Afren in talks with lenders, looks to cut costs and spending plans

Shares in Afren plunged further on Wednesday after the oil and gas group warned overnight that it was in discussions with its lenders and looking to slash costs and spending plans.

The FTSE 250 group, the recent subject of much takeover speculation after its shares have crashed more than sixfold in the last six months, confirmed it has been "reviewing with its lenders its capital structure, liquidity and funding requirements".

These discussions have included amending its existing facilities and a hoped-for deferral of a $50m amortisation payment due at the end of January.

"Given the rapid decline in the oil price the company is also reviewing its cost base and capital expenditure plans for 2015."

The company said it continued talks with Nigerian group Seplat Petroleum Development about a potential merger with Afren, after the suitor was granted an extension by the UK takeover panel.

Broker Westhouse said: "Financial restructuring is not surprising and in our view, is necessary for Afren in current oil price environment.

"There is a risk of breaching financial covenants in 2015 if current low prices persist and we think material capex cuts should be expected."

Shares in Afren have recently been hit by a large reduction resource estimates at its 60%-owned Barda Rash field and on Tuesday the hope of a second bidder was quashed as rumoured second suitor T5 Oil & Gas said that it does not intend to make an offer.