The company entered Angola in May 2023 by closing the acquisition of a 4 per cent interest in Block 3/05 and a 4 per cent interest in Block 3/05A from Croatia’s INA-Industrija Nafte. Thanks to the deal with Azule, Afentra will buy an additional 12 per cent interest in Block 3/05 and a 16 per cent interest in Block 3/05A offshore Angola for a total consideration of up to $84.5 million with an effective date of 31 October 2022.
This is comprised of a firm consideration of $48.5 million ($47.5 million for Block 3/05 and $1 million for Block 3/05A) and deferred contingent payments of up to $36 million subject to the oil price, production, and development conditions with up to $21 million in contingent payments payable on a sliding scale above a Brent price of $75/bbl with an annual cap of $7 million over the years 2023, 2024 & 2025; and up to $15 million in contingent consideration linked to the successful future development of the Caco-Gazela and Punja discoveries (split $7.5 million equally), payable one year after first oil – subject to a Brent price of $75/bbl and production hurdles.
As a result of this deal, the company agreed with Sonangol to amend the terms of the SPA for Block 3/05 and Block 23 from April 2022 to reduce the interest being acquired in Block 3/05 from 20 per cent to 14 per cent in a bid to ensure support for the transaction with Azule and an appropriate balance of equity interests in Block 3/05. Azule and Sonangol acquisitions are expected to be completed, subject to shareholder approval, in 4Q 2023.
According to Afentra, the SPA terms for the amended Sonangol acquisition will remain unchanged from those previously announced with the exception that the acquisition consideration, which will be reduced on a pro-rata basis to reflect the reduced interest acquired. The firm and contingent considerations will, therefore, be reduced to $56 million and up to $35 million, respectively.
Combined with the INA acquisition, the Azule acquisition and the amended Sonangol acquisition provide Afentra with material equity in both Block 3/05 (30 per cent) and Block 3/05A (21.33 per cent) and increase its exposure to the upside potential of these production and near-term development assets. Block 3/05 is expected to benefit from a recently extended licence term and improved fiscal terms.
These acquisitions bring net 2P reserves of approximately 32 mmbbls and net 2C resources of around 20 mmbbls; production of about 6,000 bbl/d net (including production from Block 3/05A); increased exposure to significant upside potential; improved recovery from over 3 billion bbls of OIIP in Block 3/05; and development of multiple fully appraised discoveries in Block 3/05A. The decommissioning costs to date have been pre-funded by previous and existing JV partners
Afentra explains that the Azule and amended Sonangol acquisitions will be financed through the existing Mauritius Commercial Bank and Trafigura debt facilities that were utilised to complete the INA acquisition and from existing cash on the balance sheet. The cash payable at completion will be reduced depending on the level of cash flows from the acquired assets between their respective effective dates and their dates of completion.
Commenting on this, Paul McDade, Afentra’s CEO, remarked: “We are delighted to have agreed terms with Azule and signed the SPA increasing Afentra’s interest in the high-quality producing Block 3/05 and a material increase in our Block 3/05A interest offering access to existing discovered resources. This highly accretive transaction further demonstrates the company’s commercial discipline and focus on robust cash flow, increasing our net production to ~6 kbbl/d and 2P reserves to 32 mmbbls.”
Strategic rationale behind these acquisitions
Furthermore, these acquisitions are consistent with the strategic objective set by Afentra at the time of its launch in May 2021 to build a balanced cash flow generative portfolio of assets where the company can contribute to emissions reduction to drive a sustainable transition.
The company further highlights that these acquisitions provide exposure to a high-quality asset base with long-life, low-cost production, significant production optimisation opportunities, material access to existing light oil and associated gas discoveries in Block 3/05A with near-term tie-back development potential to existing Block 3/05 infrastructure.
The UK player underlines that the production from Block 3/05 has averaged around 19,100 bbl/d in June 2023 and about 18,000 bbl/d for the first half of the year, demonstrating the benefit of continued restoration works over 1Q 2023 in addition to the well intervention activities underway in Block 3/05. Additionally, production uptime improved quarter-on-quarter, from 77 per cent in 1Q 2023 to 87 per cent in 2Q 2023.
The company further underscores that the continued light well intervention programme will focus on acid wash and stimulation across the Oombo, Pacassa, Palanca, and Bufalo fields. At the Gazela field in Block 3/05A, long-term testing continues at approximately 1,200 bbl/d, enabling the framing of potential low-cost development options.
Future activities on Block 3/05 are expected to consist of additional well perforations and the installation of an artificial lift on a sample of production wells while a gas management workstream is underway to examine a holistic solution for gas that could enable a material reduction of emissions in the medium to long term.
Block 3/05, located in the Lower Congo Basin, consists of eight mature producing fields discovered by Elf Petroleum – now part of TotalEnergies – in the early 1980s. This block has a diverse portfolio of over 100 wells.
Currently, it produces from around 40 production wells with nine active water injectors. The facilities include 17 wellhead and support platforms and four processing platforms, with oil exported via the FSO Palanca.