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Ascent Resources raises Ł17 mln to develop gas fields in Hungary, Slovenia

UK oil and gas company Ascent Resources said it raised Ł17 million to develop gas fields in Hungary and Slovenia.

The funds raised will primarily be used to advance the UK-based energy firm's flagship Petišovci/Lovási/Újfalu project, through the drilling and completion of the Pg-11 sidetrack, the Pg-10 and Újfalu-III wells, and capitalizing on the area’s P50 estimated gas in place of 412 billion cubic feet (Bcf).

Managing director Jeremy Eng said: “With the finance in place from a series of high quality institutional investors, we can rapidly advance the Petišovci/Lovási/Újfalu project area through the implementation of the three well campaign, which we believe will unlock the project area’s potential, allow us to reach operating cash generation and capitalize on the strong pricing environment for European gas.

Recent results from the Pg-11 well highlighted the area's prospectivity with the six middle Miocene reservoirs, all gas bearing and revealed that the Lower Miocene Karpatian reservoir was potentially naturally fractured and could contain additional resource potential of over 100 Bcf, on top of RPS's 412 Bcf. P50 estimates.

“We are looking to implement the drilling campaign next month, starting with the Pg-11 sidetrack and thereafter expect strong news flow as we look to unlock the value of our assets,” Eng said.

In mid-February Ascent Resources reported results from the Pg-11 appraisal well, its first well in Slovenia, beating expectations as it encountered gas in all six target reservoir intervals and also found an extra, unforeseen, gas reservoir. Ascent has a 75% working interest in the well.

As a result of the encouraging results from Pg-11, which decreases the project risk, the company intends to progress to the second phase of the well program which will be to drill a horizontal production sidetrack well on Pg-11 after more fully evaluating the Karpatian reservoir.  The Crosco Cardwell-1 rig has remained on location in Slovenia and the second phase of operations on the Pg-11 well is planned to commence during April.

In addition a further well, Pg-10, is planned to be drilled in the Petišovci-Globocki field with drilling expected to commence in June.  Both the Pg-11 sidetrack and the Pg-10 well are expected to commence production in late 2011 utilizing local infrastructure and national gas grid connections in the field area.

The Újfalu project area in Hungary lies less than 10 kilometers from the Petišovci-Lovászi field which straddles the Slovenia and Hungary border. The Újfalu project is believed to be a look-a-like structure to the Petišovci structure. The last well drilled in 1977 encountered gas shows in the Miocene section. Ascent is targeting dual prospects on this project area with the Miocene prospects as well as a deeper prospect.

It plans to drill the Újfalu-III exploration well in August 2011.

The new funds translate to approximately €20 million, Ascent has earmarked €4 million for the Pg-11 sidetrack and completion and €5.1 million for drilling and completing Pg-10, both at Petišovci.  Drilling and completing Újfalu-III is expected to cost €4 million, and the remaining €6.9 million are to cover the costs of placing as well as be used for general, administrative and working capital purposes.

In the event that the Petišovci and Újfalu drilling campaigns are successful, the company will need to raise further funds for an accelerated field development program.

Ascent would currently prefer loans or farm-in deals over a further share issue to minimize dilution, but a further share issue is not ruled out to fund field development.

The plan for Petišovci envisages between 10 and 15 wells over a three to four year period. The company may also choose, given the right market conditions, to raise further funds to develop its other projects.

FinnCap issued a note shortly after the company's announcement, saying with funding secured Ascent is well placed to accelerate development activities on its tight gas field straddling the Slovenia-Hungarian border.

Two development wells and a near field exploration prospect will be drilled in the next 6 months that could transform the project and trigger material upgrades. “Trading at an 72% discount to our total net asset value (NAV) this potential seems to be overlooked by the market and provides significant near term upside potential for shareholders,” the broker said.

Finncap is updating its valuation to account for the increased number of shares and de-risking the Petišovci project to 50% from 33% to reflect the funding in place to commence the next phase of operations.

“With first gas a step closer and initial development activities now underway we move Petišovci /Lovászi into core NAV. As a result core NAV rises to 13.8 pence per share and provides 155 percent upside to the current share price. There are no changes to our risked NAV, although we do believe the upside case could be significantly higher than suggested in our unrisked NAV. Total NAV is revised to 19.5 pence per share.”

“We update our 2011 and 2012 financial forecasts to incorporate first cash flows from Slovenia, where production is expected to commence in Q4 2011. Based on this initial phase of development (we assume 8 wells on stream by the end of 2012) revenues are forecast to jump to £45.7m generating £24.2 million of profits and putting the stock on a lowly 2.5x PE multiple,” finnCap added.