Replacement - Interim results

Chairman's statement

 

Introduction

 

Throughout the period under review and subsequently we had only one asset to develop, Petišovci, in eastern Slovenia.

 

At the start of the period under review income from production at these wells covered the Group's operating costs in Slovenia and the UK. However, despite increases in European gas prices, by Q2 2018 interruptions in production, particularly at Pg-11A and the steady decline in production at Pg-10 indicated that, in the absence of fresh capital, the cashflows from production would be unlikely to meet the Group's projected costs by the end of the year.

 

New permits

 

Without new permits we are limited at Petišovci to operating Pg-10 & Pg-11A.  The CEO's report provides further information on the permits applied for and the responses received from ARSO, the relevant Slovenian regulatory authority, to date.

 

In summary, by early August it was clear to the board the only way to get the permit process moving was to make our case more publicly in Slovenia.  Thankfully this has resulted in a significant change of approach from ARSO, such that we now expect to receive the much-heralded IPPC permit in the near future and hope that the permit to re-stimulate the existing wells follows shortly thereafter.

 

We intend to maintain the high public profile of the project and highlight the benefits of the project for Slovenia to the new government which is currently being formed. 

 

Corporate options

 

The decline in production from our two operational wells and the continued failure of the Slovenian authorities to process our outstanding permits at the pace we expected led the board to conclude the best opportunity to preserve shareholder value was by a corporate transaction.

 

The overwhelming feedback from shareholders during the period under review, was there was no support for attempts to diversify by the issue of new shares at the share prices then prevailing. Given our lack of cash this ruled out any acquisitions so it was clear that the further development of the Petišovci project would require the involvement of a better funded partner.

 

In April 2018, we therefore initiated a strategic review, which allowed the canvassing of likely partners without falling foul of recent UK Takeover Panel rules, which can lead to the early identification and resultant departures of otherwise interested parties.

 

Action taken

 

The option of raising additional funding without a General Meeting disappeared following the failure to pass the relevant 75% resolution at the Annual General Meeting in June 2018. This and the expected impending cash flow pressures and with no certainty on the outcome of the strategic review led the board in early August to its decision to reduce expenditure to the minimum required to maintain our interest in the Petišovci asset.

 

There was limited scope to make significant savings in Slovenia, where costs are relatively low.

 

In the UK non-executive directors have agreed to take no further payment from the business until the cash position of the company improves. The only executive director, Colin Hutchinson our CEO, agreed from the end of August to move to a part-time basis.  Our office manager has also agreed to take redundancy. We thank them both for their continued hard work in difficult circumstances over a prolonged period.

 

These actions extend the date by which either new funding needs to be raised or a deal with a better funded partner is completed.

 

To be clear Colin Hutchinson remains CEO and our lead in Slovenia, albeit now on a part time basis.  We expect in the near future he will take up part-time employment outside the group.

 

Corporate Governance

 

We draw shareholders attention to the Company's website www.ascentresources.co.uk which includes a full response to the new QCA Corporate Governance Code.

 

Outlook

 

Petišovci remains a very attractive project in the longer run.  However, to reach the longer run we need to deal with the position as it is now.  We would also benefit from successfully diversifying into other projects.

 

Having articulated the need for a better funded partner to achieve these objectives we look forward to the outcome on the strategic review currently drawing to a close.

 

 

 

 

 

Clive Carver

Non-executive Chairman

19 September 2018

 

 

 

 

 

 

 

 

 

 

 

 

Chief Executive Officer's report

 

Financial performance

 

Revenue for the first six month of 2018 was £1,281,000 up from £154,000 which was obtained from test production in the same period last year. 

 

Cost of sales has risen with production, but despite the increase in operational activity, administrative costs were below the corresponding period in the prior year and the company is now close to breakeven on an EBITDA basis. 

 

Following the start of commercial production in November 2017, we have begun depreciating the historic cost of the wells and infrastructure.  The wells are depreciated in line with production and the infrastructure over a two-year period.  This has resulted in a charge of £599,000 for the six-month period. 

 

Closing cash at 30 June 2018 was £577,000 which includes £351,000 of restricted cash that is held on deposit as over for the €400,000 bank guarantee which supports the INA Gas Sales Agreement.  As previously announced, following some amendments to that agreement in July 2018, the bank guarantee has been reduced to €200,000 and therefore a portion of these funds have been moved from restricted to unrestricted cash, post period end.

 

The company generated £135,000 from operations during the period and used £634,000 in investing activities.  We invested £407,000 in fixed assets, during the workovers of Pg-11A and the installation of the filter separator.  A further £227,000 was invested in future exploration activities, being the permitting for new wells and the extension of the concession itself.  This has resulted in a net cash outflow of £499,000 during the period as no new debt or equity was raised.

