Indebted oil producer Afren has reached a $300 million deal with bondholders that will provide it with vital funding by June at the expense of diluting its current investors’ stake to only 11 percent of the company.
Afren shares dropped by as much as 26 percent in heavy trading after the announcement, the biggest faller on the London Stock Exchange on Friday. They traded 15 percent lower at 0950 GMT.
The stock has been battered over the past few months by the slump in oil prices, the dismissal of top executives and disappointing returns from a field in Iraqi Kurdistan.
The London-listed firm had tried to arrange a sale to competitors in previous months, but latest takeover talks with Nigeria’s Seplat failed last month.
The recapitalisation plan includes a debt-for-equity swap, extension of some debt facilities, issue of new shares to some existing noteholders and an up to $75 million equity offering to all shareholders.
Afren, which defaulted on its 2016 bonds this month after missing an interest payment, said a deal with noteholders would result in the provision of $300 million of net total funding before the end of June.
The company, which has not had a permanent chief executive since last July, added that it was close to appointing a new CEO and would name new directors to the board.
Afren, due to report detailed full-year results by the end of March, also said it expected $2 billion worth of impairment charges on reserve estimates of its assets and that it had narrowly missed its 2014 oil production target.
Like fellow oil producers across the globe, Afren has been forced to adjust to a lower oil price and as a result said on Friday it would reduce capital expenditure and cut costs that could lead to job losses.
Afren will dedicate the bulk of its reduced capital expenditure budget of $500 million to its Nigerian projects, it said, and targets 2015 production of 29,000-36,000 barrels of oil per day.