AFR.L Regulatory News (AFR)

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Afren plc

Recommended acquisition of 10.4% of First Hydrocarbon Nigeria

London, 25 March 2013 - The Board of Afren plc ("Afren" or the "Company") announces that CBO Oil and Gas FHN Investment Service Vehicle Limited ("COGIL") has exercised the terms of an amended put option agreement which will result in Afren owning a beneficial interest in a majority of the issued share capital of First Hydrocarbon Nigeria (the "Acquisition")

Transaction Highlights

·; Under the terms of the put option Afren will acquire a beneficial interest in 15 million shares in First Hydrocarbon Nigeria Company Limited ("FHN")

·; Following the acquisition Afren will have a beneficial interest in 54.8% of the issued share capital of FHN

·; This will result in a material change in 2P reserves net to Afren

o Group pro forma net Proved and Probable Reserves to increase from 210 mmboe to approximately 270 mmboe.

o Assuming Completion, Afren will therefore increase its net Proved and Probable Reserves by 29%

Transaction Terms

·; Afren will acquire a beneficial interest in 10.4% of the issued share capital of FHN in exchange for an aggregate consideration of US$37.05 million under the terms of the put option, payable in cash

·; FHN will remain as an indigenous Nigerian oil and gas company

·; The Acquisition will be subject to the approval of Afren's shareholders

For further information contact:

Pelham Bell Pottinger +44 20 7861 3232

James Henderson

Mark Antelme

BofA Merrill Lynch +44 20 7628 1000

Tony White

Edward Stratton

This summary should be read in conjunction with the full text of this announcement.

Introduction

The Board of Afren announces that COGIL has today exercised the terms of an amended put option deed (the "Agreement") under which Afren would acquire the beneficial interest in approximately 10.4% of the issued share capital of FHN in exchange for an aggregate consideration of US$37.05 million, payable in cash.

Currently, Afren directly and indirectly holds 44.5% of the issued share capital of FHN. Following the Acquisition, Afren will hold a beneficial interest in 54.8% of the issued share capital of FHN and will consolidate FHN in its group financial statements.

The Acquisition constitutes a Class 1 transaction (as defined in Chapter 10 of the UKLA Listing Rules) for Afren and therefore requires the approval of Afren Shareholders. A circular will be posted to shareholders shortly with a general meeting expected to take place in mid-May 2013.

Information on FHN

FHN was established in June 2009 in direct response to the Nigerian government's policy to increase indigenous participation in the Nigerian upstream oil and gas sector and its commitment to deepening indigenous involvement in the sector at all levels. Afren initially held 40% of FHN's issued shares and currently holds (directly or indirectly) 44.5% of the issued share capital of FHN (46.7% as at 31 December 2012 prior to a new issue of shares by FHN).

OML 26

In December 2011, FHN acquired a 45% interest in the OML 26 portfolio of assets in Nigeria from Shell Petroleum Development Company of Nigeria, Total E&P Nigeria and Nigeria Agip Oil Company. The OML 26 portfolio of assets holds two producing fields (Ogini and Isoko), with 2P oil reserves estimated at 134.6 mmboe and gross contingent resources estimated at 68.0 mmboe as at 31 December 2012, according to a technical expert's report prepared for FHN by Netherland Sewell & Associates International, and three proven but undeveloped fields (Aboh, Ovo and Ozoro), with gross contingent resources estimated at 144 mmboe and a further 615 mmboe of gross unrisked prospective resources on the block across multiple prospects that Afren expects will continue to be worked up in parallel to and integrated with the development plans.

The Nigerian Petroleum Development Company, the oil and gas exploration and production subsidiary of Nigerian National Petroleum Company, is the operator of OML 26 and works closely in partnership with FHN on the re-development of these assets.

