Ascent Resources Regulatory News (AST)

24 April 2017

Ascent Resources plc

("Ascent" or "the Company")

Audited final results for the year ended 31 December 2016

Ascent Resources plc, the AIM quoted European oil and gas exploration and production company is pleased to report its audited full year results for the year ended 31 December 2016.

2016 Highlights:

· Gas sales agreement signed with INA giving the joint venture a route to market for gas via the export production pipeline.

· Acquisition of Trameta, providing the Company with access to the export production pipeline to Croatia.

· Raised £6.0 million via equity and convertible loan placings.

· Reduction in debt of £5.0 million though loan note conversions and repayment of short-term facility.

· Reduced loss for the year by £1.0 million through reduced administrative expenses (£0.5 million) and lower finance costs (£0.5 million).

Post Period Highlights:

· First commercial sale of gas delivered from Pg-10 in April 2017.

· £3.0m raised via equity placing through PrimaryBid.com in February 2017.

· Further £4.0 million of loan note conversions significantly reducing debt.

Colin Hutchinson, CEO of Ascent, commented: 

"In the period under review and subsequently the Company has transformed itself from an explorer into a properly funded producer.

We look forward to continued success in the future."

Enquiries:

Chairman's Statement

Progress in the period under review and the first few months of 2017 is probably the greatest in the Company's history.

At the date of the last annual review we were heavily occupied by Slovenia's interpretation of EU environmental regulations; without a market for our gas; and unsure of the productive qualities of our two drilled wells Pg-10 & Pg-11A. However, thanks to surviving on successive equity placements and the support of our principal partners and financial backers, we ended the year on a sound financial footing.

Now, we have demonstrated the productive capabilities of our main well, Pg-10; re-commissioned and constructed connecting pipelines; and signed a contract with INA to sell our gas across the Slovenian border for treatment in Croatia. We are better funded to maximise the opportunities ahead and the ultimate progress is that we are now selling gas, with production and gas sales having started in 2017.

Under the terms of the Petišovci Joint Venture Agreement, we are entitled to retain up to 90% of the income received against historic costs, which to date are €43 million. We therefore anticipate a build-up in the Company's cash reserves over the coming months.

This has all been achieved whilst reducing our general and administrative expenditure from £1.9 million to £1.4 million.

However, much remains to be done.

We remain hopeful of an early decision by the Slovenian authorities to allow the much-delayed environmental permit to be issued. This will enable the construction of a larger gas treatment facility, which will be required to develop the Petišovci project to its fullest potential.

We are indebted to our workforce, led by Chief Executive Colin Hutchinson, all of whom deserve praise for their commitment to the Company. We are also grateful for the continued support and strong working relations with our Slovenian partners Petrol and Nafta Lendava.

I look forward to reporting further progress in the coming months and thank shareholders for their continued support.

Yours faithfully

Clive Carver

Non-executive Chairman.

Chief Executive's Review

Introduction

The period under review has been one of the most transformative in the Company's history.

In July 2016, we responded to the surprising decision of the Slovenian Administrative Court to withdraw the IPPC Permit by completing the acquisition of the Slovenian company Trameta and signing a gas sales agreement with INA. These two transactions opened up a significant market for Joint Venture gas.

In October and November 2016, we completed a £4.5 million fund-raising (£3.5 million equity and £1 million of convertible loan notes), which provided the Company with the funding to pay down short-term debt and complete the work programme to bring our wells into production. In February 2017, a further placing of £3.0 million through PrimaryBid provided the Company a significant cash buffer.

Post period end, in January 2017 we successfully recompleted and tested well Pg-10 which flowed at a rate that exceeded Management expectations, by matching rates achieved in 2011. Production at these levels would enable us to comfortably meet the minimum requirement in our INA contract.

In April 2017, the Company commenced the commercial production of gas from well Pg-10. This marked an historic step forward for Ascent after nearly ten years in country and around six years since Pg-10 first indicated the significant potential of the field.

Financial Performance for the year

Despite this increased level of commercial activity, it is pleasing to report that losses for the year decreased compared to the prior year by almost £1 million from £3.6 million to £2.7 million. This has been driven by a £0.5 million reduction in administrative expenditure as cuts made in previous periods materialise and a £0.5 million reduction in finance costs for the period as the value of outstanding loan notes decreased.

The balance sheet has been materially strengthened with year-end cash of over £3 million compared to £32,000 at the end of 2015. Cash from operations primarily relates to the administrative costs incurred. Cash from investing relates to capital expenditure with cash from financing primarily relating to the placings and issue of convertible loan notes in the year. In the period under review £5 million of debt was extinguished with the conversion of loan notes and, since the period, end another £2.5 million of debt has similarly been extinguished with further loan note conversions. Finally, we have benefited from the appreciation of the euro against sterling, as the majority of our assets are euro denominated.

