by NSAI, and the analysis indicates that CI-01 has significantly greater reserves potential than originally envisaged but that CI-11 has less. Therefore, in accordance with the one year window allowed by IFRS to finalise fair value estimates, at 30 June 2009 Afren reallocated the value of the assets acquired between CI-11, the Lion Gas Plant and CI-01, resulting in a reclassification between intangible assets and PP&E in the 2008 balance sheet, and a consequent immaterial adjustment to the 2008 full year results in accordance with IFRS Afren plc

57 US$54 Million net cash position after accounting adjustments. Balance Sheet Total net assets at 31 December 2009 amounted to US$658.2 million (2008: US$350.9 million) with the increase principally due to the share placings in May and December Total non-current assets stood at US$684.0 million at the year end compared with US$710.7 million at the end of 2008 (restated). This reflects the expenditure on Ebok where the carried value has grown from US$47.0 million to US$158.6 million offset by depreciation on the producing fields (US$152.2 million). Intangible oil and gas assets have fallen in value from US$213.9 million to US$184.2 million, reflecting the transfer of Ebok from an intangible asset to Property, Plant and Equipment. Following government and partner approval for the Ebok development at the end of August, the balance was transferred to tangible assets. In total around US$24 million was spent in 2009 on exploration and evaluation (excluding Ebok expenditure), spread across Afren s assets. Current assets have grown from US$211.4 million to US$416.0 million in the year. The largest component of this is the cash balance of US$321.3 million (2008: US$117.7 million) referred to above. Total current liabilities were US$257.6 million at the year end, marginally higher than at the end of 2008 (US$257.0 million). Non-current liabilities stood at US$184.1 million at the year end compared with US$314.2 million at 31 December 2008, the decrease of US$130.1 million in the last 12 months being primarily due to significant repayments of debt made from the Okoro and Côte d Ivoire cash flows, partially offset by the provision for a deferred tax liability in relation to Okoro of US$12.5 million. Cash flow Net cash generated from operating activities totalled US$278.3 million (2008: cash used of US$26.8 million) reflecting a full year of production. Once more there was significant investment in oil and gas assets (US$197.9 million including inventory; 2008: US$289.4 million) as Afren continues to develop its portfolio. Net cash used in investing activities fell from US$459.4 million to US$209.1 million year on year. However, 2009 saw the start of significant repayments of the outstanding loans as the field revenues were received, with a total repayment of US$148.4 million, compared with a draw-down in 2008 of US$321.9 million after costs and repayments later in the year. Principal risks to 2010 performance In common with other companies in the oil and gas sector, Afren is exposed to commodity price risk, the delivery of major projects and ensuring safe operations in all locations. The Board determines key risks for the Company and required mitigation plans and reviews delivery on a regular basis. Key specific risks for 2010 include the successful execution of the phased Ebok development. Outlook With the first full year of production behind Afren, a recapitalised balance sheet, the financial flexibility from the recently secured (post year-end) US$450 million Reserve Based Lending facility and a significant forecast increase in production from the Ebok field, Afren has an appropriate capital structure to fund its forward growth strategy. Business review Afren plc 55

58 Board of Directors Mr Egbert Imomoh Non-executive Chairman As a co-founder of Afren, Mr Imomoh has been instrumental in delivering the growth of Afren s Nigerian asset base. He has established a number of valuable, indigenous partnerships, and guided Afren towards the first oil milestone at the Okoro project. His previous positions within the Company include both Managing Director and Executive Chairman of Afren Energy Resources Limited. Before he established Afren s Nigerian subsidiary, Mr Imomoh was the Deputy Managing Director for Shell Petroleum Development Company in Nigeria: one of Shell Group s largest operating companies. He is a member of the Society of Petroleum Engineers acting as Regional Director for Africa. 2. Dr Osman Shahenshah Chief Executive Dr Shahenshah is a co-founder of Afren with over 20 years experience in oil and gas finance. He has been key to the development of Afren from its creation in 2004, to its current international status as a main market listed independent oil and gas exploration and production group. During his career in finance, which included a senior position in the private sector arm of the World Bank, he has worked extensively in Africa and in the oil and gas sector for companies including Shell, Chevron, Total, Eni S.p.A and the Nigerian National Petroleum Corporation. He holds a PhD from the University of Pennsylvania, a Master s Degree from Columbia University and a Bachelor s Degree from Brown University Afren plc

