Ascent Resources Regulatory News (AST)

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

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

Interim Results - New Gas Reserves Discovered in Slovenia

Ascent Resources plc, the AIM listed European oil and gas production and exploration company, announces its unaudited interim results for the six months ended 30 June 2011.

Highlights

• Slovenian appraisal drilling at Ascent operated Petišovci Project completed;

o Two deep wells drilled as planned

o Middle Miocene reservoirs present and gas bearing as evaluated by RPS

o Pg-11A - discovered 114m new net pay in deeper Miocene reservoirs, Pg-10 - confirmed lateral extent of the discovery with 123m net pay in deeper Miocene reservoirs

• Slovenian gas production now anticipated mid 2012

• Commerciality report undertaken by PDC demonstrates significant expected value in Petišovci Project

• Acquired additional 48.75% interest in Petišovci from Enquest

• Raised £17m in an equity placing to rapidly advance the Petišovci Project to early gas production

• Fracture stimulations on Pg-11A and Pg-10 being undertaken shortly by Halliburton which will be funded from existing cash resources

• Cash flow continues from gas production at the Penészlek project in eastern Hungary

• Hermrigen-2 drilling and site construction permit has been received from Swiss authorities

Ascent Managing Director Jeremy Eng said, "Considerable progress has been made during the period under review, notably at our Slovenian operations where Ascent operates the Petisovci Project and holds a 75% interest alongside partner and concessionaire, Geoenergo d.o.o. The successful raising of £17m from UK institutional investors in March has allowed the second phase of the drilling campaign at the Petišovci project to be largely completed. The two wells drilled this year have discovered 114m new net pay at the Pg-11A location and confirmed 123m of net pay in the deeper Miocene reservoirs at Pg-10, of which 63m was of moderate to good sand quality. These positive results validate our strategy and we now look forward to the fracture stimulation of the two wells and exploiting their commercial potential in the near future. Once the results of the fracture stimulation have been fully interpreted, it is expected a detailed field development plan will be drawn up for long term production.

"The outlook in the medium and long term for European energy prices is favourable and the successful drilling campaign during the period at Ascent's gas assets in Slovenia puts us in a strong position to commercialise what I believe will be a game changing asset for us".

For further information visit www.ascentresources.co.uk or contact:

Strategy and Current Operations Review

Ascent now has a balanced collection of assets comprising three core projects (Petišovci/Lovászi/Ujfalu in Slovenia/Hungary, Hermrigen in Switzerland, and the Latina Valley in Italy) and a number of longer term non-core projects. These projects are in line with the Company's strategy of targeting productive formations in areas with existing hydrocarbon infrastructure within Europe. The Company is now focussed on extracting value from these core assets through an aggressive work programme that started in the first half of 2011. Utilising the latest technology, Ascent will optimise the recovery from these fields whilst at the same time maintain a strict control of costs by using local offices and services where possible. In parallel, the Company is promoting the non-core assets to the core portfolio through an early stage, low spend work programme and asset management strategy. Overall, the Company's assets strike a good balance between exploitation of known reserves and higher risk/higher return exploration. The core assets have the potential to grow production substantially in the near term and generate value through a combination of exploration, appraisal and development.

Currently the Company's primary objective is to rapidly advance the core Petišovci/Lovászi/Ujfalu tight gas project in Slovenia/Hungary, which has an independently estimated P50 gas-in-place ('GIP') estimate of 412Bcf with substantial upside from the new deeper Middle Miocene reservoirs found at Pg-11A and Pg-10. In March this year, £17m was raised for a three well near-term programme to commence on this project, so far this has funded the drilling of Pg-11A and Pg-10. The drilling results have delineated larger quantities of gas than originally expected. Later this year, the interpretation of the flow test and other technical data from the upcoming fracture stimulation and testing programme will help define the optimum route to early gas production. The intention is to commence commercial gas production at Petišovci around the middle of 2012 following the installation of a CO2 reduction plant and a short pipeline connecting the wells to the national gas grid.

The Company's interests are largely geographically spread across on-shore Europe and are therefore well placed to take advantage of the favourable European energy market. Recent, short term market volatility has not changed the attractive fundamentals of the European gas market where over 50% of Europe's gas is currently imported, a figure set to rise to nearly 75% by 2030 according to Wood MacKenzie. With security of energy supply high on the political and economic agenda in much of Europe, high energy prices look set to support gas exploration and production for the foreseeable future.

