The Afren Plc Company - Coursework Example

The Afren Plc Company The Afren Plc Company is a business venture that has its base in London. The company deals with the exploration, mining, and selling of natural gas and oil (William, 2005:128). This paper seeks to analyze all aspects of the company, including its history, current size, annual profits and turnovers, and its total current market share, among other aspects. The company is, basically, an autonomous power venture. Its main business activities are the exploration, development, and mining of natural gas and oil deposits. The company carries out most of these activities in the West African region. To date, the conglomerate owns a variety of different portfolios. The company’s portfolios include about 15 assets situated across six African states, including Nigeria, Gabon, Ghana, Sao Tome, Ivory Coast, and Congo (Gouyu, 2011:74). Currently, the business portfolios together produce about 26,000 barrels of oil in a single day. In addition, the company controls key regions that currently hold about 160 million oil barrels. The company started due to the initial idea of Rilwanu Lukman, who is a former chair, and currently controls about 3 % of the total company’s shares. Currently, a number of institutional investors jointly own the company in conjunction with various banking and capital management businesses. Though it has its headquarters in London, UK, the company’s main operations are in Nigeria, through its Nigerian branch, based at the Octagon building in Lagos. The company also controls a 40 % stake in the First Hydrocarbon Nigeria Company (Hilyard, 2008:159). The company started towards the end of the year 2004. Its inception came after a group of businesspersons joined to raise $ 1 million dollars for the start. They based their onslaught on the African sector on the ideology of intense focus and analyzing on the mode of operation of the African leaders and the continent in general. This strategy has been very successful, as, over the years, it has enabled the company to venture into areas that were previously considered impenetrable in terms of suspicious administrations and heavy bureaucracy. The business achieved this through incorporating the local businesses, recruiting local employees, and involving itself with the citizens that wield control of the West Africa oil regions. The business’ initial transaction consisted of a chance to buy a small and untouched region situated in the Block 1 area of Nigeria (Michel, 2003:199). The block was known as Sao Tome and Principe zone. After the successful transaction, the company embarked on a strategy that involved the developing of discovered but untouched regions into full production. This strategy also proved highly successful, as it helped the company to realize a production of about 14,000 oil barrels by the year 2010. Currently, the company is deeply involved in the C1-11, Lion Gas Pant, and Okoro projects located in Nigeria and Cote de Ivoire. In addition, it has also started rolling out plans aimed at bringing the principal Ebok region to full-scale production by the end of the year (Plunkett, 2008:413). The Ebok project is projected to hike the company’s daily production output to about 40,000 barrels of oil in a day. As a result, the conglomerate is currently enjoying the surging cash flow advantages from its increased output and sales. This has brought significant benefits, as the business has now been able to branch out from its previously British-based fiscal systems o the US-based systems, which consider cash flow levels more highly. This move has catapulted the drastic rise of the company’s share price up tenfold from the previous levels in January 2009 (Larry, 2012:374). Since its advent in 2004, the venture has realized substantial progress and growth over the last several years. In 2005, the company managed to acquire about 11 million pounds in operating cash. It did this through the selling off around 24.4 million of its ordinary shares. In the same year, it also entered into a contract that enabled them to take part in the developing of the Ogadeh Field, which is located on offshore Nigerian land. The same year also saw the company successfully bid for exploration interests in Gabon. Further, it later embarked on getting another amount of cash, totaling to 7.5 million pounds, through disposing of about 21 million ordinary shares (Reuters). This helped the company to finish its Block 1 JDZ contract. They capped their success that year by gaining admission to the highly esteemed AIM board. It also managed to complete an 8 million pound placing (Robert, 2011:226). The year 2006 also saw the company gain more growth. It completed an appraisal-drilling project on the Okoro Field in Nigeria. During the same year, the company’s top management agreed on forming of an International