59 3. Mr Shahid Ullah Chief Operating Officer Mr Ullah brings extensive technical and commercial knowledge of the African petroleum industry to Afren. In various senior management roles at Western Atlas and Baker Hughes, Mr Ullah has been responsible for managing a range of petroleum interests and assets. He is also a member of the Engineering Advisory Board at the University of Texas. Mr Ullah holds a degree in Petroleum Engineering from the University of Texas and received executive development training at Oxford University and the London Business School. 4. Mr Constantine Ogunbiyi Executive Director Mr Ogunbiyi is responsible for delivering the company s business development strategy. In particular, he has been instrumental in leading Afren s Nigerian acquisitions and debt financing. Previously, roles at Afren included Associate Director, Special Assistant to the Chairman and General Counsel for the Group. Prior to joining Afren, he was the Deputy Head of Cadwalader, Wickersham & Taft LLP s Africa Practice. Before this, Mr. Ogunbiyi spent over four years with Herbert Smith s International Finance and Banking Department. He holds Legal Qualifications from the universities of London (King s College), Passau (Germany) and Oxford. 5. Mr Darra Comyn Group Finance Director Mr Darra Comyn is responsible for leading and directing Afren s finance function Group-wide. Mr Comyn ensures the adherence to all corporate governance requirements and the finance function provides the Executive team with accurate and effective financial information for decision-making purposes. Mr Comyn was previously the Group Finance Director for ITE Group plc and Expomedia Group Plc (both international groups focused on emerging markets); and in the oil industry with Chevron Oil UK and Dragon Oil where he was Group Financial Controller and Company Secretary. Mr Comyn is a Chartered Accountant with a degree in Economics from Trinity College, University of Dublin. 6. Mr Peter Bingham 1 Non-executive Director Mr Bingham is a Non-executive Director of Afren. With over 40 years experience in international financial markets, Mr Bingham began his career at Barclays Bank group. He subsequently held a succession of Directorships, first in London at branch level, then in Barclays merchant banking division and BZW now known as Barclays Capital where he set up the credit risk management team, all before becoming Head of Banking at BZW and serving as a member of the central Barclays Group Credit Committee. 7. Mr John St. John Non-executive Director Mr St. John was appointed to the Board in He has advised on over US$100 billion of equity and equity-related insurance in all major markets, worldwide. He brings to Afren his broad experience, gleaned from past roles as Global Head of Equity Capital Markets at Dresdner Kleinwort, Commerzbank and Lehman Brothers and European Head of Equity Capital Markets at Citigroup formerly known as Salomon Brothers. He is a founding Partner of STJ Advisers and, until recently, he was the Chairman of Equity Capital Markets at Nomura International plc. 8. Mr Ennio Sganzerla Non-executive Director In 2006, Mr Sganzerla became an adviser to the Afren Board. His array of African upstream experience stands him in excellent stead for success with Afren. Formerly the Senior Vice President (E&P) at ENI, he was responsible for the company s largest business unit extending across the North Sea, America, Australasia and Russia, producing in excess of 500,000 boepd. As Regional VP for Africa he was instrumental in building ENI s presence in Congo, Nigeria and Gabon, and actively led the group s M&A activities including the acquisition of Lasmo plc and British Borneo. 9. Mr Toby Hayward Non-executive Director A qualified Chartered Accountant, Mr Hayward has held a number of senior Equity Capital market positions in London. As Head of Oil and Gas Equity Capital Markets at Canaccord Adams he led a range of Initial Public Offerings (IPOs), including Afren s IPO, before moving on to his post as Managing Director and Head of Corporate Broking at Jefferies International Limited, where he was responsible for all international equity and equity linked transactions together with corporate broking and Nomad responsibilities. Business review Afren plc 57