IPPC Permit

Petrol Geoterm, the contractor to our Joint Venture and the entity that filed the original IPPC Environmental Permit Application to build a new processing facility at Petišovci, was informed in May 2016 of the Administrative Court's decision to withdraw the IPPC Permit, which had previously been granted by the Slovenian Environment Agency, in June 2015.

The reason given by the Administrative Court for this decision was that, after the original application had been made in June 2014, the relevant law had changed and the process that had been followed did not comply with the new law. This is despite the new law explicitly stating that, any applications submitted (but not yet resolved) prior to the effective date for the new law should be pursued exclusively under the old rules.

The Administrative Court's decision is not related to objections to the Petišovci project by interest groups but is based solely on the permit application process. It is clear to the Company and its advisers that the decision of the Administrative Court is directly contrary to prevailing Slovenian law.

The Administrative Court referred the case back to the Slovenian Environment Agency to process. After further discussions with the Environment Agency, the Joint Venture submitted additional documentation to satisfy specific points raised by the Administrative Court. This has satisfied the Environment Agency, which has ruled that the Joint Venture will not be required to submit a second full Environmental Impact Assessment ('EIA'), as stipulated by the new law, to progress its application for an IPPC Permit.

We believe it is a flaw in the system that allows one entity to lodge the same discredited arguments against the issue of the Permit time and time again. The big losers here are the Slovenian state and its public who are forced to import virtually all of their gas requirements while Slovenian gas produced from the Petisovci field will be exported to neighbouring Croatia. Inevitably Ascent also suffers from delays and uncertainty as each permitted appeal takes several months.

Given the system it was not a huge surprise that once again the same NGO appealed the decision of the Environment Agency in November 2016. We note though that the Slovenian state may be finally losing patience with this particular objector as its appeal has once again be dismissed as being entirely without merit.

We await confirmation on whether there will be a further appeal to the Court.

Sales agreement with INA

When we became aware that INA, Croatia's leading oil and gas company, was constructing a pipeline to link its field at Medjimurje with a processing facility at Molve, both within Croatia we were clear that the best interest of the Company would be served with an agreement to supply INA with our untreated gas. The Petišovci field, which is some 5 kilometres from the Croatian border, is already connected to Medjimurje by an existing pipeline constructed by INA towards the end of the previous century.

In July 2016, we announced that we had signed a gas sales agreement to run for twelve months from first production while we tested the productivity of the wells and the responsiveness of the gas reservoirs. After twelve months, the agreement can be renewed. Gas will be sold at a price indexed to the day ahead Central European gas hub pricing. We expect to commence supplying INA in Q2 2017.

Acquisition of Trameta

To allow an agreement with INA to move forward we first had to secure the Slovenian section of the existing production pipeline. To do so in July 2016 we acquired 100% of Trameta, a Slovenian company that controlled the land over which the relevant pipelines run.

Under the terms of the Trameta Sale & Purchase Agreement Ascent undertook to issue the Trameta vendors up to 75 million new Ascent shares and options over a further 7.5 million Ascent shares (subject to triggering tranches 1 & 2) as follows:

In addition, the Seller will be issued with options to subscribe for up to a further 7.5 million subscription shares at the option price of 2 pence per share following the pipeline being certified for the transportation of gas. As at the balance sheet date, conditions 1 & 2 had already been satisfied and options issued in the financial year.

The purchase of Trameta has avoided years of potential delay to the project and the associated legal costs.

Funding

During 2016, the Company raised a total of £6 million gross (£5 million of equity and £1 million of convertible loan notes). The first three issues, which took place during April and June 2016, provided the Company with the funds to finalise the INA and Trameta agreements and to undertake the planning required to carry out the work programmes required for first gas.

In October 2016, the Company announced a fund-raising of up to £4.5 million, which was carried out in tranches. The first for £3,677,500, £2,627,500 of equity and £1,050,000 of convertible loan notes, which included a subscription for £50,000 in loan notes from Directors, was implemented immediately and the second for £871,510 was carried out following the approval of shareholders at a General Meeting held on 15 November 2016. In addition in October 2016 the repayment date of the CLN's was extended to November 2019.

Recompletion of Pg-10

The recompletion of Pg-10 commenced in November 2016 and completed in January 2017, with a successful three-day flow test.

This was a significant achievement. Pg-10 had previously been tested for only a short period in 2011 and management were therefore happy to be able to report that there had been no deterioration in the flow rates over the subsequent period.

Sales of gas

In April 2017, the joint venture partners commenced commercial production from well Pg-10 for the first time. Production is being processed at the existing processing facility ('CPP') owned by our partner, Petrol Geoterm, and is being sold to a local industrial customer.

This marks the step from explorer to producer and would not have been possible without the faith and perseverance of our employees, partners, contractors and importantly shareholders.

