As previously announced, the Company commenced a strategic review in April 2018 to review the various options available for the Company to maximise value for shareholders, including identifying a larger entity to develop the next phase of the Petišovci project.
The strategic review has resulted in the Company holding discussions with a range of interested parties and to consider various types of transaction: a farm-in, a partnership, a takeover or a sale. A number of interested companies have signed non-disclosure agreements and gained access to the data room. There is a large amount of data in the data room, both technical and legal, which takes time for companies to review and decide on any potential offers.
The Company understands that shareholders are interested to know how the strategic review is progressing. For strategic reasons the Company is unable to divulge details of all the ongoing negotiations, but the Board is pleased with the progress of the strategic review to date and discussions are ongoing with a number of different parties. There can be no certainty that any of these will result in a completed transaction nor can the nature of any such transaction be determined at this stage.
The Company has not set a formal deadline to end this process; however the Board are working to bring matters to a satisfactory conclusion as soon as is practical. Should the strategic review result in a transaction, an EGM will likely be required for shareholders to vote on it.
The strategic review has been undertaken against the backdrop of further permitting delays in Slovenia, which has deterred a number of otherwise interested parties and reduced the number interested to those who are able to take a longer-term view.
The Board has grown increasingly frustrated by the continued requests from the Slovenian Environment Agency (“ARSO”) for amendments and further information on areas which the Company believed had long been agreed.
The lack of concrete action from Slovenian politicians, despite their verbal assurances of support, is also disappointing. This is difficult to reconcile with the fact that the country is reliant on imported Russian gas.
This should not be an issue for the Company if the strategic review identifies a partner with funding to allow the development of the wider project over the timelines involved. However, the permitting delays will become a greater problem if the strategic review fails to identify such a partner, or if that partner seeks to make the award of the permits a condition of any transaction.
Total production for the month of July was 816,490 cubic metres (28,834 MCF) down from 1,027,939 in June (36,301 MCF). Average daily production in July was 26,338 cubic metres (1.0 MMscfd) down from 34,265 (1.2 MMscfd) in June.
Total revenue to Ascent for July from gas sales is expected to be around €160,000, with an additional €10,000 expected from the sale of condensate.
Well Pg-11A continues to perform below its potential and the regular requirements to shut the well in for prolonged periods mean that it is unlikely to make a significant contribution.
Well Pg-10 has performed much better than Pg-11A, although this well now requires periodic shut ins to restore pressure. The Company has begun to add soap sticks to enable the well to lift water more effectively, however their continued use has been called into question following additional treatment costs incurred by the Company’s principal customer. In the event soap sticks are not able to be used going forward there will be an adverse impact on production quantities.
Until the permits (which were applied for well over one year ago) are granted, the Company is unable to undertake the planned work to re-stimulate these wells let alone commence the re-entries of the other existing Pg wells.
Whilst production numbers were lower than expected, the higher gas prices have, to some extent, offset this. The income from these two wells has meant that the Company has been generating positive cash flow in Slovenia since the start of export production in November 2017.
Looking forward, there will come a time when, without further permits, the income from production will fail to cover the day to day costs of the Group as currently constituted.
Even when permits are finally delivered, the Company will require funding for the capital programme to re-stimulate the wells before production revenues are increased.
The vote by shareholders at our recent AGM against giving the Board the standard headroom to raise additional equity funding without recourse to shareholders has removed a potential source of funding to cover this gap.
As noted above, should the strategic review result in the involvement of a financially strong partner, whose principal interest lies with the medium-term value to be extracted from Petišovci, then the above may have little bearing on the prospects for the Company.
However, should the current strategic review not lead to an appropriate solution, in whatever form, for funding the development of Petišovci or result in a deal conditional on the issuance of the very long overdue permits, the Board believes it is important to give the Company as long as possible either to obtain the long overdue permits or make other arrangements.
In particular the Board believes it makes little commercial sense for the Company to continue incurring costs that are not essential either to the day to day operation of the existing wells in Slovenia or to maintaining the AIM quote for the Company’s shares.
The Company has ceased to make any investment in the future development of the project and has terminated any consultancy contracts not considered essential to existing production.
To reduce cash costs at the PLC level, from 1 July 2018 the non-executive directors reduced the cash they receive in remuneration by 50% and have agreed to a 100% deferral of remuneration from 1 August 2018.
The Company has only one full time executive director, Colin Hutchinson. The Company has agreed with Mr Hutchinson that, with effect from 31 August 2018, he will move to a part time basis and reduce his remuneration accordingly. He will commit to devote sufficient time to properly address the needs of the Company but will be free to seek additional positions elsewhere.
Additionally, the Board has agreed that its other UK based staff will in future move to an ad hoc basis, providing support as required on a daily rate.
By taking these actions the Company will be able to maintain its current presence in Slovenia and to fulfil its obligations under the existing partnership agreements for longer than would otherwise have been the case.
In the event that no transaction results from the strategic review the savings from the above actions, together with the current cash resources of the Company and the expected income from the operation of Pg-10 and Pg-11A, could, in aggregate, allow the Company to continue to trade to the end of the current year without the need for additional funding. This is however dependent on the production volumes from Pg-10 continuing on the current decline rate.
Colin Hutchinson, CEO if Ascent Resources plc, commented:
“We continue to expect a positive outcome from the strategic review but have taken steps to prolong the life of the Company without the need for additional funding in the event this does not produce a positive outcome, or that outcome takes longer than expected to deliver.”
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