Final Results for the Year ended 31 December 2013

 

Ascent Resources plc

("Ascent" or "the Company")

Final Results for the Year ended 31 December 2013

 

Chairman's Statement

 

I am pleased to present the annual report, which covers the year ended 31 December 2013 and the subsequent period.

 

In summary during the period under review:

 

•        the £5.5 million funding led by Henderson Global Investors was successfully completed

•        we disposed of our investments in Hungary, the Netherlands and Italy to focus exclusively on the Petišovci project in Slovenia

•        at Petišovci, after many frustrating years, key agreements with our partners were reworked to international industry standards and finally signed

•        following the period end, up to a further £5 million was raised to provide working capital and fund the Petišovci project.

Asset disposals

In accordance with the strategy outlined at the time of the rescue funding, the Company embarked on disposing of its non-core assets.  In April we sold our interest in the nearly depleted Hungarian assets for a consideration of €450,000.  In August 2013 we sold our interests in our Dutch assets and in July 2013 we announced the sale of our difficult Italian assets.

 

The condition of the licences and the assets sold in Italy were such that the acquirer, Global Power Sources srl ('GPS'), notified us of potentially serious breaches of the warranties given at the time of the sale.

 

While no formal legal steps were taken by GPS in relation to these matters, and no admission of liability was made by Ascent, the Company and GPS agreed that, in return for a full settlement and waiver of any and all claims or potential claims by GPS against Ascent, Ascent would issue 275 million ordinary shares to GPS, credited as fully paid, at a price of 1.2p per share.  At the time of the settlement the Ascent Board did not have the authority to allot the full 275 million shares.  Accordingly, 268 million shares were issued and a further 7 million of the settlement shares will be issued, credited as fully paid, following approval by shareholders at the Annual General Meeting.

 

The disposal of these legacy assets marked the end of the past divergent and costly asset base and allowed the full focus of the Company to be devoted to the Petišovci project in Slovenia.

 

The Petišovci project

Work done on this project to date, including an extensive 3D seismic survey conducted in 2009, core samples taken from Pg-11, state-of-the-art wireline logging of Pg-11 and gas tested in the A to F as well as the deeper K sands, has established that this asset has the potential to supply all Slovenia's natural gas needs for 10 years.  An independent report by RPS of gas initially in place defined a gross P50 estimate of 456 Bcf and a mean of 592 Bcf.  Further information is in the Operations Review.

 

The Company believes that this project, with its potentially high levels of recoverable gas, to be an excellent, high value asset due to its scale and its risk/reward profile.

 

Partners

Our partners in the Petišovci project are the Petrol Group ('Petrol') and Nafta Lendava doo ('Nafta'), who together make up Geoenergo doo ('Geoenergo'), the Concession holder.

Petrol is Slovenia's largest company and the main supplier of petroleum products in Slovenia with annual sales of some €4 billion.  Petrol also has business interests in oil and gas trading and the alternative energy sector.

Nafta is a state owned company active in the production of chemicals, the treatment of waste water, fire prevention services and petroleum storage products.  Nafta will supply much of the onsite assistance required for the development of the Petišovci project, particularly in relation to wastewater (formation water) treatment services, fire prevention services and, to some extent, project design services.

Under the joint venture agreements, Ascent retains a 75% economic interest and is required to fund 100% of the development costs.  The remaining 25% economic interest is held by Geoenergo.

 

Progress in 2013

Together with investments made before Ascent bought into the asset, some €40 million has been invested into the Petišovci project to date.  For many years the project was stalled by disagreements between the parties and the absence of a political will to bring the project into production.

 

After hard lobbying in 2012 and 2013, the project received a kick-start when, following a reordering of the local Nafta administration, new management at Nafta adopted a more pragmatic and commercial approach to the development of the field.

 

In May 2013, Petrol acquired Nafta Geoterm, which owns a significant portion of the existing gas processing infrastructure and pipeline network required to take the gas from our Petišovci wells to the Plinovodi terminal and connection to the national gas pipeline grid.