If 2016 was the most transformative year in the Company's history, we believe 2017 is already on track to exceed this.

Colin HutchinsonChief Executive Officer

Operations Review

Slovenia

Ascent Slovenia Ltd 75% (operator), Geoenergo d.o.o. 25% (concession holder)

The Petišovci Tight Gas Project, in a 98 km2 area in north eastern Slovenia, targets the development of 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 Upper Miocene and the deeper Middle Miocene. The Middle Miocene Badenian 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.

The north-east region 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.

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 Badenian 'L' to 'Q' sands. 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 'L' to 'Q' sands. Both wells were successfully fracture stimulated resulting in flow rates of 8 MMscfd from the 'F' sands and 2 MMscfd from the 'L, M and N' sands, proving the commercial potential of both wells.

The data generated from the Pg-11A 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).

Following the recompletion of Pg-10 in January 2017 a flow test was carried out over a three day period. The maximum stabilised flow rate was 8.8 million standard cubic feet of gas per day ('MMscfd'). Over the course of the 56 hour test the well was open for a total of 37 hours. The well produced total gas of 295,387 cubic metres (10,431,595 cubic feet) along with 28,250 litres of water and 2,930 litres of condensate. The average flowing well head pressure was 271 barg (3,930 psi absolute).

Back-in Rights

Netherlands

As part of the Sale and Purchase Agreement signed in 2013 with Tulip Oil for the Company's former Dutch licences, 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.

Switzerland

The permits over which Ascent held back in rights expired during the year.

Strategic report

Section 414C of the Companies Act 2006 ('the Act') requires that the Company inform its members as to how the Directors have performed their duty to promote the success of the Company by way of a Strategic Report.

Fair review of the business

The Act requires the Company to set out in the Directors' Report a fair review of the business of the Company during the financial year ended 31 December 2016 including an analysis of the position of the business at the end of the financial year and a description of the principal risks and uncertainties facing the Company (the 'Business Review'). The purpose of the Business Review is to enable shareholders to assess how the Directors have performed their duties under Section 172 of the Companies Act 2006, being the duty to promote the success of the Company. The Chairman's Statement and the Chief Executives Review, together with the Operations Review, Corporate Responsibility Statement, corporate governance statements and Principal Risks and Uncertainties section of the Annual Report, which are incorporated herein by reference, are considered to fulfil the requirements of the Business Review.

Principal risks and uncertainties

The Group operates in an industry characterised by a range of business risks. The key risks and uncertainties faced by the Group are summarised below.

· Strategic - the achievement of corporate objectives is dependent on the strategy followed by the Group, as well as the interaction with stakeholders and shareholders, good governance and an understanding of economic and market dynamics. This risk is mitigated by the expertise of the Company's Directors and specialists.

· Operations - the operations of the Group may be adversely affected by its ability to find and develop adequate gas and oil reserves, to develop and exploit new gas and oil acreage and to recruit and retain management and staff with the right technical skills. This risk is mitigated through the experience and expertise of the Company's Directors, staff, specialists and consultants, the application of appropriate technology and the selection of appropriate prospective exploration and development assets.

· Financial - the Group's ability to meet its obligations and achieve objectives is influenced by its liquidity, gearing, movements in commodity prices and costs, movements in foreign exchange and funding. Foreign exchange risk is mitigated by close monitoring of exchange rate movements and holding cash reserves with a variety of different institutions in a variety of currencies being euro, US dollar and British pound. The Group's liquidity risk is set out in Notes 1 and 23 to the financial statements. All other financial risks are mitigated, to the extent possible, by the expertise of the Company's financial staff.

· Compliance - the Group must comply with a range of corporate, legal and industry regulations and the nature of its operations necessitates strong controls around contractual arrangements, especially in respect of areas such as joint venture agreements. This risk is mitigated by the expertise of the Company's Directors and advisers.

· Knowledge - the Group is dependent on the efficient and effective operation of its information systems, and the management and reporting of project data and reserves information is key. Loss of key personnel may also lead to the potential loss of corporate 'intellectual property'. This risk is mitigated by ensuring all Company information is both readily available to the relevant Company employees and is securely maintained on a regularly backed up, password protected IT system.

Analysis of the development and performance of the business

Information is contained in the Chairman's statement and Chief Executives Review. The Group incurred a loss of £2.7 million (2015: £3.6 million) arising from £1.4 million (2015: £1.9 million) of administrative costs and net finance costs of £1.3 million (2015: £1.8 million). Further details of the net finance costs are provided in Note 5.

Analysis of the position of the business

Information is contained the Chairman's statement and Chief Executives Review. The exploration and evaluation asset totals £37.5 million (2015: £32.7 million) including £1.8m (2015: £0.7m) of additions and a £3.0 million gain due to the effect of foreign exchange. The Group's borrowings and other liabilities totalled £6.2 million (2015: £11.2 million) as detailed in Note 13.

