Azernews.Az

By Bloomberg

Afren Plc said it may delay a $15 million coupon payment to bondholders next week as the slump in oil prices sours $4.5 billion of debt owed by European drillers and explorers.

The company’s $253 million of 11.5 percent bonds due 2016, which have a coupon due Feb. 1, slumped 4.3 cents to 44.6 cents on the dollar, according to data compiled by Bloomberg. That compares with $1.11 in July when the London-based company, which explores and drills in Nigeria and Iraq, was getting more than $100 a barrel for oil.

With crude prices plummeting more than 50 percent over the past six months, bonds sold by European oil operators are showing signs of distress. More than $4.5 billion of the securities are now trading at less than 70 percent of face value as investors anticipate slumping profit and asset writedowns.

“New funds will be required to meet interest and principal repayments, working capital and a reduced capital expenditure programme,” Afren said in a statement. “The company will be having discussions with its existing stakeholders and new third- party investors regarding recapitalising the company.”

Afren said it’s in talks about a possible tie-up with Seplat Petroleum Development Company Plc. The Lagos-based company has until Jan. 30 to submit a bid, according to the statement.

‘Stressed Points’

Henry Lerwill, a spokesman for Afren employed by Bell Pottinger in London, declined to comment on the talks with Seplat and on the review of the capital structure.

Sweden’s PA Resources AB and the U.K.’s EnQuest Plc are among independent exploration and production companies that have seen their bonds slump alongside the oil price.

“The industry is at one of the most stressed points in its history,” said Alex Gheorghe, an analyst at RS Platou Markets in Oslo. “We expect a number of debt restructurings and liquidations as lower prices feed through to company results.”

Stockholm-based PA Resources started talks with senior creditor Gunvor Group Ltd. and bondholders in October about a restructuring to reduce debt, according to Chief Executive Officer Mark McAllister. The company wrote down 2.1 billion Swedish krona ($252 million) on its oil and gas exploration assets, according to a statement on Jan. 20.

The company’s 750 million krona of 13.5 percent bonds due March 2016 are quoted at 30 percent of face value, down from 90 percent six months ago, Bloomberg data shows.

‘Overextended’

EnQuest, which operates mostly in the North Sea, is among companies that “have overextended chasing frontier exploration plays, or taken on significant leverage to finance major development projects a few years away,” according to a Bank of America Merrill Lynch report on Jan. 23.

The company’s 155 million pounds ($234 million) of 5.5 percent bonds due February 2022 are trading at 66 pence on the pound. The securities are up 15 pence since Jan. 23, after management said it negotiated better terms with creditors for a debt facility, defusing the risk of a covenant breach. The notes traded at 103 pence before the oil price started collapsing.

Martin Robinson, a spokesman for EnQuest employed by Tulchan Group in London, declined to comment.