Ascent Resources Regulatory News (AST)

28 May 2008 12:00



Ascent Resources plc / Epic: AST / Index: AIM / Sector: Oil and Gas

28 May 2008

Ascent Resources plc ("Ascent" or "the Company")

Preliminary Results

Ascent Resources plc, the AIM-traded oil and gas exploration company with assets in six countries across Europe, announces its preliminary results for the year ended 31 December 2007.

HIGHLIGHTS

Drilling of five exploration wells in Hungary, Italy and Spain

Portfolio development with acquisitions in Hungary, Slovenia and Italy 

Portfolio rationalisation with divestments in Romania and Spain 

Acquisition of a minority interest in the Italian drilling contractor Perazzoli Drilling provides priority access to drilling rigs

Farm-out of exploration interests in Italy, the Netherlands and Switzerland

Planning complete for the commencement of Hungarian gas production in 2008

Planning on-going for production from Slovenian assets in 2008

Fund raising of a net £5.8 million in equity and convertible loan notes

Pre-tax loss of £2.13 million in line with budget

Fully diluted loss per share of 0.74p

Ten well potential for the period 2008-2009

Experienced corporate, exploration and operations team in place

Jeremy Eng, Managing Director of Ascent Resources plc commented, "Our portfolio continues to grow and improve in quality through rigorous management of risk and value. Our focus remains on drilling and testing to prove the hydrocarbon potential of our portfolio, with a potential  ten wells planned during 2008-2009. We are also soon to enter a gas production phase with our Hungarian assets, as well as further work planned at the Slovenian Petisovci project. Looking forward, we are confident in both our portfolio approach and our team, and we believe that through our exploration and development programme, we can significantly increase the value of the Company."

CHAIRMAN'S STATEMENT

I am pleased to update shareholders on the Company's performance during the year ended  31 December 2007 and provide an overview of where I believe Ascent is now placed with regards to the oil and gas exploration and production industry. 

Our aim has been to assemble a broad portfolio of oil and gas assets at various stages of development across Europe and to this end we currently have some 20 projects across six European countries. Our focus remains in Europe as we believe we can benefit from profitable development projects, good infrastructure with deregulated local market access and both political and financial stability. Being centred in Europe provides a balance of low risk and high potential with managed exposure to upside value through the mix of development, appraisal and exploration projects. 

During the period our focus was on continuing to grow and improve the quality of our portfolio with the Company's technical staff working hard to reduce risk and calibrate the value of the assets within the portfolio. As our portfolio matures, the drilling and testing to prove hydrocarbon reserves will remain the primary objective, with development and cash flow from production a secondary focus. 

The year ended 2007 was a challenging one, yet I believe that the Company's portfolio and strategy remained sound, with several gas prospects under development or in preparation as the year ended. As a company we experienced some disappointments, which negatively affected the share price, the most prominent being the Anagni-1 well results in Italy, drilled initially as a shallow geological assessment well. During drilling, the prospect exhibited most of the key ingredients of a commercial oil discovery and based on these initial positive factors, a decision was taken to deepen the well. However, Anagni-1 turned out to be a complicated well to drill. Costs went over budget and it has provided what are, for the time being at least, enigmatic results. Oil and gas exploration is a risky business and Anagni-1 highlights this fact. In the strictest sense, the well did meet its initial objectives, which were to prove the regional geological model. In order to refine our understanding of the geology, more seismic is to be run on the structure before deciding on further work on the permit. 

Having noted the Anagni-1 factor with regards to our performance, it is worth remembering that it is only one project in the Company's asset base and we should not let it eclipse the positive steps taken elsewhere within the portfolio.

In Italy, the Company has secured a farm-in agreement on our Cento-Bastiglia exploration permit in the Po Valley where our new partner will fund all the costs of the first exploration well, together with the acquisition of seismic and back costs. Engineering work has continued on our two Hungarian development projects - Bajcsa and Penészlek. In a strategic context it is worth noting that since the year end we have been able to book proven and probable reserves on the Penészlek area. Whilst not large, it is encouraging that a central part of our strategy is beginning to take shape. 

As part of our overall portfolio management process, during the year, we sold our interest in our Romanian asset for cash and divested the bulk of our Spanish assets. In terms of additions to the portfolio, we gained access to two promising developments in Slovenia by purchasing Nemmoco Slovenia Corporation, while in Hungary we increased our position in the country by agreeing farm-in terms with Toreador Resources on its large Szolnok exploration permit. We feel that the Company's portfolio is now technically well balanced in terms of near term development projects, appraisal wells and exploration prospects and plays. 

Also during the year a noteworthy event was the acquisition of a strategic stake in the Italian rig contractor Perazzoli Drilling. This provides the Group with preferential access to drilling rigs at a time when many of our competitors are struggling to secure units in a very competitive market.