 

Operational performance

 

Production KPI's	Jan-2018	Feb-2018	Mar-2018	Apr-2018	May-2018	Jun-2018
Total production (000s Cubic Metres)	2,250	1,788	1,243	1,191	1,067	1,028
Total production (MCF)	79,464	63,129	43,894	42,062	37,673	36,301
Days producing	31	27	31	30	31	30
Average daily - 000s cubic metres	72.6	67.5	40.1	39.7	34.4	34.3
Average daily - MMscfd	2.6	2.4	1.4	1.4	1.2	1.2
Condensate production (litres)	96,147	65,470	59,130	58,428	29,646	29,647
Litres per 1000 cubic metres of gas	43	37	48	49	28	29
BOE - Gas	13,701	10,884	7,568	7,252	6,495	6,259
BOE - Condensate	605	412	372	368	186	186

 

Total production for the six months to 30 June 2018 was 8.6 million cubic metres (0.3 BCF) of gas and 0.4 million litres (2,129 barrels) of condensate. 

 

The majority (86%) of production came from well Pg-10 which has performed in line with expectations.   However the pressure is declining, and the volume of gas produced has dropped off in recent months. If funding was available, we could install compression equipment to prolong production from the current completion.  Ultimately, to maximise production from the well, we will need to re-stimulate this well once the relevant permits have been received. 

 

Our other well, Pg-11A, has not yet been capable of producing the expected volumes of gas based on previous testing.  The well is producing larger than anticipated quantities of water which are restricting gas flows.  Subject to funding, we intend to re-enter the well with a view to isolating and closing the water source.

 

Permitting

 

There are two separate permits which the partners have been progressing for quite some time. 

 

The IPPC Permit ("The Permit") is required to enable Ascent (and its partners in Slovenia) to construct a processing plant adjacent to the Petišovci gas field near Lendava in Slovenia. 

 

The processing plant is required for phase two of the development plan, and the anticipated increased production from the field. The Company is currently exporting production (raw natural gas) from the first two wells, Pg-10 and Pg-11A, via an export pipeline to INA in Croatia. Average monthly production from these wells over the first nine months of export production has been between 1.0 and 2.4 MMscfd.

 

While there is capacity to significantly increase production through the existing export facilities, with the levels of production projected in the field development plan, it would be more economic to treat these through a facility in Slovenia.  This facility would allow Slovenian gas to be treated in Slovenia and sold to Slovenian customers thereby ensuring that the country captures the maximum amount of added value from the resource. 

 

The estimated reserves and resources of the Petišovci field are very significant in the context of Slovenia's national annual natural gas consumption, and the country currently imports a large majority of its natural gas requirement. 

 

The second permit relates to the re-stimulation of Pg-10 and Pg-11A which will be required when the reservoirs on which these wells are currently completed  have depleted.  The timing of this depletion is uncertain and depends, among other things, on whether compression equipment is installed to prolong production.  In any case the current completion at Pg-10 is unlikely to produce for more than a further twelve months before re-stimulation is required.  The productive capability of the current Pg-11A reservoirs is dependent on whether successful remedial works can be carried out.   

 

The Petišovci gas field has a layered reservoir structure which means the hydrocarbon resource is contained in 15 identified gas bearing sands.  Pg-10 currently produces from the 'F' sand and Pg-11A from the 'L, M and N' sands.  Once these sands have depleted the current well structure can be reused and the well recompleted targeting different layers.

 

In relation to the IPPC Permit, the partners have answered the last call for amendments which were requested by the Environment Agency ("ARSO").   Based on recent discussions we remain hopeful that a final positive decision should be forthcoming in the near future.

 

In relation to the second permit, ARSO had previously sent a further request for amendments to the partners which we have already responded to.  We are hopeful that this will be dealt with by ARSO without further delay.

 

Outlook

 

The Company has endured a number of setbacks during the period under review and subsequently in the form of operational issues with Pg-11A and the extended permitting processes.   While these setbacks are frustrating and the resultant impact on the Company share price deeply disappointing I am encouraged by the level of interest shown by participants in the strategic review process and am confident in the long-term value of the asset.  We have a significant asset and once the necessary permits have been delivered I look forward to the further development of the field.

 

Colin Hutchinson

Chief Executive Officer

19 September 2018

Consolidated Income Statement

for the Period ended 30 June 2018

	Period ended	Period ended
	30 June	30 June
	2018	2017
	£ '000s	£ '000s
Revenue	1,281	154
Cost of sales	(404)	(154)
Gross profit	877	-
Administrative expenses	(888)	(921)
Depreciation	(599)	-
Loss from operating activities	(610)	(921)
Finance income	5	7
Finance cost	(6)	(305)
Net finance costs	(1)	(298)
Loss before taxation	(611)	(1,219)
Income tax expense	-	-
Loss for the period after tax	(611)	(1,219)
Loss for the year attributable to equity shareholders	(611)	(1,219)
Loss per share
Basic & fully diluted loss per share (Pence)	(0.03)	(0.08)

 

 

Consolidated Statement of Comprehensive Income

for the Period ended 30 June 2017

 

	Period ended	Period ended
	30 June	30 June
	2018	2017
	£ '000s	£ '000s
Loss for the year	(611)	(1,219)
Other comprehensive income
Foreign currency translation differences for foreign operations	(178)	500
Total comprehensive gain / (loss) for the year	(789)	(719)