Interim Results

30 September 2008



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

30th September 2008 

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

Interim Report

Ascent Resources plc, the AIM-traded oil and gas exploration company with assets in five countries across Europe, announces its interim results for the six months to 30 June 2008.

HIGHLIGHTS 

• Continued Portfolio development in Hungary, Slovenia and Italy 

• Commencement of Hungarian gas production in July 2008

• Planning on-going for production from Slovenian assets

• Ten well potential for the period 2008-2009

CHAIRMAN'S STATEMENT

During the period to June 2008, Ascent has continued to advance its European exploration and production portfolio. The Company, with over 20 projects across five countries, maintains a high level of activity with its on-going programme. We continue to focus on improving the quality of our assets with activities aimed at reducing risk and calibrating the value of our portfolio. As the portfolio matures, the drilling and testing to prove hydrocarbon reserves will remain the primary objective as we look to maintain a balance of low risk and high potential projects. 

Since the period end the highlight of our year to date is the commencement in July of gas production from the PEN-104 well in the Penészlek area of the Nyírség permits in Hungary. This project is a realisation of our development strategy and demonstrates the full cycle of the exploration and production business; from the acquisition of seismic, through the drilling of the discovery well, the construction of the production facility and finally, gas sales. Other important results to date include the positive outcome of the preliminary interpretation of the Anagni seismic and the start of operations of the new 200T Perazzoli drilling rig.

Preparations, including seeking to raise additional sources of finance to continue funding our busy work programme for the remainder of the year continue. In Italy we plan to spud the Gazzata-1 well. This well will test the Gazzata gas prospect on our Po Valley acreage. Towards the end of the year, we hope to initiate a major redevelopment programme on the Petisovci field development and the new exploration project both of which are in Slovenia. The portfolio is continually reviewed for both the evaluation of new opportunities and for timely divestments to fund further activity and manage exposure.

The Board is confident that this on-going activity will continue to mature the Company's asset base and further enhance the value of the portfolio. We feel that the Company's portfolio of projects is well balanced with production, near term development projects, appraisal wells and exploration. Furthermore, we will remain alert to potential transactions, both corporate and asset-specific, and we will continue to be rigorous in our assessment of these opportunities in the context of adding shareholder value. 

It is with regret that two directors have left the Board, Patrick Heren and Alan Sinclair. I wish them both well and thank them for their contribution. We extend a welcome to Simon Cunningham as our new Finance Director.

Finally I would like to thank everyone involved with the Company for their hard work and dedication in moving Ascent forward. The Board looks forward to further growth in the coming months. Indications from work-in-progress are encouraging and I look forward to developments over the next period.

John Kenny

Chairman

29 September 2008

OPERATIONS REVIEW

During the six months ended 30 June 2008, the period under review, Ascent has made significant progress across its portfolio and a summary of key events by country is set out below.  

HUNGARY

Ascent now has three projects in Hungary: the Penészlek gas exploration and development project in the south-east; the Bajcsa gas field redevelopment in the west and the Szolnok Exploration project in central Hungary.

Penészlek Development Project

45.2% interest

In August 2008 the Company announced the commencement of gas production at the PEN-104 well in the Penészlek area of the Nyírség permits in Hungary.  The production rate of the well has stabilised at a rate of 117,000 cu.m per day (4.1 MMscfd; 688 boepd). The acquisition of 3-D seismic in the immediate area is planned later in the year and this will assist in evaluating other gas prospects which may be developed, including the partially depleted Penészlek field and the PEN-9 and PEN-12 wells.

Bajcsa Gas field Redevelopment Project

38.7% interest

Ascent holds a 38.73% net interest in this project as part of a joint venture between MOL and ZalaGasCo kft. Ascent owns 90% of ZalaGasCo with partners Leni Gas and Oil plc and Geomega kft owning the remainder.

Considerable time during the period has been spent on the preparation and approval of the legal documentation required for the development and on the technical design, implementation and engineering of well interventions which are planned to recover remaining gas reserves. The gas field work-over programme is due to commence later in the year. 

Szolnok Exploration Project

12.5% interest

Drilling of the TIK-1 exploration wildcat well began in early April to intercept targets in the Pannonian formations. The TIK-1 well was drilled to a depth of 2,003m and penetrated 40m of reservoir quality gas saturated sands between 1,918m and 1,967m. Wireline logging and the analysis of gas samples confirmed the presence of a high percentage of CO2 in the lower Pannonian formations. Consequently the asset has been impaired with all costs associated with the well fully written off

The Kunszentmarton 3-D seismic acquisition programme began in April and was completed later in the second quarter. This programme covered approximately 150 sq km and delineated prospects identified from old 2-D lines.

