Ascent Resources plc, the onshore Caribbean, Hispanic American and European energy and natural resources company, is pleased to announce its updated strategy for its Slovenian portfolio.
For just over 13 years, Ascent Resources plc ('Ascent' or 'the Company') centred its main activity around oil & gas exploration and production in Slovenia and the Petissovci Tight Gas Project. To date, it has invested around €50 million in the project. This asset, despite historic legal and permitting complexity, has significant oil and gas reserves and resources and benefits from an established, local production infrastructure with connections to both domestic and export markets.
The Company has recently undergone a core transformation, including the appointment of a new Board of Directors and initial seed funding alongside the launch of a strategic review of its Slovenian portfolio and the implementation of a bold international growth strategy focused on Hispanic America, the Caribbean and Europe. This move has already resulted in the announcement of a market entry into Cuba.
Over the last two months, Ascent has:
- Assessed the economics of the Slovenian portfolio in light of the recent reduction in European gas prices.
- Initiated a review of the technical aspects of the tight gas project, including the probability that further stimulation would materially and sustainably increase production levels and the costs of stimulation
- Talked to its local partners about exploring new structures and commercial arrangements for the joint venture.
- Observed the recent changes introduced by the new Slovenian government and increasingly confident position on the likelihood of the Project receiving the permits required for further stimulation.
- Completed an initial external legal review of the potential legal claim against the Republic of Slovenia to be brought under the Energy Charter Treaty ('ECT').
The Board is committed to maximising the value of its Slovenian portfolio to bring value to its for shareholders. As a result, the Company has concluded:
- That the the Petissovci Tight Gas Project production is sold with reference to the Central European Gas Hub Index ("CEGH") and requires realised gas prices above €1.80 to €2.00 per Mscf (which means a CEGH index of Euro 10.5/MWh based on the current sales price formula) to generate positive cash flow. The Company notes that the average 2019 CEGH index was Euro 14.4/MWh and despite the recent collapse in global oil and gas prices that the 2021/22 gas futures are already circa Euro 13-15/MWh. Hence the Board see significant core economic value at Petissovci and expect significant cash generation from the asset in the medium term with further upside if global oil and gas prices continue to recover.
- That continued material production from the tight gas project will require regular stimulation activity and that the Slovenian government is clearly taking positive action to maximise the potential of the local resources and streamlining and positively reforming the local permitting framework (including the framework for EIAs). There will, however, always remain inherent permitting risk. This is a common issue for stimulation activities in other European countries and is considered by the new Board to be a normal risk for most oil and gas businesses.
- The potential ECT legal claim has some risks and inherent uncertainty at this stage but appears to have a valid legal basis. The Company is refining its view on the prospects of success and the likely quantum of any potential award.
- That the permits to enable re-entry and stimulation of the PG-10 and PG-11A wells which were originally submitted in May 2017 are expected to be received towards the end of 2020. The first step, which is the feedback from the Administrative Court appeal initiated by the JV partners in July 2019 against the decision of the Slovenian Environmental Agency (ARSO) to require a full environmental impact assessment, is anticipated to be received by the end of August 2020. The Company notes that costs for stimulation equipment have fallen dramatically in the current economic climate and is keen to take advantage of this if possible.
- That further stimulation at PG-10 and PG-11A should have a material impact on production levels, potentially returning them to close to historic levels, on the assumption that the stimulation is designed and executed to the highest technical standards using modern techniques.
- That the JV partner is willing, subject to negotiating terms and contract, to work with the Company to restructure the JV arrangements for the benefit of all parties. While there are a series of inherited outstanding payables (circa € 200,000) to the JV partner from 2019 activities which the Company is in the process of negotiatingand which may lead to a temporary contractual default, the Company expects to resolve these and to structurally upgrade the local partner arrangements in due course.
Ascent has therefore decided upon a dual-pronged strategy which simultaneously progresses both industrial and legal alternatives for the next three months. The updated strategy accelerates the asset's development in anticipation of receiving the permits, as well as clearly setting out the Company's legal position and retaining optionality for that process if required.
Therefore, the Company:
- Is contracting, in preparation for receipt of the permits to stimulate PG-10 and PG-11A, an expert consultancy team of professionals with no previous involvement in this asset to review the historic stimulation data at Petis?ovci, design the detailed forward stimulation programme so that equipment can be procured without delay when permits are received, and prepare a full Field Development Plan. This strategy will take maximum advantage of the current reduction in industry contractor and stimulation equipment rates and avoid further project delays and increase production levels.
- Has submitted a specific proposal to the JV partners in Slovenia for a cost-effective and industry-standard JV structure, including a proposed solution for the outstanding balances.
- Is engaging external counsel to prepare the relevant legal claim, with a view to serving a formal "Notice of Dispute" against the Slovenian state, likely under the ECT shortly. To support this, alongside the operatorship qualification process in Cuba, the Company has appointed a full time in-house lawyer.
Andrew Dennan, Ascent Resources' Chief Executive, commented:
"As a new inbound Board, we have taken time to carefully assess the Slovenian position, notwithstanding the current travel restrictions. The assessment has included technical, legal and economic aspects, the project's potential, and discussions with key players. We have also borne in mind the concerns and views of our shareholders. We are now delighted to share the resulting two-pronged strategy which draws a clear legal line in the sand with the new government whilst also preparing our team technically to stimulate and increase gas production at Petissovci.
Shareholders can now be confident that their commercial interests are being protected and the right subsurface expertise is being deployed in the asset. Ascent is now entering a period of enhanced newsflow across both Slovenia and Cuba."