Core Projects

Petišovci/Lovászi/Ujfalu Exploration and Development:

The 200 km2 project area straddles the Hungary/Slovenia border and contains three former oil and gas fields. Geoenergo d.o.o. is the holder of the Petišovci Exploitation Concession and is a company jointly owned by Nafta Lendeva, the Slovenian State Oil Company and Petrol, the leading energy conglomerate in Slovenia. Ascent through its wholly owned subsidiary Ascent Slovenia Limited, has a 75% interest in the Petišovci Project. Ascent's partner is Geoenergo with a 25% interest. This project is in line with the Company's strategy of targeting undeveloped tight gas reservoirs with substantial, independently verified gas in place of over 400Bcf. Production at the project is expected to commence in the middle of 2012 should the fracture stimulation be successful as expected later this year. In the Hungarian part of the project area, Ascent holds a 50% interest in a joint venture with MOL, the leading Hungarian oil and gas company.

In Slovenia, Phase 1 commenced with the drilling of Pg-11, the first well in 22 years to be drilled in the field. The well was completed in February 2011 and all six (A to F) Middle Miocene reservoirs targeted were gas bearing. A previously unknown new gas reservoir was also found below a depth of around 3,000m.

Following the successful fund raising, Phase 2 of the programme started with the Pg-11A sidetrack to explore this potential deeper reservoir. The drilling results confirmed a new Middle Miocene reservoir from which gas and condensate was sampled. The shallowest 'A' sands also flowed gas for the first time in the history of this field. Three cores recovered from Pg-11A in the A, D and E sands and a full log data suite were analysed for a range of petrophysical parameters including permeability and porosity. On drilling Pg-11A to 3,500m, well logs indicated approximately 114m of additional new net pay in the lower reservoir section.

Pg-10, was drilled approximately 2km to the west of Pg-11 to a depth of 3,545m to help delineate the areal extent of the reservoirs. It encountered 123m of new net pay which it is provisionally estimated will add at least 200Bcf GIP resource. Further tests are planned to ascertain how best to optimise commercial production from these wells.

Phase 2 of the work programme, whose objective was to evaluate production completions based on the analysis of the data already acquired, is now largely finished. Both Pg-10 and Pg-11A are now completed in preparation for fracture stimulation.

Phase 3 has commenced with the appointment of Halliburton to design and implement a fracture stimulation programme and then test both wells to determine if they can produce at commercial gas flow-rates.

Prior to starting the second phase of the project, the purchase of EnQuest's 48.75% stake in Petišovci was completed, the transaction was announced in December 2010. Ascent thereby increased its interest to 75%. As a result of the deal, EnQuest has become the largest shareholder in Ascent, has appointed one of its own senior managers to Ascent's board and has made its technical resources available to the Company.

As a result of the £17m fund raising, Ascent expects to have sufficient financial resources available to bring Pg-10 and Pg-11A into production following the fracture stimulations which are expected to be performed on both Pg-11A and Pg-10 in September and October 2011. At the time of the fund raising Ascent planned a three well drilling campaign with Pg-11A and Pg-10 in Slovenia and the Ujfalu-III well just across the border in the Hungarian part of the project area. However, as the permit for the latter well has not yet been issued, the well is now expected to be drilled in 2012, and the Crosco Cardwell-1 drilling unit has been demobilised from the project area.

Ascent has today published on its website (http://www.ascentresources.co.uk/pages/publications) a summarised commerciality report undertaken by Petroleum Development Consultants Ltd ('PDC') for the Petišovci joint venture. The report is a detailed study of the expected commercial potential of the Petišovci Project, providing information on the local supply and demand for gas, the transportation network and infrastructure, pricing, production and development expectations. This independent report confirms Ascent's belief that the project has the potential to provide very significant value creation for shareholders.

Hermrigen and Linden, Switzerland

The exploration permits cover undeveloped discoveries made by Elf Aquitane in 1972 and 1982 with a combined estimated gas resource base of over 360 Bcf. As the original Hermrigen well was drilled before gas pipeline infrastructure was built in the area, the discovery remained unappraised. eCORP is the operator of the project and despite selling its interest last year, Ascent retains various back-in rights on any successful outcome of six conventional appraisal prospects, provided relevant apportioned costs are covered. Subject to the discovery of conventional gas or oil reserves in any of the six prospects, Ascent can participate with either 45% or 22.5% in the development of those reserves.