Analysis using other key performance indicators

The Directors consider a range of financial and non-financial key performance indicators. Financial indicators are principally focussed on the regular review of major projects, comparing actual costs with budgets and projections and analysis of expenditure, see Note 2. More detailed assessments are also made of un-risked and risked net present values ('NPVs'), project rates of return and investment ratios such as 'success case investment efficiency'. Monthly trading and cash movements are also reviewed for each of the Group companies. Specific exploration-related key performance indicators include: the probability of geological success (Pg), the probability of commerciality or completion (Pc) and the probability of economic success (Pe). For more details, see Summary of Group Net Oil and Gas Reserves on page 15.

The projected NPV of the Petišovci project is regularly reassessed by management and offers a significant premium to the current market capitalisation of the Company.

Approved for issue by the Board of Directors

and signed on its behalf

Clive Carver

Chairman

21 April 2017

Summary of Group Net Oil and Gas Reserves

Net Reserves and Resources

These figures are based on RPS gas-in-place estimates with a management assumption of a 50% recovery factor and Ascent's 75% participation.

Tested and/or produced commercial sands are included as reserves while untested and unproduced sands remain as resources. The condensate content of gas is not included.

Remaining reserves have been adjusted to take account of historic field production, which to the end of 2016 was 8.8 Bcfe.

Proven Reserves (P90) are those quantities of petroleum which can be estimated with reasonable certainty to be commercially recoverable, from known reservoirs and under current economic conditions, operating methods and government regulations.

Proven + Probable Reserves (P50) includes those unproven reserves which are more likely than not to be recoverable.

For the P90 (P50 and P10) Reserves, there is at least a 90% (50%; 10%) probability that the quantities actually recovered will equal or exceed the estimate.

Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more contingencies. Contingent resources may include, for example, projects for which there are currently no viable markets or where commercial recovery is dependent on technology under development or where evaluation of the accumulation is insufficient to clearly assess commerciality.

Prospective Resources are those quantities of petroleum which are estimated to be potentially recoverable from undiscovered accumulations.

The range of estimates shown for each category of reserves or resources is a measure of the uncertainty inherent in the estimation of producible volumes and includes the current perceptions of geological, operational and commercial risk.

Summary of Ascent Resources plc's Licence Interests as at 31 December 2016

Glossary

* These are 'oilfield' units, as commonly used in the oil and gas industry. Other units conform to the Système International d'unités (SI) convention

Corporate Responsibility

Ascent operates a Management System that embodies Environmental, Health, Safety ('EHS') and Social Responsibility ('SR') principles. This system defines objectives to be met by Ascent, its subsidiaries, affiliates, associates and operated joint ventures (hereinafter collectively referred to as Ascent) in the management of EHS and SR.

The policy of the Board of Ascent is to be fully accountable for the necessary practices, procedures and means being in place so as to ensure that each EHS and SR objective is demonstrated in full and that continuous improvement practices are operating to ensure that the required practices, procedures and means are being monitored, refined and optimised as necessary. The Board will accordingly review and report regularly to external stakeholders as to the achievement of the objectives of this policy.

In accordance with this policy, the Executive Directors of Ascent are directly and collectively responsible to the Board for demonstrating that the EHS and SR objectives are attained throughout Ascent. The Executive Directors have adopted Management System Guidelines as guidance for demonstrating this.

The objectives of the Environment, Health, Safety and Social Responsibility Policy are:

§ Ascent shall manage all operations in a manner that protects the environment and the health and safety of employees, third parties and the community.

§ The Executive Director provides the vision, establish the framework, set the objectives and provide the resources for responsible management of Ascent's operations.

§ Leadership and visible commitment to continuous improvement are critical elements of successful operations.

§ A process that measures performance relative to policy aims and objectives is essential to improving performance. Sharing best practices and learning from each other promotes improvement.

§ Effective business controls ensure the prevention, control and mitigation of threats and hazards to business stewardship.

§ Risk identification, assessment and prioritisation can reduce risk and mitigate hazards to employees, third parties, the community and the environment. Management of risk is a continuous process.

§ Safe, environmentally sound operations rely on well-trained, motivated people. Careful selection, placement, training, development and assessment of employees and clear communication and understanding of responsibilities are critical to achieving operating excellence.

§ The use of internationally recognised standards, procedures and specifications for design, construction, commissioning, modifications and decommissioning activities are essential for achieving operating excellence.

§ Operations within recognised and prudent parameters are essential to achieving clear operating excellence. This requires operating, inspection and maintenance procedures and information on the processes, facilities and materials handled, together with systems to ensure that such procedures have been properly communicated and understood.

§ Adhering to established safe work practices, evaluating and managing change and providing up-to-date procedures to manage safety and health risks contribute to a safe workplace for employees and third parties.