Additionally, the Group's technical and portfolio management expertise has been enhanced by the appointment of Gavin Ward. Gavin, a graduate geologist and a chartered accountant, brings 20 years upstream oil and gas experience, spending the last 10 years with Noble Energy. At a time when the industry is suffering from a severe shortage of qualified staff, it is gratifying that we are able to attract people of Gavin's calibre.

Post the period end, in January 2008, we appointed Alan Sinclair to the Board as Finance Director. Alan has 29 years experience in the oil and gas sector as a corporate advisor, economist and analyst, working/consulting for a number of well-known organisations. He has considerable experience of the sector and the City and we believe he is ideally qualified to aid us in developing and enhancing the value of our portfolio. Peter Earl stepped down from his non-executive Board position because of the weight of his responsibilities in his other executive commitments and Jonathan Legg reverted from an executive to a non-executive Board role.

Regarding the financial results, we reported a loss for the year to 31 December 2007 of £2.13 million (2006: £2.15 million loss). 

Outlook for 2008

The current year features a busy work programme. In Italy we will continue to evaluate the results of the Anagni-1 well where we will run further seismic on the structure and we will drill the Gazzata prospect on our Po Valley acreage. In Hungary, the Szolnok farm-in features the drilling of two exploration wells and the acquisition of 3-D seismic. We expect first gas from our Hungarian projects, and the completion of a 3-D seismic programme on the Penészlek acreage. We also hope to complete the sale of a portion of our offshore Netherlands acreage and anticipate that this will unlock the value of the work we have carried out on those licences. Towards the end of the year, we hope to spud the Hermrigen exploration/appraisal well in Switzerland and initiate a major redevelopment programme on our exploration and field development acreage in Slovenia. 

I am confident that results of all this activity will go a long way to maturing the Company's asset base. Furthermore, we will remain alert to potential transactions, both corporate and asset-specific, and rigorous in our assessment of these in the context of adding shareholder value. 

Given the current economic climate and our planned work programme, the Directors and I have taken steps to positively review the Group's cash flow position to ensure that we have sufficient funding to continue as a going concern. In line with best practice we have set out our potential future cash flow concerns in a transparent and clear manner in Note 1 to these Statements. At the date of approving these Preliminary Statements the Group's cash position is positive and it is trading as a going concern.

Finally, I would like to thank all staff members for their dedication and hard work over the period and extend my appreciation to all of our shareholders for their continued support.

John Kenny

Chairman

OPERATIONS REVIEW

The Company's portfolio now has some 20 projects across six western and central European countries and with the corporate headquarters in London. During 2007, the period under review, Ascent has made progress right across the portfolio. As well as the high profile drilling and testing operations, much progress has been made in the geological and geophysical work that is the most essential part of the complex of activities that leads to efficient exploration, appraisal and development.

The portfolio is continually assessed and opportunities for strategic divestments are balanced with the assessment of compatible acquisitions. In 2007, the Company exited from its minority non-operated position in Romania and entered Slovenia as the operator of a field redevelopment project. It also sold its Spanish oil assets, but retained a gas exploration application in Spain.

REVIEW OF THE YEAR 

January 2007

Romania Profitable disposal of Millennium Resources Corporation ("MRC") to Aurelian Energy plc. MRC owned a 5% interest in three gas exploration and production concessions in north eastern Romania.

Italy Temporary completion of the Anagni-1 well in the Frosinone exploration permit of the Latina Valley. The well had been drilled to the top of the reservoir interval where a core sample had oil shows. A total loss of circulation into the reservoir necessitated the sourcing of addition equipment and materials to proceed with the drilling and evaluation.

February

Slovenia Acquired Nemmoco Slovenia Corporation with a 45% interest and operatorship of the Joint Venture that owns the development rights to the Petisovci Dolina ("P-D") oil and gasfields and a 15.75% interest and operatorship of the Joint Venture that owns the development rights to the underlying Petisovci Globoki ("P-G") gasfield. The fields are in eastern Slovenia near Lendava, close to the borders of Slovenia, Austria, Hungary and Croatia.

March

UK Raised £3.5 million (approximately £3.3 million net of expenses) through the issue of 25,000,000 new ordinary shares of 0.1p each at 14p per share.

Spain Commenced drilling of the Hontomin-4 appraisal well in the Huermeces exploration permit in Spain.

Italy Increased Ascent's equity in the Frosinone Exploration permit where the Anagni-1 well is located from 70% to 80%. 

April

Hungary The Bajcsa gasfield redevelopment project received sanction from the executive management of MOL, the project partner. The project is to redevelop the partially depleted gasfield by using horizontal well recompletions.

Drilling started on PEN-102 , an appraisal well to the PEN-12 gas discovery.

Netherlands The Dutch state oil company, EBN, agreed to participate in the exploration of the Company's three exploration licences offshore in the Netherlands. They took a 40% interest in Blocks P4, M8 and M10/11.