The exploration wildcat well, Nko-Ny-1 was plugged and abandoned in May. The well reached a total depth of 1,370m and despite drilling a number of potential reservoir sands in the lower Pannonian, logging results showed these to be water bearing with traces of gas. Consequently the asset has been impaired with all costs associated with the well fully written off

The Endrőd 3-D seismic acquisition is just starting and there are plans to drill up to four wells in the next nine months.

In July Ascent sold a 15% interest in this project to leave a 12.5% working interest.

SLOVENIA

Ascent operates in Slovenia through its wholly owned subsidiary Nemmoco Slovenia Corporation, which is the operator of the Petisovsci and Dolina field redevelopment projects. It has a 45% interest in the shallow oil and gas reservoirs and a 15.75% interest in the deep tight gas reservoirs.

Petisovsci Dolina Re-Development Project (Shallow)

45% interest

The work being carried out by Ascent in 2008 involves a complete re-assessment of the geological, geophysical and engineering information from the fields. This work is resulting in development of a new field reservoir model and the Joint Venture now plans to acquire 3D seismic over the field area as well as considering proposals for re-entering a number of existing wells. 

Petisovsci Dolina Re-Development Project (Deep)

15.75% interest

The partnership has been evaluating the deep E1 sands which were tested and flowed gas in the D-14 well in the fourth quarter 2007. Further well intervention work is planned for the D-14 well and the results of the 3-D seismic will assist in planned future operations.

East Slovenia Exploration Permit

80% interest

In July 2008, the company signed a Preliminary Agreement for an 80% participation in the exploration of the East Slovenia Exploration Permit to the north of the Petisovsci oil and gas field redevelopment project. The East Slovenian Project covers an area of 864 sq. km over three separate blocks within the Pomurje Regional Exploration Area. The current work programme envisages a regional exploration study followed by seismic and exploration or appraisal drilling in 2009. 

ITALY

Ascent has interests in four projects in Italy:

Cento and Bastiglia Exploration Permits

50% interest

These permits in the Po Valley were farmed-out in 2007 to Otto Energy Limited of Australia which has taken a 50% interest in return for paying for the cost of one firm well and one contingent well. The Gazzata-1 well is targeting the Gazzata gas structure and the well is scheduled to spud in the fourth quarter 2008.

Fiume Arrone Exploration Permit

56% interest

Following the drilling of the Arrone-1 gas exploration well which found small quantities of gas in the secondary target, the well was subsequently abandoned. During the period a post mortem and geoscience study was undertaken of the findings which demonstrated that the reservoir would not be capable of commercial production. As a result the Company has fully impaired the asset with all costs associated with the project fully written off. 

Frosinone Exploration Permit

80% interest

After drilling the Anagni-1 well which had good oil shows both in core samples and during testing, the Company acquired some 30km of 2-D seismic to better understand the configuration of the Anagni structure and to investigate possible locations for an updip appraisal well.  The results from the new seismic are encouraging and planning for the drilling of an Anagni appraisal is now under consideration.

Strangolagalli Concession

50% interest

Ascent has a 50% interest in this concession as part of a joint venture with Pentex Italia srl. The area contains the Ripi oilfield which is operated by Pentex and Ascent has exploration rights below this field. The work that is being carried out in the Frosinone permit to the north-west will assist the exploration team in assessing the prospectivity of the adjoining Strangolagalli area. The possibility of a redevelopment of the Ripi field is also under consideration.

Perazzoli Drilling

22.5% interest

Ascent acquired a 22.5% interest in Perazzoli Drilling in the fourth quarter 2007. The recently delivered, latest generation, low environmental impact, 200 Tonne capacity hydraulic rig, will be used to drill the Gazzata prospect in the Ascent operated Cento and Bastiglia permit.

The purchase of the interest in Perazzoli Drilling gives the Company priority access to certain drilling rigs. The participation in Perazzoli Drilling is important for Ascent as it not only gives a competitive advantage in oil and gas activities but the strong order book should also contribute to financial stability.

SWITZERLAND

Ascent holds four exploration permits in Switzerland 

Seeland-Freinisberg Exploration Permit

80% interest

This permit was awarded to SEAG on behalf of the Ascent Joint Venture in August 2005 and was extended to December 2011 in April this year. Seismic reprocessing and geological modelling has been completed on the Hermrigen structure and drilling of the Hermrigen-2 well to appraise the productive gas discovered by the Hermrigen-1 well is planned for mid 2009, subject to the issue of a construction permit. In February this year, the location of the Hermrigen-2 appraisal well was discussed with the local Town Council and a location was chosen close to the original well. Ascent is currently in discussions with a number of third parties for the farm-out of this opportunity.