Slow progress on the permitting has delayed the planned drilling operations but the drilling permit has now been received and the wellsite construction permit was issued on Monday 5th September. Ascent now looks forward to working with eCORP to ensure the appraisal well on this prospect is drilled as soon as possible.

Latina Valley Exploration and Redevelopment: 

The Strangolagalli concession lies in a proven oil producing area. The project involves the redevelopment of the Ripi field, originally developed in 1960 without the benefit of any seismic data. The oil is of good quality from shallow reservoirs less than 1,000m deep. New seismic was acquired last year and drilling plans are being drawn up based on the interpretation of the new data. Four wells were originally planned for later this year and next, however, the drilling permit has still not been issued and it is therefore more likely that drilling will now commence next year.

As with Strangolagalli, the Frosinone exploration licence targets shallow oil lying at less than 1,000m. New 2D seismic acquisition is planned to follow up on satellite reconnaissance that confirmed existing targets and identified new ones.

Producing Assets

Penészlek Gas Production Project (48.78%):

Production from the PEN-101 and PEN-105 wells continues to flow at approximately 1.1MMscfd (32,000 Msm3/d; 200 Boepd), equating to monthly gas sales of around €300,000. The production at Penészlek benefits from low overheads due to the use of existing onsite facilities and a favourable location. The gas is sold via a dedicated automated facility directly into the Hungarian gas pipeline network. The final expected development of the field is the PEN-105A sidetrack which will be drilled when current production from PEN-105 comes to an end.

Non-core Assets

Po Valley, Italy (100%): Gas exploration project in Italy's prolific northern gas basin. Following satellite reconnaissance, new seismic is proposed for 2012.

Vaud, Switzerland: As part of last year's asset divestment to eCORP, new seismic is proposed to delineate a drilling location. Ascent retains a 22.5% back-in right.

Offshore Netherlands: M10/11 Gas Appraisal: An application to extend the Company's license area in the Netherlands has been lodged. A formal response from the authorities is expected in due course.

Other Activities - Board Structuring:

Graham Cooper was appointed as a non-executive director following the transaction with EnQuest in February of this year. Graham is head of business development at EnQuest, having previously been a vice president of global exploration at Shell. As a trained geologist he brings valuable experience to the Board and his appointment underpins EnQuest's support of Ascent's management. 

Financial Review 

Results for the period:

The Board is reporting a loss of £2.2m in line with management's expectations. The results for the period reflect continued development of the Group's assets, principally in Hungary and Slovenia. As set out in the Operations Review there has been a wide range of drilling, testing and geological activity in the period. Given the impairment of certain exploration expenditure and the timing of revenue, the loss for the period was as expected.

Liquidity and Capital Resources:

The Company continues to be an emerging business with limited production cash flows; consequently, it manages its working capital and liquidity position by balancing the timing of critical expenditure with income from joint venture arrangements and, where appropriate, proceeds from strategic divestments. Further information on future funding arrangements and the Directors' assessment of the Group's going concern position is set out in note 1 of these Interim Financial Statements.

In July, the Company placed convertible loan notes with existing Italian creditors, raising €552,525 with an option to issue a further €70,000 in the future. The loan notes are unsecured, have an annual coupon of 8.5% and are convertible into Ordinary Shares in the Company at a conversion price of 12p per Ordinary Share on or before 31 December 2013. The proceeds will go towards advancing Ascent's Italian portfolio.

Principal Risks and Uncertainties:

The principal risks and uncertainties affecting the business activities of the Group remain those detailed on pages 75 -79 of the Annual Review 2010, a copy of which is available on the Company's website at www.ascentresources.co.uk. 

The interim financial information to 30 June 2011 and 30 June 2010 is unaudited and does not constitute statutory financial information. The information given for the year ended 31 December 2010 does not constitute statutory accounts within the meaning of Section 19 of the Companies (Amendment) Act 1986. The statutory accounts for the year ended 31 December 2010 have been filed with the Registrar and are available on the Company's web site www.ascentresources.co.uk.

On behalf of the Board of Directors

J Eng, Managing Director

7 September 2011

Consolidated Statement of Changes in Equity

For the period ended 30 June 2011

Consolidated Statement of Financial Position

As at 30 June 2011

Material non- cash transaction - As detailed in Note 7, the Group acquired exploration assets in exchange for shares and nil cost options with a value of £14,093,000.

Notes to the Financial Statements

For the Period ended 30 June 2011