As administrators appointed to manage the crisis-ridden oil producer Afren Plc settle for business, indications emerged last week that some of the company’s creditors, especially Nigerians banks, may have put in place solid arrangement to hedge them against losses suffered by the oil firm.

Afren Plc recently said its board had decided to put the company into administration after failing to secure support for a refinancing and restructuring plan. According to Afren documents, Nigerian banks have at least a $185million principal exposure to Afren. Zenith has $100million to OML26, $5million to Ebok; Access has $50million to Okwok/OML113 (Aje), $5million to Ebok; and Stanbic has $25million to Ebok.

However, an international investment and financial advisory firm, Renaissance Capital, explained that contrary to fears that local creditors could suffer huge losses from Afren’s misfortune, the fact is most of the banks appeared to have foreseen the crisis and had therefore made adequate arrangement to stave off the negative impacts from their balance sheets.

The research firm, in a special report titled: “Nigerian Banks: Afren: The Good, the Bad and the Ugly, singled out Zenith Bank as the most comfortable as far as its exposure to the embattled oil firm was concerned.

“From our discussions with Zenith management and Renaissance Capital’s oil & gas analysts, we believe that of all the banks with credit exposure to Afren, Zenith is in the most comfortable position. The asset is producing, located onshore, and has a low operating cost – which implies that its production economics still make some sense at currently low oil prices. The February 2014 facility is primarily secured by a charge over Afren’s interest (via FHN 26 – the SPV) in OML26, and its cash flows. According to Zenith management, other Afren creditors do not have claim to OML26. “We do not think Afren plans to sell this asset and our oil and gas analysts believe that its cash flows should be sufficient to repay the loan, valuing the asset at $114mn,” the report stated.

“We note that the offer for c. $200mn bridge/interim funding from some legacy bondholders (the ad hoc committee) required the consent of not just the Ebok lenders, but also Access Bank as lender to Okwok/OML113, as the interim funding was made on a senior secured basis to the group’s secured facilities.

“While we are unsure as to whether this senior security granted to the interim funding providers affects Access’s claims to Okwok/OML113 (we doubt it does), we note Access management’s view that the bank has sole rights to these assets. Afren is due to fully repay the Okwok/OML113 facility by 30 September 2015,” the statement said.

According to Rencap, “Considering the company is in administration and its ability to repay is highly impaired, we expect Access management to reach a decision on its exposure in the very near future, which we believe could include making a claim for Afren’s interests in the assets and selling them off, or reaching an agreement with the partners on the assets. Afren has a 16.875 per cent working interest in OML113, which has partners such as Yinka Folawiyo (25 per cent), Panoro Energy (6.502 per cent), New Age, Energy Equity Resources and Jacka Resources (5.0006 per cent). Afren also has a 56 per cent working interest in Okwok, with partners such as Oriental Energy Resources Ltd and Addax Petroleum (Nigeria Offshore) Limited.”

Rencap believes Stanbic has been proactive, classifying its Ebok exposure as an NPL and providing at least 30 per cent ($8mn) for it in 1Q15. We believe the additional provisions required have been factored into the bank’s 2.5 per cent CoR guidance for 2015.

It said Zenith Bank management has classified its $5million exposure to Afren and made 100 per cent provision, saying it does not think the $100mn loan to OML26 has been classified or provided for.

“We expect Access to write off its $5mn exposure to Ebok. Similar to Zenith, we do not see this as a material impairment risk, as the two banks’ Ebok loans represent c. 0.1 per cent of their respective gross loans.”

Last year, the company’s prospects dramatically changed. In July the board suspended Chief Executive, Osman Shahenshah, and Chief Operating Officer, Shahid Ullah, over “unauthorised payments” that had come to light in an independent review.

The timing was dire. Afren was heavily in debt, but was just days away from signing a refinancing deal with creditors to relieve some of the pressure on its balance sheet. When the suspicious payments came to light, the banks balked.

In October, the company announced the results of an investigation by a law firm, Willkie, Farr and Gallagher, which found that Messrs Shahenshah and Ullah had struck a secret financing deal in October 2013 with Oriental, one of Afren’s Nigerian partners. Oriental had agreed to pay 15 per cent of cash flows from the Ebok field over four years to an entity registered in the British Virgin Islands and controlled by Messrs Shahenshah and Ullah. WFG said the two men used the funds to pay “extraordinary bonuses” to themselves, and Afren’s board fired them for gross misconduct.