 

The major achievement of 2013 was the re-working of the main legal agreements, regulating the development of the field, into industry standard agreements in forms that will be acceptable to providers of development finance to build out the field.  It would also make any sale or part sale of the asset far easier to complete.

 

Permitting

The Petišovci project is now in the detailed permitting phase.  Progress to date has been slow, in part as Slovenia does not have an established oil and gas regulatory infrastructure and therefore many of the requests, considered standard elsewhere in the world, are new to the regulatory authorities.

 

During 2013, Slovenia adopted in full two major EU directives which will impact on the development of the Petišovci project.  Additionally the project is required to comply with the EU tendering obligations.  These developments mean that the permitting phase will take longer than previously anticipated.

 

Ascent has significantly strengthened its team working on the permitting, with the addition of local and international experts.  However, EU directives have made this a much more complicated process and it is not possible to predict exactly when the required permits will be forthcoming.

 

Project funding

Until the permits have been granted it is unlikely that we would be able to utilise conventional debt funding.

Once the permits are in place the Board expects to conclude a project finance facility to allow the existing wells to be connected to the national pipeline grid and several shallower wells to be deepened for production.

 

The facility is also expected to fund the construction of a new gas treatment facility, new piping and a connection to Slovenia's national pipeline network.

 

Methanol plant

A very welcome development in the period under review was the sale by Nafta of a methanol plant adjacent to the Petišovci field.  This plant has not been operational for several years and has been acquired by an international consortium subject to testing.

 

Gas used for the production of methanol does not need to be of the standard required for acceptance to the national grid.  Sales of gas to the methanol plant could therefore be made before the completion of the permitting referred to above and also without the completion of a new treatment facility or the proposed new pipelines and connection to the national grid.

 

We are in negotiations with the new owners of the methanol plant to sell our untreated gas and expect to conclude an acceptable agreement in the coming months.  Untreated gas from Petišovci could be sold for use in the methanol plant before the end of the third quarter of 2014.

 

Funding

As noted above, 2012 closed with the Company announcing a conditional £5.5 million rescue funding led by Henderson Global Investors, the terms of which were approved by shareholders in April 2013.

 

This funding allowed the Company the opportunity to rationalise its portfolio of assets and to re-focus its efforts on, by far the most promising of its assets, Petišovci in Slovenia, but as noted at the time, this was not sufficient to bring the Petišovci project into production.

 

Through tight cash management and a reduction in general and administrative costs of over £1 million on an annualised basis, the £5.5 million raised funded the Group through to the end of 2013.

 

In May 2012, the Company secured a €15 million facility from BNP Paribas ('BNPP') to finance the project into production, subject to the consent of all the signatories to the Joint Venture Agreement.  In spite of considerable efforts by the Company, these consents were not granted so the BNPP facility expired in June 2013.

 

After this frustrating delay in obtaining consents, the Company was extremely pleased to announce, at the end of October 2013, that it had signed a series of key agreements with its Slovenian partners, putting an end to the prolonged impasse that had thwarted previous attempts to secure project finance and to move forward.  The agreements signed included: (i) a revised Joint Venture agreement which significantly simplifies the relationship between the partners and removes the serious problems caused by lack of consents; (ii) an infrastructure agreement with Petrol Geoterm doo, which will facilitate the operation of the infrastructure and construction of the processing plant; and (iii) a service agreement with Petrol Geoterm doo, who will oversee the processing of hydrocarbons and their transmission to the national grid.  The signing of these agreements marked a significant step forward towards bringing the Petišovci asset into production and work is being done to secure project finance for the initial phase of the field development.

 

With project funding for Petišovci dependent upon the completion of the permitting phase, the Company was obliged to seek additional funding.  Accordingly, in February 2014 up to an additional £5 million was raised via the issue of further convertible loan notes.

 

Slovenia

Slovenia is a small country without a history of large scale gas production and where much of the applicable regulation has been taken from the mining industry.  Until recently there has been little noticeable assistance from the variety of authorities charged with regulating the oil and gas industry.  As a result, progress over the past decade has been painfully slow and many opportunities have been missed.