Linden Exploration Permit

90% interest

This permit was awarded to SEAG on behalf of the Ascent Joint Venture in August 2005 and was extended to December 2011 in April this year. It contains the Linden-1 well which tested gas at a rate of 3 mmscfd.

Gros de Vaud Exploration Permit

90% interest

This permit was awarded to SEAG on behalf of the Joint Venture in May 2006 and was extended to June 2010 earlier this year. This exploration permit is north of the city of Lausanne and contains the 1962 Essertine-1 discovery which produced small amounts of oil on test. 

Concordat Exploration Permit 

35% interest

In July 2008, Ascent acquired a 35% beneficial interest in 97% of the 7,495 sq. km Concordat Exploration Permit. This interest will be assigned to PEOS AG, Ascent's wholly owned Swiss subsidiary. The work programme planned for this permit for the remainder of 2008 involves the reprocessing of existing seismic data.

SPAIN

In the fourth quarter 2007, Ascent sold its Spanish assets to Leni Gas and Oil plc but retained an interest in the pending Rocamundo exploration application. During 2008, the Rocamundo application was superseded by the Bigüenzo exploration application lodged by Gas Natural, a large Spanish energy and exploration company. Following a strategic review of core operations Ascent has decided to exit the country.

NETHERLANDS

27% interest

In November 2006 Ascent was awarded exploration licences for the M8, M10, M11 and P4 blocks offshore Netherlands. The preliminary geoscience work programme to establish the hydrocarbon potential of this exploration and appraisal project has been completed and a divestment of these assets is under consideration.

FINANCIAL REVIEW

Results for the period

The results for the period reflect continued development of the Company's exploration assets, principally in Hungary, Italy and Slovenia. As set out in the Operations Review there has been a wide range of testing, geological and geophysical activity in the period. However, as part of that process over £2 million has been written off following an on-going review of the portfolio and the carrying value of permits and well costs in Hungary and Italy. Given the capital spend in the period and the timing of revenue receipts post period end the loss for the period of £2,768,809 was expected. 

Revenue from gas production in Hungary came on stream after the period end (see note 11 'Post Balance Sheet Events').

Liquidity and Capital Resources

The Company continues at this time to be an emerging business with limited cash flows, consequently, it has to manage its working capital and liquidity position by balancing the timing of critical expenditure with income from joint venture arrangements and, where appropriate, profits from strategic divestments. 

Further information on future funding arrangements and the Director's assessment of the Company's going concern position is set out in note 1 of this Interim Report.

Principal Risks and Uncertainties

The principal risks and uncertainties affecting the business activities of the Group remain those detailed on page 28 of the December 2007 Annual report, a copy of which is available on the Company's website at www.acentresources.co.uk. The Chairman's Statement and Review of Operations in this interim report include comments on the outlook for the Group for the remaining six months of the financial year.

On behalf of the Board

Jeremy Eng

Managing Director

29  September 2008

INDEPENDENT REVIEW REPORT TO ASCENT RESOURCES PLC

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly report for the six months ended 30 June 2008 which comprises condensed consolidated income statement, condensed consolidated statement of recognised income and expenses, condensed consolidated balance sheet and the condensed consolidated cash flow statement and the related explanatory notes. We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly report in accordance with the AIM Rules

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly report has been prepared in accordance with the recognition and measurement requirements of IFRSs as adopted by the EU. 

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with the recognition and measurement requirements of IFRSs as adopted by the EU and the AIM Rules.

Emphasis of matter

In forming our review conclusion on the condensed set of financial statements in the half-yearly financial report, which is not qualified, we have considered the adequacy of the disclosure made in Note 1 concerning the Group's ability to continue as a going concern. The Group incurred a net loss of £2.77 million during the period ended 30 June 2008. The group's ability to continue as a going concern is dependant on continuing to operate within its available facilities which is dependent on the Group generating cash inflows in line with projections. The Group raise finance for its exploration and appraisal activities in discrete tranches. These conditions along with other matters discussed in Note 1, indicate the existence of a material uncertainty which casts significant doubt on the Group's ability to continue as a going concern. The interim statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

KPMG Audit Plc
Chartered Accountants 

20 Farringdon St

London 

EC4A 4PP

29 September 2008

CONSOLIDATED INCOME STATEMENT 

For the six months ended 30 JUNE 2008

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

For the six months ended 30 JUNE 2008

CONSOLIDATED BALANCE SHEET 

For the six months ended 30 JUNE 2008