§ The minimisation of environmental risks and liabilities are integral parts of Ascent's operations.

§ Third parties who provide materials and services (personnel and equipment) or operate facilities on Ascent's behalf have an impact on EHS and SR excellence. It is essential that third-party services are provided in a manner consistent with Ascent's EHS and SR Policy and Management System Guidelines.

§ Compliance with regulatory requirements and company guidelines must be periodically measured and verified as part of the continuous improvement process.

§ Preparedness and planning for emergencies are essential to ensuring that all necessary actions are taken if an incident occurs, to protect employees, third parties, the public, the environment, the assets and brand of Ascent.

§ Effective reporting, incident investigation, communication and lessons learned are essential to attaining and improving performance.

§ Open and honest communication with the communities, authorities and stakeholders with which Ascent operates builds confidence and trust in the integrity of Ascent.

During 2016, the Group was Operator of one project which was closely managed for maintaining the EHS and SR policy aims.

There have been no breaches of any applicable Acts recorded against the Group during the reporting period.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Directors' Report, the Strategic Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the AIM Market.

In preparing these financial statements the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and

• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Website publication

The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a website. Financial statements are published on the Company's website (www.ascentresources.co.uk) in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the Financial Statements contained therein.

Independent Auditors Report to the Members of Ascent Resources plc

We have audited the financial statements of Ascent Resources plc for the year ended 31 December 2016 which comprise the consolidated income statement and consolidated statement of comprehensive income, the consolidated and company statements of financial position, the consolidated and company statements of changes in equity, the consolidated and company statements of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council's (FRC's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the FRC's website at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statements

In our opinion:

· the financial statements give a true and fair view of the state of the group's and the parent company's affairs as at 31 December 2016 and of the group's loss for the year then ended;

· the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

· the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

· the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

· the information given in the strategic report and directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

· the strategic report and directors' report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

Consolidated Statement of Changes in Equity

For the year ended 31 December 2016

Company Statement of Changes in Equity

For the year ended 31 December 2016

Consolidated Statement of Financial Position

As at 31 December 2016

The Notes are an integral part of these consolidated financial statements.

These financial statements were approved and authorised for issue by the Board of Directors on 21 April 2017

and signed on its behalf by:

Clive Carver,

Chairman

21 April 2017

Company Statement of Financial Position

As at 31 December 2016

The Company profit for the year was £1.8 million (2015: loss of £4.3 million).

The Notes are an integral part of these consolidated financial statements.

These financial statements were approved and authorised for issue by the Board of Directors on 21 April 2017 and signed on its behalf by:

Clive Carver

Chairman

21 April 2017

Consolidated Cash Flow Statement

For the year ended 31 December 2016

Company Cash Flow Statement

For the year ended 31 December 2017

Notes to the accounts

1 Accounting policies

Reporting entity

Ascent Resources plc ('the Company' or 'Ascent') is a company domiciled and incorporated in England. The address of the Company's registered office is 5 New Street Square, London EC4A 3TW. The consolidated financial statements of the Company for the year ended 31 December 2016 comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interest in associates and joint ventures. The Parent Company financial statements present information about the Company as a separate entity and not about its Group.

The Company is admitted to AIM, a market of the London Stock Exchange.

The consolidated financial statements of the Group for the year ended 31 December 2016 are available from the Company's website at www.ascentresources.co.uk.

Statement of compliance

The Group's and Company's financial statements for the year ended 31 December 2016 were approved and authorised for issue by the Board of Directors on 21 April 2017 and the Statements of Financial Position were signed on behalf of the Board by Clive Carver.

Both the Parent Company financial statements and the Group financial statements give a true and fair view and have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ('IFRSs').

Basis of preparation

In publishing the Parent Company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in section 408 of the Companies Act 2006 not to present its individual income statement and related notes that form a part of these approved financial statements. The Company loss for the year was £2.0 million.

Measurement Convention

The financial statements have been prepared under the historical cost convention. The financial statements are presented in sterling and have been rounded to the nearest thousand (£'000s) except where otherwise indicated.

The principal accounting policies set out below have been consistently applied to all periods presented.

Going Concern

The Financial Statements of the Group are prepared on a going concern basis. Following the placings, loan note subscriptions and extension of the maturity of existing loan notes in 2016 the directors consider the Company has sufficient cash to fund its current obligations for the next 12 months.

