Afren calls in Serious Fraud Office after new expenses discovery

Afren, the struggling oil producer which dismissed top executives last year and is in the middle of a refinancing, has called in the Serious Fraud Office after another discovery relating to expenses payments.

As part of a $200m funding agreement by certain bondholders, it has reported “preliminary concerns... regarding the hire of an individual within its operations in 2012 and the payment of certain travel and accommodation expenses connected to Afren’s activities.”

Law firm Wilkie Farr & Gallagher had been reviewing the company’s procedures after whistle-blower reports, and Afren said:

Having received WFG’s preliminary findings of such review, the company has notified the proposed providers of the interim funding of such concerns.

In addition to this disclosure the company has notified the Serious Fraud Office of such matters. The company has taken steps to halt its previous practices in relation to such expenses payments.

The company has suffered a series of setbacks, including the failure of takeover talks with Nigeria’s Seplat, disappointing results from a field in Kurdistan and a default on interest payments for a 2016 bond. Last year its chief executive and three other directors left after an independent review into unauthorised payments.

Its shares have added 0.15p to 3.65p despite this latest news but Westhouse Securities issued a sell note:

We once again re-iterate our view and rating and do not see any reason to currently own Afren’s shares. This announcement indicates that Afren’s questionable past activities are still re-surfacing and even if there are no more skeletons in the closet and the re-financing is successfully implemented, we do not see the debt burden diminishing and there are still uncertainties about future operations and ability to deliver attractive growth.

SP Angel said:

It is becoming a quite rote these days that Afren will release some new discovery about fraudulent claims, and that we will all be shocked then move on to wondering how big the dilution will be. Let’s be clear. This latest fraud, probably wouldn’t have been made public (nor should it have been) if the Company hadn’t got the recent history that it has, that this is a case of the Company now being whiter than white.

We believe it is now has to focus on the catastrophic failure of the CFO and his Fiannce team to adequately manage the Company’s risk profile, such that it is in this position in the first place.

While we would be the first to say that the directors haven’t covered themselves in glory up to the point at which the discovery of the wrong doing was made, but since then, they have taken the often painful steps to put things right.

The next stage to correcting the issues at Afren is to revamp the finance team with an emphasis on risk mitigation, and we believe (as we have said previously) that Simon Hawkins would be a good candidate for this.

There is dilution ahead for the shareholders of Afren, the amount we believe is still in the hands of management. The Company has a solid asset base, and one which through judicious sale could yield cash to mitigate the dilution. Let’s see what gives.

Powered by article was written by Nick Fletcher, for on Monday 23rd March 2015 10.00 Europe/London © Guardian News and Media Limited 2010


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