Spain The Hontomin-4 appraisal well was plugged and abandoned after drilling into a downthrown fault compartment of the Hontomin field. This asset was fully impaired at this time.

May

Hungary The PEN-102 well was suspended awaiting a sidetrack decision as the reservoir interval was deeper than expected in the well.

The VAM-1 exploration well in the southern part of the Nyírség exploration permits started drilling.

June

Hungary The VAM-1 well was abandoned when no viable reservoir was discovered at this location. This asset was fully impaired at this time.

Italy The Anagni-1 well was deepened following the arrival of the rig which drilled the Hontomin-4 well in Spain.

July

Italy The core and logs from the deepened Anagni-1 well showed good reservoir quality and contained good oil shows in the cores. The rig prepared the well for pump testing to recover over 3,000 tonnes of drilling fluids estimated to have been lost during drilling.

August

Italy Deltana Energy Limited agreed to farm-in to the Cento and Bastiglia exploration permits in the Po Valley. The agreement provided for Deltana to drill one firm and one contingent well, to purchase €1.5 million of seismic and to refund past expenditures on the project.

The Arrone-1 gas exploration well in the Fiume Arrone exploration permit commenced drilling. The well encountered gas but the logs showed that the reservoir would not be capable of commercial exploitation at this stage. However, well post mortem and geoscience studies were planned to establish any other viable targets in the area.

September

Italy The Company initiated the acquisition of a minority 22.5% interest in Perazzoli Drilling, an Italian drilling contractor. Perazzoli Drilling has two rigs with 40 Tonne and 100 Tonne capacity. It also has a new 200 Tonne unit on order. This acquisition provides Ascent with priority access to drilling rigs for its projects in Italy and Switzerland.

Hungary The Joint Development Agreements for the Bajcsa project were signed with MOL.

October

Spain The Company entered into an agreement with Leni Gas and Oil plc to sell its Spanish oil assets which were producing a total of approximately 120 barrels per day.

Switzerland Leni Gas and Oil, subject to various criteria, agreed to take either a 10% or 40% interest in the Seeland Freinisberg exploration permit in northern Switzerland. It is planned to drill an appraisal well to the 1982 gas discovery at Hermrigen on this permit.

November

UK The Company placed £2.5 million of convertible loan notes.

December

Italy The Perazzoli Drilling acquisition was completed.

Deltana Energy Limited brought fellow Australian company, Otto Energy Limited, into the farm-in arrangements for the Cento and Bastiglia exploration permits in the Po Valley.

Hungary Ascent agreed to farm into the Szolnok exploration licence and to take a 27.5% interest. It is planned to drill two wells and shoot 150 sq km of 3-D seismic in the first half of 2008.

POST BALANCE SHEET EVENTS

January 2008

Italy Despite producing small amounts of oil, water dominated the production fluids during testing of the Anagni-1 well. A seismic survey to assess the scale of the reservoir updip is planned during 2008 since the new log and in-well seismic indicate that the Anagni-1 location was not optimally located on the structure.

UK Alan Sinclair was appointed as Finance Director; Peter Earl resigned from the Board and Jonathan Legg resumed a non-executive position.

February

Switzerland The location of the Hermrigen gas appraisal well was discussed with the Hermrigen Town Council and a location was chosen close to the original well.

April

Hungary The TIK-1 gas exploration well started drilling and the acquisition of the 150 sq km 3-D seismic survey commenced in the Szolnok exploration licence.

Leni Gas and Oil purchased a 7.27% interest in the Penészlek and Bajcsa gas development projects.

The completion and re-test of the PEN-104 gas discovery was finished. This well will commence production as soon as the facilities are delivered and hooked-up and the necessary authorisations are received later in 2008.

The TIK-1 exploration well was plugged and abandoned having discovered a thicker than expected gas reservoir, but containing gas with approximately 90% CO2 content. Management have started to explore the potential of other related locations with the project's joint-venture partners.

CONSOLIDATED INCOME STATEMENT 

for the year ended 31 DECEMBER 2007 

CONSOLIDATED BALANCE SHEET 

as at 31 DECEMBER 2007

CONSOLIDATED CASH FLOW STATEMENT 

for the year ended 31 DECEMBER 2007 

NOTES TO THE PRELIMINARY STATEMENTS

for the year ended 31 DECEMBER 2007 

'Other locations' include: the Netherlands, Slovenia, Spain and Switzerland. 

Impairment provisions have been made in the year in respect of two sites in Hungary and one in Spain, prior to disposal. All associated costs were written off at this time.

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

Tax and social security payable includes National Insurance on share based payments of £229,358 (2006 : £73,920).

The Directors consider that the carrying amount of the bank and other loans approximates to their fair value. The weighted average interest rate of the bank loan is 4.8% (2006: 4.6%). 

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