 

Once operating at full capacity the Petišovci field could provide sufficient gas for the whole of Slovenia for ten years.  The recent severe, adverse economic climate in Slovenia has resulted in a change of attitude in bringing the Petišovci fields into production: it has now become a national priority.  Whether this perspective will filter through to the local regulators involved in the Petišovci permitting remains to be seen.

 

With some €40 million invested to date in the Petišovci project, and given the Company's new focus entirely on Slovenia, Ascent has become probably the most prominent direct foreign investor in the country.  Others are watching carefully and it would be a major setback to Slovenia in attracting further international investment if the new national priority for this project is not reflected in quick, local permitting decisions.

 

Staff

I would like to thank the staff and consultants for their continued hard work.  Under Len Reece's leadership a team of long-standing and new staff has been built in Slovenia with strong technical and project management skills.

 

Outlook

The past year has seen the Company implement the strategy outlined at the beginning of 2013.  The Company is now focussed on a single project with a strong potential and without the distractions of the past.

The Company has two principal opportunities of generating value.  The first is to bring the Petišovci field into production and tie into the Slovenian national grid as previously outlined.  The second is to sell untreated gas direct to the adjacent methanol plant.

 

Provided that either the permitting phase currently under way can be completed with the minimum of delays or the testing of the methanol plant is successful then prospects for the Company to achieve significant revenues in the foreseeable future look encouraging.

 

Clive Carver

Chairman

9 April 2014

 

For further information please contact:

 

Ascent Resources plc

Clive Carver, Chairman

Tel: +44 (0)20 7251 4905

 

finnCap (Nominated Adviser and Broker)

Matthew Robinson / Charlotte Stranner

Tel: +44 (0) 20 7220 0500

 

About Ascent Resources

 

Ascent Resources plc is an independent oil & gas exploration and production company, headquartered in London and listed on AIM, whose main asset is the Petišovci gas field in Slovenia.

 

The results given below are extracted from the Ascent Resources full Annual Report which is available from the Company's website www.ascentresources.co.uk 

 

 

 

 

Operations Review

The Petišovci Project, Slovenia

Ascent Slovenia Ltd 75% (operator), Geoenergo doo 25% (concession holder)

 

The Petišovci Tight Gas Project, in a 98 km² area in north eastern Slovenia, targets the development of substantial tight gas reservoirs known to be in Miocene clastic sediments.

Ascent first acquired an interest in the Petišovci project in 2007 and in 2009 an extensive 3D seismic survey was conducted across the Petišovci concession area.

The structure has two sets of reservoirs, the shallower Pontian and the deeper Miocene.  The Miocene reservoirs, or Pg. sands, are the focus of Ascent's development objectives; however the shallow reservoirs, which were extensively developed during the 1960s, are not considered to be fully depleted.

Two new appraisal wells, Pg-10 and Pg-11, drilled in 2010/2011 to a total vertical depth of 3,497 m and 3,500 m respectively, confirmed gas in all six Middle Miocene Badenian reservoirs ('A' to 'F' Pg. sands).  Gas flowed for the first time from the shallowest 'A' sands and, in addition, gas and condensate were sampled from the Lower Miocene Karpatian ('K' sands) reservoir.  Pg-10 proved productive from the 'F' sands and Pg-11A (Pg-11 was side-tracked for technical reasons to Pg-11A) from the deeper 'K' sands.  Both wells were successfully fracture stimulated resulting in flow rates of 8 MMscfd from the 'F' sands and 2 MMscfd from the 'K' sands, proving the commercial potential of both wells.

The data generated from the Pg-11 well, including three 18 m core samples and state-of-the-art wireline logging, supplemented the 2009 3D survey of the project area.  The Company has reported independently verified P50 estimate of gas in place of 456 Bcf (13 Bm3; 76 MMboe).

Both wells have been recompleted ready for a production testing phase which will help to better understand the long term productivity performance of the reservoir.  The test production results will inform decisions regarding a possible full field Petišovci development.  The north eastern corner of Slovenia has been an oil and gas producing area since the early 1940s and contains much of the infrastructure necessary for processing and exporting produced hydrocarbons.  Some improvements to these existing facilities will be required for the test production phase.