In 2012 gross average production from the Ogini and Isoko field totalled 6,010 bopd, of which 1,217 bopd were attributed to Afren, with gross production going beyond the ceiling of the asset pre-acquisition of 8,000 bopd at times during the second half of 2012. The current forward work programme for FHN is expected to increase production to more than 40,000 bopd through a phased development process by 2015 and ultimately take production to 50,000 bopd.

The board and management of FHN

FHN's board of directors comprises a combination of local knowledge and experience, technical and industry knowledge and understanding, corporate governance experience and business acumen. The board of FHN includes two Afren representatives, Egbert Imomoh and Osman Shahenshah, out of a total of nine directors. FHN's chief executive officer is 'Labi Ogunbiyi, previously an executive director of Afren.

Financials and share capital

In 2012, FHN generate US$112.4 million in revenue, incurring a loss of approximately US$14.8 million. The net revenues and loss attributable to the Acquisition in respect of 2012 were approximately US$11.7 million and US$1.5 million respectively.

Background to, and reasons for, the Acquisition

The Acquisition underlines Afren's stated strategy of delivering long-term value to shareholders and other stakeholders by acquiring and developing a balanced and diversified portfolio of quality assets across the whole Exploration and Production value chain. A key part of this is Afren's operations in Nigeria, where it has positioned itself as partner of choice to assist in monetising the Country's extensive remaining resources. Having successfully delivered on two high quality offshore Nigerian development projects in Ebok and Okoro, together with six further appraisal and exploration projects, Afren now has a track record of delivering projects in record time. The proposed Acquisition will allow Afren to further consolidate its position onshore Nigeria.

If the Acquisition completes, Afren will consolidate its holding of FHN's reserves and production as a subsidiary. Based on data provided by Netherland Sewell and Associates International, the Acquisition will result in Afren achieving a material increase in net Proved and Probable Reserves from 210 mmboe as at 31 December 2012 to approximately 270 mmboe, representing an increase of 29%.

Terms of the Acquisition

The Acquisition will be implemented pursuant to the Agreement. On 4 April 2011 Afren entered into a put option deed with COGIL (the "Initial Deed") that granted COGIL a right (but not the obligation) (the "Option") to sell up to 15,000,000 ordinary shares in FHN to Afren at a price equal to US$2.24 per FHN share in cash.

The Initial Deed was as amended by a deed of variation dated 25 March 2013, pursuant to which (in consideration for certain other amendments for the benefit of Afren, including making completion of the Option subject to the prior approval of the Company's shareholders), Afren agreed to acquire 15,000,000 FHN shares at a price equal to US$2.47 per FHN share in cash. On 25 March, COGIL exercised the Option and agreed to sell 15,000,000 shares in FHN, representing 10.4% of the issued share capital of FHN, to the Company for an aggregate consideration of US$37.05 million. Completion of the exercise of the Option is conditional upon the approval of the Company's shareholders.

In order to provide maximum flexibility for the Group structure, as well as for the Company to be able to take advantage of the potential benefits of FHN remaining as an indigenous company in Nigeria, Afren intends to split its legal and beneficial holdings in FHN such that it is the legal owner of not more than 45% of the issued ordinary shares in FHN. The remaining portion of Afren's beneficial interest, which is expected to be approximately 9.8% of the issued FHN shares following completion of the Acquisition, will be held on trust for the benefit of Afren by Adcax Investments Limited, a Nigerian-formed trust company (with Afren entitled to the economic benefit of such shares)

If shareholder approval for the Acquisition is not obtained at the General Meeting, completion of the Option will not occur. In such circumstances, the Option will be deemed not to have been exercised and COGIL shall have no right to re-exercise the Option and Afren shall have no obligation to acquire any FHN shares from COGIL. 