60 Senior Management London Mr Galib Virani Head of Acquisitions and Investor Relations Mr Virani joined Afren in 2006, following a career in the City of London in Corporate Finance and Mergers & Acquisitions. Mr Virani has played a key role in the Company s financing, in diversifying the shareholder base and in contributing to the overall growth of the Company s portfolio of assets. Mr Virani is an East African national and a member of the Johannesburg Stock Exchange Africa Board Advisory Committee. He is a fellow of the Securities Institute, and has a Master of Finance & Investment (with Distinction) and a Master of Philosophy in Emerging Market Finance. 2. Mr Jack McFarland Operations Director Mr McFarland has over 30 years experience in the oil and gas industry. He specialises in reservoir, operations and production engineering and brings with him a successful track record in oil and gas asset evaluations and acquisitions. Mr McFarland has held a number of major roles in the oil and gas sector prior to joining Afren, including Director at Valiant International Petroleum, Vice President and Partner at Panther Resource Corporation, and President and General Manager at Ocean Côte d Ivoire. 3. Mr Patrick Cherlet Commercial Director Before joining Afren as Commercial Director, Mr Cherlet has held management positions at Western Geophysical, Western Atlas, Baker Hughes, Randall & Dewey and Jefferies International. Mr Cherlet has a strong academic background, having received an MS from Stanford University and an MS from Ghent University in Belgium. 4. Mr Iain Wright Technical Director Prior to joining Afren, Mr Olleveant has been responsible for developing and implementing management systems and providing corporate assurance that effective controls are in place. He holds an MSc in Engineering Geology from Durham University and a Bachelor of Science degree in Environmental Science from Lancaster University. 6. Mr Jeremy Whitlock Head of Treasury and Planning Mr Whitlock, a qualified accountant, has over 20 years experience in the oil industry. He spent 13 years with Enterprise Oil in a variety of roles across the finance department, including several years as Financial Planning Manager and International and Corporate Accounting Manager. He also held the role of Planning Manager at Nexen (UK) Ltd. 7. Ms Shirin Johri Group General Counsel and Company Secretary Ms Johri has extensive experience advising on acquisitions and disposals, joint ventures, infrastructure projects and private equity investment. Since joining Afren in 2006, she has led the Company in all significant corporate acquisitions. Prior to Afren, Ms Johri worked in Cadwalader, Wickersham & Taft LLP s African practice. She holds an LLM from the Cornell Law School, New York, an LLB (Hons) from Delhi University, India and a Bachelor s degree from Delhi University. She has also been called to the New York Bar. 8. Mr Faiz Imam New Business Director Mr Imam has 15 years experience in the oil industry. He has worked in a variety of roles including production engineering, facilities and gas engineering and government relations. Since joining Afren, he has made a significant contribution to the Company s business development initiatives in Nigeria. Mr Wright leads Afren s technical team. He is responsible for all geoscience and reservoir engineering activities associated with Afren s ongoing exploration, development and production assets, and also for enhancing the Company s portfolio through technical assessments of new business opportunities. With over 25 years in the industry, he has extensive international geosciences experience and has worked in both development and exploration geology roles. Previously, he was a Managing Director at Jefferies International. Mr Wright has also worked with Randall & Dewey, Baker Hughes, Qatar Petroleum, Conoco (UK) and Anadrill Schlumberger. He is a Certified Petroleum Geologist (CPG) with the AAPG, a Fellow with the Geological Society, the SPE and PESGB. Mr Imam s career began with Texaco in Nigeria as an offshore production engineer. He moved through to developing projects, handling associated gas production, and then on to deep-water project development. Mr Imam was part of the team that worked on the billion barrel Agbami field. He holds an MEng in Chemical and Biochemical Engineering from University College, London. 9. Mrs Jane Barker Group Head of Human Resources Mrs Barker joined Afren in 2008 as Head of Human Resources. Her role encompasses Group-wide responsibility for all HR activities, including recruitment, retention, reward and organisational development. 5. Mr Andrew Olleveant Head of EHSS Mr Olleveant is a qualified health and safety professional with over 18 years experience working in the oil industry, ten of which were in an international role for LASMO. He has extensive experience of managing EHSS issues as well as wider risk management associated with major oil and gas projects. Mrs Barker has over 25 years human resources experience in the oil and gas industry. She has worked for Chevron, Gulf, LASMO and African Arabian, which included a three-year assignment as Head of HR for a new country entry in Venezuela. She also spent five years as Head of HR in financial services for insurer esure during their start-up phase. 58 Afren plc