New and amended Standards effective for 31 December 2016 year-end adopted by the Group:

i. The following new standards and amendments to standards are mandatory for the first time for the Group for the financial year beginning 1 January 2016. The adoption of these standards and amendments has had no material effect on the Group's accounting policies. 

ii. Standards, amendments and interpretations, which are effective for reporting periods beginning after the date of these financial statements which have not been adopted early:

* not yet adopted by the European Union

IFRS 15 is intended to introduce a single framework for revenue recognition and clarify principles of revenue recognition. This standard modifies the determination of when to recognise revenue and how much revenue to recognise. The core principle is that an entity recognises revenue to depict the transfer of promised goods and services to the customer of an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

IFRS 16 introduces a single lease accounting model. This standard requires lessees to account for all leases under a single on-balance sheet model. Under the new standard, a lessee is required to recognise all lease assets and liabilities on the balance sheet; recognise amortisation of leased assets and interest on lease liabilities over the lease term; and separately present the principal amount of cash paid and interest in the cash flow statement.

IFRS 9 introduces significant changes to the classification and measurement requirements for financial instruments. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through other comprehensive income (OCI) and fair value through profit or loss. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss.

The Group is currently assessing the impact of these standards and based on the Group's current operations do not expect them to have a material impact on the financial statements.

Critical accounting estimates and assumptions and critical judgements in applying the Group's accounting policies

The preparation of the consolidated financial statements in conformity with IFRSs requires management to make estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income, expenses and related disclosures. The estimates and underlying assumptions are based on practical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based or as a result of new information. Such changes are recorded in the period in which the estimate is revised.

The application of the Group's accounting policies may require management to make judgements, apart from those involving estimates, which can have a significant effect on the amounts amortised in the financial statements. Management judgement is particularly required when assessing the substance of transactions that have a complicated structure or legal form.

The key areas where management judgement has needed to be applied are:

(a) Exploration and evaluation assets - exploration and evaluation costs are initially classified and held as intangible fixed assets rather than being expensed. The carrying value of intangible exploration and evaluation assets are then determined. Management considers these assets for indicators of impairment at least annually based on an estimation of the recoverability of the cost pool from future development and production of the related oil and gas reserves. This assessment requires estimates of gas reserves, production, gas prices, operating and capital costs associated with the field and discount rates (see Note 8);

(b) Decommissioning provision - the cost of decommissioning is estimated by reference to operators and internal specialist staff and requires estimates regarding the cost of decommissioning, inflation, discount rates and the timing of works (see Note 14);

(c) New CLNs and modification to existing CLNs - the Group has entered into a series of significant modifications to the maturity on its CLNs and subscribed to a new convertible loan note. These transactions required judgment in terms of the appropriate accounting treatment. In addition, judgment and estimation was required in determining the fair value of liability and equity components of the loan notes (see Note 13);

(d) Commercial reserves - Commercial reserves are proven and probable oil and gas reserves calculated on an entitlement basis and are integral to the assessment of the carrying value of the exploration and evaluation assets. Estimates of commercial reserves include estimates of the amount of oil and gas in place, assumptions about reservoir performance over the life of the field and assumptions about commercial factors which, in turn, will be affected by the future oil and gas price;

(e) The accounting treatment of the Trameta acquisition which, as it possessed land and pipeline rights but no employees or active business processes was accounted for as an asset acquisition. Estimates were required in determining the fair value of consideration (see Note 22).

Basis of consolidation

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The consolidated financial statements present the results of the Company and its subsidiaries as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

The results of undertakings acquired or disposed of are consolidated from or to the date when control passes to or from the Group. The results of subsidiaries acquired or disposed of during the period are included in the Consolidated Income Statement from the date that control commences until the date that control ceases.

Where necessary, adjustments are made to the results of subsidiaries to bring the accounting policies they use into line with those used by the Group.

Business combinations

On acquisition, the assets, liabilities and contingent liabilities of subsidiaries are measured at their fair values at the date of acquisition. Any excess of cost of acquisition over net fair values of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the net fair values of the identifiable assets, liabilities and contingent liabilities acquired (i.e. discount on acquisition) is credited to profit and loss in the period of acquisition.

Joint arrangements

The Group is party to a joint arrangement when there is a contractual arrangement that confers joint control over the relevant activities of the arrangement to the Group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries.

The Group classifies its interests in joint arrangements as either joint ventures, where the Group has rights to only the net assets of the joint arrangement, or joint operations where the Group has both the rights to assets and obligations for the liabilities of the joint arrangement.

All of the Group's joint arrangements are classified as joint operations. The Group accounts for its interests in joint operations by recognising its assets, liabilities, revenues and expenses in accordance with its contractually conferred rights and obligations.

Oil and Gas Exploration Assets

All licence/project acquisitions, exploration and appraisal costs incurred or acquired on the acquisition of a subsidiary, are accumulated in respect of each identifiable project area. These costs, which are classified as intangible fixed assets are only carried forward to the extent that they are expected to be recovered through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves.

Pre-licence/project costs are written off immediately. Other costs are also written off unless commercial reserves have been established or the determination process has not been completed. Thus, accumulated cost in relation to an abandoned area are written off in full to the statement of comprehensive income in the year in which the decision to abandon the area is made.