The next step in this project's redevelopment plan is to bring gas from Pg-10 and Pg-11A on stream via dedicated well-site facilities, through a modified, upgraded, existing, gas processing plant and from there to the national gas pipeline terminal.  This will be followed by the deepening of 3 existing wells, Pg-6, 7 and 9.  Processing will be necessary to reduce the carbon dioxide content of the gas from approx. 3% to less than the 1.5% required for the national transmission system specifications, to remove condensate for sale separately and to ensure dew point control by dehydration.

Less than a kilometre from the wells is a methanol production plant which was mothballed in 2010 as falls in methanol pricing had made production uneconomic.  Following a recovery in methanol pricing, work has started to bring this plant back into production by mid-2014.  The gas from Pg-10 and Pg-11A could be sold to this plant for methanol production.  The advantages of this option are that (i) the gas would need very little processing before entering the methanol plant; (ii) the local processing plant could manage this without much modification; and (iii) the Company could derive an income as early as Q3 2014.

After a period of test gas production to monitor reservoir performance, the partners will proceed to the next phase in developing the Petišovci field, which includes: further upgrading and expansion of the processing facility for a substantially higher capacity; enlarged gas export capacity; and modifications to the national grid connection.  The partners will also prepare a field development strategy for the further expansion of this significant Petišovci gas field complex.

Back-in Rights

 

The Hermrigen and Linden exploration permits in Switzerland cover undeveloped discoveries made by Elf Aquitaine in 1972 and 1982 with a combined estimated gas resource base of over 360 Bcf.  As the original Hermrigen well was drilled before gas pipeline infrastructure was built in the area, the discovery has remained unappraised.  Despite selling its interest in 2010 to eCORP, the current operator of the project, Ascent retains various back-in rights on any successful outcome of six conventional appraisal prospects, provided relevant apportioned costs are covered.

As part of the Sale and Purchase agreement with Tulip Oil, Ascent has the right to re-purchase a 10% interest in each of the Dutch licences once Tulip has made a final investment decision with respect to the commercial development of the Terschelling-Noord Field.

The sale and purchase agreement signed with Global Power Sources srl (GPS) provides for Ascent to be granted a 48 month call option to buy back at least a 51% participation, at cost plus 5%, in any future discovery made by ARI.

Consolidated Income Statement

For the year ended 31^st December 2013

		Year ended	Year ended
		31 December	31 December
		2013	2012
	Notes	£ '000s	£ '000s
Revenue		-	79
Cost of sales		-	(26)
Gross profit		-	53
Administrative expenses	4	(1,924)	(2,379)
Loss from operating activities		(1,924)	(2,326)
Finance income	6	1,423	318
Finance cost	6	(1,266)	(886)
Net finance income / (costs)		157	(568)
Loss before taxation		(1,767)	(2,894)
Income tax expense	7	-	-
Loss for the year from continuing operations		(1,767)	(2,894)
Loss for the year from discontinued operations	3	(1,825)	(3,130)
Loss for the year		(3,592)	(6,024)
Loss attributable to:
Owners of the Company		(3,587)	(6,032)
Non-controlling interests		(5)	8
Loss for the year		(3,592)	(6,024)
Loss per share
Basic & fully diluted loss per share (Pence)	8	(0.32)	(0.58)

 

Consolidated Statement of Comprehensive Income

For the year ended 31^st December 2013

		Year ended	Year ended
		31 December	31 December
		2013	2012
		£ '000s	£ '000s
Loss for the year		(3,592)	(6,024)
Other comprehensive income
Foreign currency translation differences for foreign operations *		(1,276)	(616)
Recycling of foreign exchange on disposals *		(1,324)	-
Total comprehensive loss for the year		(6,192)	(6,640)
Total comprehensive loss attributable to:
Owners of the Company		(6,187)	(6,648)
Non-controlling interest		(5)	8
Total comprehensive loss for the year		(6,192)	(6,640)

 

 

*  Foreign currency translation differences from foreign operations may be recycled through the income statement in the future if certain future conditions arise.