Advisory Board, which would help in analyzing their subsequent moves in the African region. It also managed to complete a $75 million American dollar Convertible Bond sale. In the same year, it took possession of the Heritage Oil Corporation’s stakes in the Congo region. The conglomerate entered into a contract to ensure it participates fully in the developing of the Okoro Setu oil project in Nigeria. In 2007, it made a public awareness notice on its impending possession of Devon Energy Company’s stake in Ghana. In the Lanoumbi area, the company completed drilling its initial exploration well. The company also finally finished paying off a $ 50 million unsecured loan that it had earlier obtained. In the same year, it took on another contract to develop the Eremor Field. Later in the year, it completed a major move aimed at obtaining $ 65 million dollars through equity transactions (Reuters). It then joined hands with Independent Energy in order to gain access to the Ofa Field. It then successfully got a $ 230 million dollar loan to boost its operations in the Okoro Setu project (Genova, 2005:176). In 2008, it commissioned the drilling of an initial appraisal well in its Ebok-4 Field. It also completed exploration excursions in the Cuda-1 region in Ghana (Roger, 2005:113). It also agreed with the Ghanaian authorities to commence Farm-down operations in the region. The highlight of the company’ moves in this year were its publicized joining with the Sojitz Corporation, Gasol Plc, and Electricite de France. It also started the early conversion of its Convertible Bonds. In the same year, it finally got its first oil from the Okoro Setu well. The company then raised about $ 236 million dollars through the sale of around 90 million shares. It then entered into a Farm-In contract with the Oriental Energy Resources to enable full development of its Ebok Field in Nigeria. It then joined with African LNG Holdings Limited (Besada, 2009:275). The company has always based their operational strategies on the African way of life. This has influenced the gaining of critical ground by the company in the continent. The company has formed special bonds and excellent working relationships with the local business fraternity. It has also immensely invested in the local staff to enable them to do their work with extreme prejudice and accuracy. The company has also established head offices in Lagos and Abidjan. This has influenced the substantial directing of related fiscal resources into the indigenous economies. This result has not only positively affected their local workers, but has also benefited their communities, who enjoy major Afren benefit, including training, education, and healthcare. A major strategy of the company is that, when it settles on a certain potential opportunity, it ensures to first gain smooth access to the local people and their wants, before developing the opportunities to realistic advantages. In addition, the company’s top management also considers crucial partnerships key to success. As a result, the company has successfully managed to form critical bonds with five big local companies. In addition, the conglomerate also enjoys close relations with the Ivorian and Ghanaian oil businesses (Dickson, 2004:217). The company does this in order to access combined resources, experience, and knowledge that will enable it construct, and maintain a profitable business that comfortably satisfies the needs and desires of all involved parties. The company has also extensively strategized on expansion and diversification. Though the company’s main interests and operations are in Africa, it has built an assorted platform of investments and potential breakthroughs. This has resulted to it owning major interests in various portfolios in six countries, including natural gas, upstream oil, and natural gas effluents. It also acts as the technical source of all is major manufacturing and core capital. The company’s top management has also produced a complex system aimed at managing potential risks, and at the same time extensively exploits potential opportunities (Reuters). When embarking on investing procedures, the company always financially backs the plans, and usually negotiates on paying itself back through about 90% of extracted oil until its accrued costs break even. Thereafter, it then renegotiates on how to share the subsequent profits with its joint ventures and the prevailing government administration. Generally, when entering into an exploration contract, the company undertakes the responsibility of sourcing the required finances and technical support to a project (Duncan, 2010:372). The main drive behind this rapid rise was the excellent results that the company enjoyed from its Ebok drilling operations in Nigeria. The results from the exploratory drilling in the Ebok field produced a confirmed 50 m.m.b.b.ls