61 Senior Management Nigeria Mr Adebayo Ayorinde Technical Director 5. Mr Taiwo Olushina Group Drilling Manager Mr Ayorinde has over 20 years experience in the oil and gas industry. His experience spans production and maintenance operations, oil and gas project economics, facilities engineering, management, drilling and completion engineering. As Group Drilling Manager, Mr Olushina joined Afren with 20 years experience in the oil and gas industry behind him. During that time he has undertaken everything from project and design management, to operations, drilling and completion engineering Prior to joining Afren, his roles included Chief Operating Officer at Allied Energy Resources, a Director and General Manager at Moni Pulo Limited, and an Onshore Production Manager at Ashland Oil. Mr. Ayorinde received a BSc (Hons) in Chemical Engineering from the Obafemi Awolowo University in Nigeria and is a member of the Society of Petroleum Engineers. 2. Mr Deji West Finance Director Mr West leads the finance function for Afren Nigeria. He brings over 23 years experience and an in-depth knowledge of commerce, finance and accounting to the role from his time in several industries including distribution, consulting, banking, manufacturing, and oil and gas. Previously, Mr West was Group CFO for the Sahara Group: Nigeria s largest private oil and gas company. He has worked with many organisations including British Petroleum, Price Waterhouse (now PWC) and Mellon Bank. He is a member of The Institute of Chartered Accountants in England and Wales, and also in Nigeria. 3. Ms Sade Ogundeji Financial Controller Ms Ogundeji has over 11 years experience in auditing, banking and accounting. She was previously the Financial Controller at Trust Bank of Africa Limited and XL Management Services Limited in Nigeria. 4. Mr Daniel Sasegbon General Counsel and Company Secretary Mr Sasegbon has over 15 years advisory experience. His background includes advising on oil and gas in both Nigeria and the Gulf of Guinea, where he has advised on a number of indigenous and international operators on farm-ins, production sharing contracts, joint venture agreements, FPSO and other operational contracts. Previously, Mr Sasegbon has worked as a Barrister in the UK, as well as for Jardines Insurance Brokers and the Nigerian National Petroleum Company (NNPC). He has acted in an advisory capacity for exploration and production companies in the Gulf of Guinea, and a number of leading oil service firms in Nigeria, Independent Power Project (IPP) companies and other infrastructure investment consortia. Before he joined Afren, Mr Olushina spent 14 years working in several technical and managerial roles for ExxonMobil both in Nigeria and the US that included a time as Head of Drilling Engineering for Mobil Producing in Nigeria. Mr Olushina is a member of the Society of Petroleum Engineers. 6. Mr Okon Akpan Engineering Manager Mr Akpan has worked in a diverse range of capacities for the Company including process engineering, project engineering and management, as well as both pipeline and systems engineering. With over 16 years experience in the oil and gas industry, Mr Akpan worked in a variety of roles for Shell Nigeria including Project and Team Leader for the Odidi gas supply project. 7. Mr Olurotimi Bright Reservoir Engineering Manager Mr Bright is a petroleum engineer with over 22 years experience in the oil and gas industry. His experience spans across asset management, field development, procurement, production and reservoir engineering. Before he joined Afren, he worked in a variety of roles including Asset Team Co-ordinator, Senior Staff Engineer, Procurement Services Adviser at ExxonMobil, and Senior Petroleum Engineer at Chevron amongst others. 8. Damilola Jones EHSS Manager Damilola Jones has over 17 years experience in the oil and gas industry. His experience spans regulatory compliance, environmental assessment and safety studies. Prior to joining Afren, he was part of the Environmental & Loss Prevention team of Mobil Producing Nigeria Unlimited. He holds a Master of Science (MSc) degree in Environmental Physiology from the University of Lagos and is a member of the Nigerian Environmental Society (NES), Nigerian Institute of Safety Professionals. He is also an associate member of the British Institute of Environmental Management & Assessment (IEMA). Business review Afren plc 59

