Afren cuts guidance and issues qualified accounts

Shares in Afren fell sharply again on Friday as the Nigeria-focused oil group cut production guidance and was forced to issue qualified interim accounts, the day after it suspended two more executives following a probe into unauthorised payments.

Egbert Imomoh, Afren's founder and chairman, told investors that KPMG had been hired to work alongside legal advisers Wilkie Farr & Gallagher on a widening probe that began with the querying of three transactions between Afren and partners as it built its position in Nigeria.

On Thursday Afren confirmed it had temporarily suspended associate directors Iain Wright and Galib Virani.

The move followed the removal of Osman Shahenshah, its chief executive, and Shahid Ullah, chief operating officer, in late July pending further investigation by Afren's lawyers, who uncovered "evidence of the receipt of unauthorised payments made by a third party for the benefit of its CEO and COO".

Mr Imomoh is a former Royal Dutch Shell executive who alongside fellow director Toby Hayward has taken managerial control of the company.

The pair conceded to investors on Friday that Afren faced challenges in regaining trust among shareholders and ensuring stability in the company's operations following the suspensions.

Both Mr Imomoh and Mr Hayward, interim chief executive, declined to be drawn further as to the nature of allegations against the suspended directors, citing the need to abide by "standards of fairness in the investigation".

They also insisted that there appeared to be "no negative impact on operations or the company's financial position".

However, the results statement recognised "a heightened risk of disruption including due to possible loss of staff, potential relationships with partners, providers of finance and other stakeholders".

A note to the accounts confirmed Afren was "currently assessing the potential for the recovery of unauthorised payments from the suspended directors". Deloitte, the company's auditors, said it was qualifying Afren's accounts ahead of completion of an investigation into the queried payments and related transactions, which is expected by the end of September.

The investigation is examining the execution and accounting for prepayments and advances to partners centred on dealing at the Okoro and Ebok offshore assets in Nigeria. Afren last year secured a five-year tax exemption on the Ebok field, where it is partnering local group Oriental Energy.

The crisis at Afren comes just over a year after shareholder groups queried the handling of personal investments made by some senior company executives in a local affiliate, First Hydrocarbon Nigeria, in which Afren had raised its equity stake.

Shares in Afren fell nearly 10 per cent on Friday morning before recovering to trade down 5 per cent on the day at 94.6p, compared with their 52-week high of 170.8p hit in January.

Afren's problems were compounded on Friday by a downgrade to its full-year net production guidance, which is dominated by its interests in Nigeria, to 32,000-36,000 barrels of oil a day. Previous guidance stood at 40,000 b/d.

On Friday, independent analyst Malcolm Graham-Wood called the results as relevant as "an ashtray on a motor bike," adding that Afren was "at present uninvestable and will remain so until investigations are complete".

The suspended executives were unavailable for comment.

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