of possible oil development, and showed a possible further contribution of up to 106 (mmbbls). The company expected to gain a daily production rate of about 50,000 barrels towards the end of the year 2010 from the Ebok field alone. This move alone catapulted the company to scale new heights in the London stock market (http://www.afren.com/). The Afren conglomerate has consistently strived to sustain an excellent record of achievements, mainly exhibited in delivery and operations. In the year 2008, the venture was able to run production in a total of nine appraisal, development, and exploratory wells comfortably. In addition, during the same year, it undertook a joint exploration project in another two wells, although it did this on a non-operated platform. Currently, the company manufactures over 30,000 barrels of oil and gas in a single day. This is because, in the year 2008, the company embarked on backing up its technical knowledge. It managed this through bringing on board Shahid Ullah to take on the responsibility of the Chief Operating head. In addition, it went ahead and recruited a group of nine executives from the Randall and Dewey firm. All of them were outstanding performers in their respective fields of work. This bold move significantly boosted the company’s performance, and heavily influenced its subsequent expansion in the technical resources and operational strategies. In addition, this has helped the company to lay down plans for its next step, entailing a major growth and expansion onslaught (Davidson, 2005: 137). The company board of executives has always considered capital access as another major strategy. This strategy has usually benefited the company greatly in terms of growth. Thus, the company has always aimed at sourcing enough capital, even when up against a challenging fiscal backdrop and a very difficult macro environment. In the year 2008 alone, the company successfully managed to source about $ 450 million American dollars in capital. It did this though a clever combining of loans, equity, and promissory notes. In addition, the company has always aimed at catching the attention of high-caliber partners of all backgrounds, including local companies, big oil conglomerates, and major utility and gas businesses (Ben, 2012: 134). As part of their long-term strategy, the company has embarked to invest heavily in gas fields and relevant companies. The company views gas extraction and sale as the next big thing. In 2008, the business entered into a co-operation contract with E. ON Ruhrgas AG., and African LNG Company. The contract detailed their joint plans to process, gather, and sell gas for use in the domestic and industrial sectors in Nigeria (Falola, 2008:298). In addition, it joined up with the French company, E.D.F. in order to explore the feasibility of developing gas extraction projects in numerous regions in West Africa. In the same year, the conglomerate also got into two gas production contracts in the Anambra Basin, which is a proven major gas deposit (Oxford, 2012:35). As a result, these moves have enabled the company to widen its gas portfolio drastically within a very short time. The issue of managing foreign exchange risks is radically becoming a matter of concern to all multinational conglomerates. The main reason behind this is the increasing fluctuations of currency value across the world. Afren has embarked on formulating and applying relevant strategies to help it defend itself against potential pitfalls that the exchange rate risks pose to it. The company now only acquires loans in either dollars or Euros. In addition, they also sell their products in the same currencies. This is because the currencies exhibit more stabilized behavior than other currencies. It has instructed its financial advisors to create a pool consisting of diverse currency risks. This will help it sustain solvency in the event that a certain currency drastically loses value. They have also put in place systems that will allow them to utilize capital from its joint partners in case of a short-term fluctuation in the exchange market. These measures are adequate to protect it from suffering major losses due to market turbulence concerning currency fluctuation (http://www.afren.com/about_afren/). However, there are numerous political risks associated with these methods of risk management. The African countries where the company conducts its operations have exhibited sustained political imbalance and instability. In addition, the country’s administrations exhibit intense interest in big companies that have excess operating cash at their disposal. However, the company has put in place relevant strategies to save them from imminent loss. The conglomerate only banks a minimum amount of cash in local African banks, and keep the rest of its staff in London financial institutions. It has also