When production commences the accumulated costs for the relevant area of interest are transferred from intangible fixed assets to Property, Plant and Equipment as 'Developed oil and gas assets'.

Impairment of oil and gas exploration assets

Exploration/appraisal assets are reviewed regularly for indicators of impairment following the guidance in IFRS 6 'Exploration for and Evaluation of Mineral Resources' and tested for impairment where such indicators exist.

In accordance with IFRS 6 the Group considers the following facts and circumstances in their assessment of whether the Group's oil and gas exploration assets may be impaired:

· whether the period for which the Group has the right to explore in a specific area has expired during the period or will expire in the near future, and is not expected to be renewed;

· whether substantive expenditure on further exploration for and evaluation of mineral resources in a specific area is neither budgeted nor planned;

· whether exploration for and evaluation of oil and gas reserves in a specific area have not led to the discovery of commercially viable quantities of oil and gas and the Group has decided to discontinue such activities in the specific area; and

· whether sufficient data exists to indicate that although a development in a specific area is likely to proceed, the carrying amount of the exploration and evaluation assets is unlikely to be recovered in full from successful development or by sale.

If any such facts or circumstances are noted, the Group, as a next step, perform an impairment test in accordance with the provisions of IAS 36. In such circumstances the aggregate carrying value of the oil and gas exploration and assets is compared against the expected recoverable amount of the cash generating unit. The recoverable amount is the higher of value in use and the fair value less costs to sell.

The Group has identified one cash generating unit, the Petišovci project in Slovenia. Any impairment arising is recognised in the Income Statement for the year.

Where there has been a charge for impairment in an earlier period that charge will be reversed in a later period where there has been a change in circumstances to the extent that the discounted future net cash flows are higher than the net book value at the time. In reversing impairment losses, the carrying amount of the asset will be increased to the lower of its original carrying values or the carrying value that would have been determined (net of depletion) had no impairment loss been recognised in prior periods.

Decommissioning costs

Where a material obligation for the removal of wells and production facilities and site restoration at the end of the field life exists, a provision for decommissioning is recognised. The amount recognised is the net present value of estimated future expenditure determined in accordance with local conditions and requirements. An asset of an amount equivalent to the provision is also added to oil and gas exploration assets and depreciated on a unit of production basis once production begins. Changes in estimates are recognised prospectively, with corresponding adjustments to the provision and the associated asset.

Foreign currency

The Group's strategy is focussed on developing oil and gas projects across Europe funded by shareholder equity and other financial assets which are principally denominated in sterling. The functional currency of the Company is sterling.

Transactions in foreign currency are translated to the respective functional currency of the Group entity at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated to the functional currency at the rates prevailing on the reporting date. Exchange gains and losses on short-term foreign currency borrowings and deposits are included with net interest payable.

The assets and liabilities of foreign operations are translated to sterling at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to sterling at the average rate ruling during the period. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity. Foreign exchange differences arising on inter-company loans considered to be permanent as equity are recorded in equity. The exchange rate from euro to sterling at 31 December 2016 was £1: €1.1722 (2015: £1: €1.3558).

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated income statement as part of the profit or loss on disposal.

Exchange differences on all other transactions, except intercompany foreign currency loans, are taken to operating loss.

Taxation

The tax expense represents the sum of the tax currently payable and any deferred tax.

The tax currently payable is based on the estimated taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using the expected tax rate applicable to annual earnings.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Equity-settled share-based payments

The cost of providing share-based payments to employees is charged to the income statement over the vesting period of the related share options or share allocations. The cost is based on the fair values of the options and shares allocated determined using the binomial method. The value of the charge is adjusted to reflect expected and actual levels of vesting. Charges are not adjusted for market related conditions which are not achieved. Where equity instruments are granted to persons other than directors or employees the Consolidated Income Statement is charged with the fair value of any goods or services received.

Grants of options in relation to acquiring exploration assets in licence areas are treated as additions to Slovenian exploration costs at Group level and increases in investments at Company level.

Provisions

A provision is recognised in the Statement of Financial Position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

Convertible loan notes

Upon issue of a new convertible loan, where the convertible option is at a fixed rate, the net proceeds received from the issue of CLNs are split between a liability element and an equity component at the date of issue. The fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the CLNs and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity and is not re-measured.

Subsequent to the initial recognition the liability component is measured at amortised cost using the effective interest method.

When there are amendments to the contractual loan note terms these terms are assessed to determine whether the amendment represents an inducement to the loan note holders to convert. If this is considered to be the case the estimate of fair value adjusted as appropriate and any loss arising is recorded in the income statement.