In connection with the amendment of the Initial Deed, Afren has entered into a separate agreement with First City Monument Bank plc ("FCMB") and COGIL in respect of the acquisition of certain indebtedness owed by COGIL to FCMB. As part of the original acquisition by COGIL of the FHN shares the subject of the Option, FCMB made available a US$33 million term loan facility to COGIL to finance COGIL's acquistion of such shares. This loan is due to be repaid in April 2013, or on the early disposal by COGIL of the relevant FHN shares (including under the terms of the Option). In order to provide assurances to FCMB as to the repayment of this loan in circumstances where COGIL has been unable to complete the sale of the shares to Afren under the Option, Afren has agreed with FCMB that, if Afren shareholder approval for the Acquisition is not obtained, it will purchase from FCMB all outstanding amounts due and payable under this loan. FCMB and COGIL have also agreed to extend the date for repayment of this loan until October 2013. 

If shareholder approval is not obtained, then following such loan purchase COGIL shall be obliged to repay such debt to Afren instead of FCMB. COGIL will be restricted from disposing of the relevant FHN shares without Afren's prior consent and/or repaying such loan out of the proceeds of any sale of such FHN shares.

General

The Acquisition is subject to the terms and conditions of the Agreement which will be described in a circular to shareholders, which Afren intends to send to its shareholders as soon as reasonably practicable. The circular will include a letter of recommendation from the Chairman of Afren and a form of proxy. The circular and form of proxy will be made available to all Afren shareholders at no cost to them.

Afren shareholders are advised to read the circular and the accompanying form of proxy when they are sent to them because they will contain important information.

This announcement is not intended to and does not constitute, or form part of, an offer to sell or an invitation to purchase any securities or the solicitation of an offer to buy any securities, pursuant to the Acquisition or otherwise, nor shall there be any purchase, sale or exchange of securities or such solicitation in any jurisdiction in which such offer, solicitation or sale or exchange would be unlawful prior to the registration or qualification under the laws of such jurisdiction.

Forward Looking Statements

This announcement may include certain "forward looking statements". These statements are based on the current expectations of the management of FHN and Afren and are naturally subject to uncertainty and changes in circumstances. Any forward-looking statements contained herein include statements about the expected effects on Afren of the Acquisition, the expected timing and scope of the Acquisition, and all other statements in this announcement other than historical facts. Forward-looking statements include, without limitation, statements typically containing words such as "intends", "expects", "anticipates", "targets", "estimates", "plans", "strategy", "will", "should", "may" and words of similar import.

These forward looking statements are not guarantees of future performance. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to, the satisfaction of the condition to the Acquisition, and Afren's ability successfully to integrate the operations and employees of FHN, as well as additional factors, such as changes in economic conditions, changes in the level of capital investment, success of business and operating initiatives and restructuring objectives, costs associated with research and development, changes in the prospects for products in the research and development pipeline of Afren or FHN, customers' strategies and stability, changes in the regulatory environment, fluctuations in interest and exchange rates, the outcome of litigation, government actions and natural phenomena such as floods, earthquakes and hurricanes. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements. Neither FHN nor Afren undertake any obligation to update publicly or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.

Definitions

The following definitions apply throughout this announcement unless the context otherwise requires:

Notes to Editors

Afren

Afren is an independent upstream oil and gas exploration and production company listed on the main market of the London Stock Exchange and constituent of the Financial Times Stock Exchange Index of the leading 250 UK listed companies. Afren has a portfolio of 28 assets across 12 countries spanning the full cycle E&P value chain. Afren is currently producing from its assets in Nigeria, Côte d'Ivoire and the Kurdistan region of Iraq and holds further interests in Ghana, Nigeria, Côte d'Ivoire, the Kurdistan region of Iraq, Congo Brazzaville, the Joint Development Zone of Nigeria - São Tomé & Príncipe, Kenya, Ethiopia, Madagascar, Seychelles, Tanzania and South Africa. For more information please refer to www.Afren.com.

BofA Merrill Lynch

Merrill Lynch International ("BofA Merrill Lynch"), a subsidiary of Bank of America Corporation, is acting as sponsor exclusively for Afren in connection with Acquisition and for no one else and will not be responsible to anyone other than Afren for providing the protections afforded to its clients or for providing advice in relation to the Acquisition.