strived to own stakes in the local financial sectors. In addition, the company always strives to keep a close and positive relationship with the relevant local administrations. This goes a long way in safeguarding their local interests and capital bases. However, this move has been criticized to have contributed to the recent increase in corruption, though the reports are officially unfounded (http://www.afren.com/about_afren/). The company has experienced sustained levels of profits and growth in the last five years. It managed to recoup its initial starting costs in 2005, after only one year of operation. Since then, the company has continued to produce impressive profits in all the last five years. This is evidenced by the major additional expansion programs that it has undertaken year after year. In addition, it is arguably one of the best companies in the region in terms of remuneration, and the successful attraction of top experts in all relevant fields. This shows that the company is a well-performing blue-chip company that has a lot of potential, and is taking all the relevant steps to realize it. Its financial results over the last five years are ample proof that the company is performing well and beyond expectations (http://www.afren.com/about_afren/). The company, after extensively analyzing its exceptional growth in the period lasting from the year 2006 to the year 2009, is now working on sustaining its presence in the oil market in the future. The company has identified the recent fluctuating of oil prices as a major factor that is influential to their ensured success. In addition, it is also considering the anticipated changes in oil demand, the OPEC rule and regulations, and the possible state of the world fiscal position in the future. Therefore, the company has set down a number of preventive measures. It is currently working on lessening the costs of production in its African interests through emphasizing on the use of the most efficient methods of operation in all their field plants. In order to survive in the current highly battling climate with fellow production ventures, the company is aiming at the maximum exploitation of potential opportunities to help them in lowering their current rates of production and processing costs. This move will enable the realization of healthy margins in their annual profits (http://www.afren.com/about_afren/). Bibliography Afren. Available from: http://www.afren.com/ [accessed 13 April 2012] Ben, D., 2012. International Handbook of Globalization and World Cities. Gloucestershire: Edward Elgar Publishing. Besada, H., 2009. From Civil Strife to Peace Building: Examining Private Sector Involvement in West African Reconstruction. Ontario: Wilfrid Laurier Univ. Press. Davidson, A., 2005. How to Understand the Financial Pages: A Guide to Money & the Jargon. Philadelphia: Kogan Page Publishers. Dickson, B., 2004. A Historical Geography of Ghana.2nd Edition. Cambridge: CUP Archive. Duncan, C., 2010. Africa: Crude Continent: The Struggle for Africa's Oil Prize. London: Profile Books. Falola, T., 2008. A History of Nigeria. Cambridge: Cambridge University Press. Genova, A., 2005. The Politics Of The Global Oil Industry: An Introduction. Westport: Greenwood Publishing Group. Guoyu, L., 2011. World Atlas of Oil and Gas Basins. New York: John Wiley & Sons. Hilyard, J., 2008. 2008 International Petroleum Encyclopedia. Los Angeles: PennWell Books. http://markets.ft.com/Research/Markets/Tearsheets/Directors-and-dealings?s=AFR:LSE http://www.afren.com/about_afren/ Larry, A., 2012. Natural Resources and Social Conflict: Towards Critical Environmental Security. Basingstoke: Palgrave Macmillan. Michel, T., 2003. Giant Oil and Gas Fields of the Decade, 1990-1999, Volume 78. Olkahoma: AAPG. Oxford, B., 2012. The Report: Ghana 2011. Oxford: Oxford Business Group. Plunkett, J., 2008. Plunkett's Energy Industry Almanac 2009 (E-Book). New York: Plunkett Research, Ltd. Plunkett, J., 2008. The Almanac of American Employers 2009 (E-Book): Market Research, Statistics and Trends Pertaining to the Leading Corporate Employers in America. New York: Plunkett Research, Ltd. Reuters. Afren PLC (AFRE.L) Available from: http://www.reuters.com/finance/stocks/overview?symbol=AFRE.L [accessed 13 April 2012] Reuters. Available from: REG – Afren PLC – Notification by Company http://www.reuters.com/article/2012/03/22/idUS189405+22-Mar-2012+RNS20120322 [accessed 13 April 2012] Robert, B., 2010. The Naked Trader's Guide to Spread Betting: How to Make Money from Shares in Up Or Down Markets. Hampshire: Harriman House Limited. Roger, G., 2005. The History Of Ghana . The Greenwood histories of the modern nations Westport: Greenwood Publishing Group. William, C. 2005. Petrodollar Warfare: Oil, Iraq And The Future Of The Dollar. Grabiola Island: New Society Publishers. Appendix AFREN OIL FIELDS Read More