Afentra has reconfigured its deals in Angola, reducing the amount of equity it will take from Sonangol and bringing in a new agreement with Azule Energy, the Eni-BP joint venture.
The agreements continue Afentra’s focus on Block 3/05 and 3/05A.
The original deal with Sonangol from April 2022 would have seen Afentra take a 20% stake in Block 3/05 from the Angolan company. The new deal, announced this morning, reduces that to 14%.
Making up for this reduction, Afentra is buying a 12% stake in the same block from Azule. It is also buying a 16% stake in Block 3/05A from Azule.
Afentra will pay $48.5 million to Azule for the two stakes, with contingent payments of up to $36mn. Reducing the size of the deal with Sonangol brings down the upfront payment to $56mn, with contingencies of up to $35mn.
Afentra acquired a first interest in the blocks under a deal with INA. “The problem with putting all those three deals together would have been we would have had a very high interest in Block 3/05. Sonangol was keen to balance the interests as it’s an important asset for them,” Afentra CEO Paul McDade told Energy Voice.
Bringing in the Azule deal, and reducing the Sonangol stake, means that “everyone’s happy”.
The terms also look attractive for Afentra.
While the upfront payments to Azule and Sonangol are similar, on a percentage basis, the contingent payments under the new deal are more favourable.
Under the Sonangol deal, Afentra was to make a bullet payment of $5 million when oil was over $65 per barrel. Contingent payments to Azule only kick in when oil is over $75 and are a sliding scale up to $120 per barrel.
“Trading out of Sonangol, and into Azule, is value accretive,” McDade said. “The Azule deal also has a cost pool that we can offset against future production.”
Afentra had hoped the Sonangol deal would close this month. The new agreement pushes this back into the fourth quarter. The deal, structured as a reverse takeover, will require a new admission document from Afentra, which should take a couple of months to produce.
Once this has been completed, though, “we’ve been reassured that approval for both transactions will be relatively efficient, they should be done before the end of the year”.
Financing for the deal will come from the existing loans from Trafigura and Mauritius Commercial Bank. McDade explained there was $110mn available, but that it would draw down “significantly less”, owing to the gaps between the effective date of the deals and the closing date. The Azule transaction, for instance, has an effective date of October 2022, so by the time it completes there will have been a year of cashflow.
Block 3/05 produced an average of 19,100 barrels per day in June, while Block 3/05A is producing from the Gazela field via a long-term test. The operating group is extending production plateau at the former asset, via water injection and a potential move to ESPs.
In the longer term, though, Block 3/05A will play a more important role. The block has two discoveries, with 300 million barrels of oil in place, McDade explained. “We aim to start working on them with Sonangol and develop over the next couple of years. As Block 3/05 starts to deplete, we can bring in incremental production from Block 3/05A.”
As for the future, Afentra sees room for further opportunities. The company is looking at more potential sales from the majors, cycling out of mature assets in Angola.
McDade also said there were a “couple of things beyond Angola” the company was considering. “We would like to open up new core areas outside Angola, along the same lines, of mature assets with upside potential.”
Updated at 2:07 pm to correct Afentra price agreed for Azule.