Canaccord Genuity downgrades Afren, slashes forecasts after Barda Rash disappointment

The substantial reduction in reserve and resource estimates at Afren’s 60%-owned Barda Rash field is a “significant negative”, according to Canaccord Genuity which downgraded the oil and gas stock from ‘buy’ to ‘hold’.

An updated ‘competent person’s report’ at Barda Rash in the Kurdistan region of Iraq has essentially eliminated all of the gross proven and probable (known as 2P) reserves of 190m barrels, and has revised gross contingent (2C) resources from 1,243m barrels to just 250m barrels.

Afren said it is now considering its “strategic options” for Barda Rash.

Canaccord analysts Thomas Martin and Charlie Sharp said the development was “very disappointing”.

“This news clearly affects the price that Afren may be able to achieve, and eliminates a potential source of funds to aid with refinancing,” they said.

The analysts said Afren needs to refinance some of its debt in 2015, and progress on this “is of the utmost importance to the company’s future as a standalone entity”.

Seplat last month made a preliminary approach to buy Afren and has until 19 January to make a firm offer.

Martin and Sharp have now removed all potential value for Kurdistan from Afren’s forecasts. They had estimated that Barda Rash accounted for 37p, or 56%, of the 66p-per-share central net asset value (NAV) forecast, based on a Brent crude price of $88 a barrel and a 15% discount rate.

The central NAV estimate has now been slashed to just 27p.

“Our risked central NAV at a 10% discount rate, assuming debt can be refinanced in 2015, stands at 57p/share providing some headroom for a takeover offer from a well funded acquirer,” the analysts said.

Canaccord has lowered its target price for the stock from 65p to 27p.

Afren was down 21% at 31.15p by 09:46.