62 Senior Management Côte d Ivoire International Advisory Board Mr Koffi Adje General Manager Mr Adje is an industrial engineer, bringing over 25 years experience in the oil and gas industry to his role as Afren s General Manager in Côte d Ivoire. Prior to joining Afren, he was Deputy Operations Manager, as well as General Manager at Devon Energy. His professional career began with ExxonMobil as a production engineer and he subsequently held several managerial positions within the company before joining Petroci in 1984 the national oil company of Côte d Ivoire and successfully carrying out a range of operational roles. 2. Mrs Sylvie Kodja Finance Manager 3 Mrs Kodja is a financial accountant with over 13 years experience in the oil and gas industry. Prior to joining Afren, she was the Accountant at United Meridian International Corporation, Deputy Finance Manager at Ocean Energy and Finance Manager at Devon Côte d Ivoire. Mr Bert Cooper Special Adviser to Afren plc Mr Cooper is a founding member of Afren and Special Adviser to Afren plc. He has been active in the African natural resources sector for over 25 years. During the 1980s he devised and led an initiative to restructure what, at the time, was Liberia s biggest industrial iron ore project. He also formed Liberia s mining parastatal, whose management, marketing and financing requirements were contracted to Mr Cooper s companies. Mr Brian Ward International Advisory Board Previously the Regional Chief Executive for Shell E&P Africa, handling all Shell s upstream African operations and relationships with host governments, Mr Ward is a knowledgeable and experienced member of Afren s International Advisory Board. Before taking on that role, Mr Ward held a variety of senior positions within Shell, from Managing Director of Petroleum Development Oman to Managing Director of Shell E&P (NAM) in Holland, as well as Deputy Managing Director and Production Director for Shell Expro UK. Mr Hiroshi Kanematsu International Advisory Board As well as being a member of Afren s International Advisory Board, Mr Kanematsu is also the President of the Energy and Mineral Resources Division and Senior Managing Executive Officer at Sojitz Corporation. He brings to Afren over 25 years experience in global energy and mining. His past career has involved a great many senior positions within Sojitz. These include his role as President and Chief Executive Officer for the Asia division, and his post as General Manager for the South East Asia department. Professor Ekwere Peters International Advisory Board Bringing over 35 years of petroleum engineering experience from field operations to education and research, Professor Peters is a valued member of Afren s International Advisory Board. He is also the Frank W. Jessen Professor of Petroleum Engineering at the University of Texas, Austin, where he has been a faculty member since A former Chairman of the Department of Petroleum and Geosystems Engineering at University of Texas, Austin, Professor Peters has gleaned a great deal of expertise from this role. He also gained much of his experience in the petroleum industry with Shell and BP in Nigeria, Amoco Production Company in America, and the United Petro Laboratories in Canada. Mr Henry Groppe International Advisory Board In 1955 Mr Groppe established his consultancy services to governments, corporate and private clients in the petroleum, natural gas, refining and petroleum industries. They have earned a global reputation for accurately predicting major changes in oil and natural gas supply, prices and consumption. With 63 years of management, economic and technical experience in the energy field, Mr Groppe has worked with Dow Chemical, Monsanto, Texaco and Arabian American Oil Company in Saudi Arabia. He is also a Fellow of the American Institute of Chemical Engineers, a member of the Chancellor s Council of the University of Texas, a member and former Chairman of The University of Texas Engineering Foundation Advisory Council and founder of The University of Texas Chemical Engineering Alumni Association. Mrs Kodja holds an MBA from University of District of Columbia (Washington DC). 3. Mr Sirima Bassina Partner Relations Mr Bassina is a lawyer with over 29 years experience. He has held several roles in the oil and gas industry including Deputy to the Vice President of the United Meridian Corporation and Ocean Energy. He currently heads Government and Business Relations at Afren Côte d Ivoire. 60 Afren plc