Where there are amendments to the contractual loan note terms that are considered to represent a significant modification to the loan note, without representing an inducement to convert, the Group treats the transaction as an extinguishment of the existing convertible loan note and replaces the instrument with a new convertible loan note. The fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The fair value of the conversion right is recorded as an increase in equity. The previous equity reserve is reclassified to accumulated loss. Any gain or loss arising on the extinguishment of the instrument is recorded in the income statement, unless the transaction is with a counterparty considered to be acting in their capacity as a shareholder whereby the gain or loss is recorded in equity.

Non-derivative financial instruments

Non-derivative financial instruments comprise of investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables.

Financial instruments

Financial assets and financial liabilities are recognised on the statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Trade and other receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest method. A provision is established when there is objective evidence that the Group will not be able to collect all amounts due. The amount of any provision is recognised in the income statement.

Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less.

Trade and other payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method.

Financial liabilities and equity instruments issued by the Group are classified in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. Where a financial liability is extinguished and replaced by a convertible loan note and the counterparty is acting in their capacity as a debt holder, the liability is derecognised and replaced with a new convertible loan note (see above). Any gain or loss arising on the extinguishment is recorded in the income statement.

Equity

Equity instruments issued by the Company are recorded at the proceeds received, net of any direct issue costs.

Investments and loans

Shares and loans in subsidiary undertakings are shown at cost. Provisions are made for any permanent diminution in value when the fair value of the assets is assessed as less than the carrying amount of the asset. Intercompany loans are repayable on demand but are included as non-current as the realisation is not expected in the short term.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the Chief Executive Officer ('CEO').

2 Segmental Analysis

The Group has two reportable segments, an operating segment and a head office segment, as described below. The operations and day to day running of the business are carried out on a local level and therefore managed separately. The operating segment reports to the UK head office which evaluates performance, decide how to allocate resources and make other operating decisions such as the purchase of material capital assets and services. Internal reports are generated and submitted to the Group's CEO for review on a monthly basis.

The operations of the Group as a whole are the exploration for, development and production of oil and gas reserves.

The two geographic reporting segments are made up as follows:

Slovenia - exploration and development

UK - head office

The costs of exploration and development works are carried out under shared licences with joint ventures and subsidiaries which are co-ordinated by the UK head office. Segment revenue, segment expense and segment results include transfers between segments. Those transfers are eliminated on consolidation.

Information regarding the current and prior year's results for each reportable segment is included below. Initial performance is measured by the results that arise from the exploration and development works carried out. Once producing, other production performance measures are based on the production revenues achieved. This is reported to the Group's CEO by the level of capitalised exploration costs and the results from studies carried out at the individual locations of the wells. The CEO uses these measures to evaluate project viability within each operating segment. There is no revenue in the current year from continuing operations.

3 Operating loss is stated after charging:

4 Employees and directors

a. Employees

The average number of persons employed by the Company and Group, including Executive Directors, was:

b. Directors and key management remuneration

c. Directors remuneration

*Len Reece resigned on 14 August 2015

The highest paid Director in the year ended 31 December 2016 was Colin Hutchinson earning £154,516 (2015: L Reece earning £146,667 excluding termination payments). Colin Hutchinson (2015: Nil) is a member of the defined contribution pension scheme which commenced in December 2016.

d. Directors' incentive share options

* Post share consolidation. Refer to Note 18.

5 Finance income and costs recognised in the year

Please refer to Note 13 for a description of financing activity during the year.

6 Income tax expense

The difference between the total tax expense shown above and the amount calculated by applying the standard rate of UK corporation tax to the loss before tax is as follows:

7 Loss per share

As the result for the year was a loss no diluted EPS is disclosed. At 31 December 2016, potentially dilutive instruments in issue were 973,469,828 (2015: 1,362,874,079). Dilutive shares arise from share options and CLNs issued by the Company and from the deferred consideration on the Trameta transaction.

8 Exploration and evaluation costs - Group

For the purposes of impairment testing the intangible oil and gas assets are allocated to the Group's cash-generating unit, which represent the lowest level within the Group at which the intangible oil and gas assets are measured for internal management purposes, which is not higher than the Group's operating segments as reported in Note 2.

In the year, the Company has accounted for the Trameta transaction as the acquisition of land and pipeline rights. relating to the exploration project. This acquisition has been valued at £1.1 million, see Note 22.

The amounts for intangible exploration assets represent costs incurred on active exploration projects. Amounts capitalised are assessed for impairment indicators under IFRS 6 at each period end as detailed in the Group's accounting policy. In addition, the Group routinely reviews the economic model and reasonably possible sensitivities and considers whether there are indicators of impairment. As at 31 December 2016 and 2015 the net present value significantly exceeded the carrying value of the assets. The key estimates associated with the economic model net present value are detailed in Note 1. The outcome of ongoing exploration, and therefore whether the carrying value of intangible exploration assets will ultimately be recovered, is inherently uncertain.

9 Investment in subsidiaries - Company