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

17 April 2018

Ascent Resources plc

("Ascent" or the "Company")

Audited Final Results for the year ended 31 December 2017

Transformational Year

Ascent Resources plc (AIM: AST), the AIM quoted European oil and gas exploration and production company, is pleased to announce its audited full year results for the year ended 31 December 2017.

2017 Highlights

·     Profitable, cash generative and debt free

·     Producing from a high value gas asset

·     Potential to increase production through well recompletions using existing infrastructure

·     Cash reserves of over £1 million

The Company has today announced it will conduct a review of the various strategic options available to the Company to maximise value for shareholders.

This will include both, seeking to identify a partner to work with the Company to maximise the opportunities to develop existing assets and offers for the Company.

 

Colin Hutchinson, CEO of Ascent Resources plc, commented:

"This has been a transformational year for Ascent, as we have moved from an exploration company to a production company. We look forward to our continued success in the future." 

 

Enquiries:

Ascent Resources plc Clive Carver, Chairman Colin Hutchinson, CEO	0207 251 4905
WH Ireland, Nominated Adviser & Broker James Joyce / Alex Bond	0207 220 1666
Yellow Jersey, Financial PR and IR Tim Thompson / Harriet Jackson / Henry Wilkinson	0203 735 8825

 

Chairman's Statement

Introduction

The year under review was transformational for your Company.  The details of the milestones achieved are set out in the Chief Executive's Review. Their cumulative effect is to have moved the Company onto a new level.

In comparison to many other similar sized companies we are, in the absence of unforeseen technical issues at Petišovci, self-funded in that we expect income from the gas being sold to INA in Croatia to exceed our day to day operational and administrative costs for the foreseeable future.  We have also eliminated virtually all debt from the business.

There are several initiatives underway at Petišovci, funded from current operating cash flow, to advance our field development plan, further details of which are contained in the Chief Executive's Review. These are expected to improve the financial performance of the Company at affordable costs.

Background

Your Board came together in 2012/13 at the time of rescue funding. Our focus then was to move the Company from its perilous financial state and become operationally cashflow positive.

Since 2013, assets other than Petišovci were sold or closed; partnership agreements at Petišovci were renegotiated; costs were cut; and, while we have been waiting for permits, alternative sources of income, being principally the sale of our untreated gas to Croatia, were put in place, which together with periodic injections of new cash have kept the Company afloat.

The primary objective of becoming operationally cashflow positive was achieved with the delivery of first export gas production in November 2017.

Our next objective is to use the Slovenian base to create a larger regional gas producer. This requires both the development of the next phase ('Phase 2') of the project where we add further wells and install our own processing facility and the acquisition of stakes in other projects.

Constraints on planned growth

The development of Petišovci and the acquisition of stakes in other regional gas projects require investment.  While equipment, including the long-awaited treatment plant can be largely debt funded, acquiring an interest in other projects requires additional equity.

With the net present value of the Petišovci project estimated to be around 10 times the current market capitalisation of the Company and the share price lagging behind analyst estimates, now is not the time to dilute the underlying value in the Company's shares based on the levels at which they presently trade.

Additionally, the Board is clear that diluting from such a low level is not an option most shareholders wish to pursue.  Equally, we recognise doing nothing is unlikely to be in the interests of shareholders generally.

Permits

There is no doubt that the painfully slow delivery of the regulatory approvals required to properly develop Phase 1 of the Petišovci project and to commence Phase 2 has unnerved existing and prospective shareholders.

Perhaps it is inevitable in such circumstances that conspiracy theories develop as to why the permits have not been delivered. Our firm belief is that the delays are purely the result of the slow operation of an inefficient state bureaucracy, where those responsible for delivering the permits receive no praise or reward for so doing but rather may become the targets of unrepresentative but vocal action groups.

In such circumstances, without the active encouragement of the Government at the highest levels, the officials responsible have no incentive to move at other than the slowest pace. Since the delivery of first export gas in November 2017, we believe the commitment of the country's top politicians to end their reliance on gas sourced principally from Russia has become much stronger, as it can now be seen as a deliverable reality rather than just a dream.

We continue to expect the delivery of the permits required to develop Petišovci in due course.

IPPC permit

Investors have placed great store by the award of the IPPC permit and its delay has clearly had an impact on the share price. While the award of the IPPC permit will be a major political endorsement for Ascent and the Petišovci project, the permits that will make the greatest short-term impact are the permits to re-enter and stimulate additional wells.

Permits are dealt with in greater detail in the Chief Executive's Review.

The way forward

The planned further development of the Petišovci project and the diversification into other regional projects is not an option currently available to the Company without potentially significant dilution for shareholders.

Doing nothing is not an attractive option, although in a previous era it would have been the choice of boards less interested in maximising shareholder value.

We have received several expressions of interest from industry players interested in working with us to allow the development of the Company as indicated above.  These include farm-outs and general strategic partnerships. These are at an early stage and time will tell if any bear fruit.

Rather than wait for these or other options to materialise, we have decided to take a proactive approach and initiate a Strategic Review in conjunction with GMP FirstEnergy, an independent advisory firm with extensive energy sector expertise. Our purpose in this is to identify a partner to work with us to maximise opportunities to develop our existing assets to their fullest potential and, as appropriate, other assets in the region.

By so doing we expect to maximise the chances of a deal with a long-term partner to the benefit of all Ascent shareholders.

 

 

 

Clive Carver

Non-executive Chairman

16 April 2018

Strategic Report

Section 414C of the Companies Act 2006 ('the Act') requires that the Company inform its members as to how the Directors have performed their duty to promote the success of the Company by way of a Strategic Report which includes a fair review of the business, an analysis of the development and performance of the business and analysis of financial position and key performance indicators.

We have incorporated these requirements into the information set out below, included in the Chief Executive's Review and the Operations Report.

Company Overview

Ascent Resources plc ('Ascent' or 'the Company') is an independent oil and gas exploration and production ('E&P') company that was admitted to trading on AIM in November 2004 (AIM: AST).  Ascent has been involved in Slovenia for just over 10 years where it operates the Petišovci Tight Gas Project.  To date it has invested around ? € 50 million in this project, which is currently its principal asset.  This asset has significant oil and gas reserves and resources and an established, local production infrastructure with connections to local and export customers.

During 2017 the Company brought two wells into production and started export production from the Petišovci field in Slovenia to INA in Croatia.  The Company is now focussed on developing the field further to increase production and enhance its long-term prospects.

Asset Overview

The Petišovci Tight Gas Project is in an area that has been exploited since 1943.  The project targets the significant gas reserves and resources in the Badenian, Middle Miocene, Petišovci-Globoki ('Pg') gas reservoirs which occur at depths of 2,000-3,500 m (6,562-11,484 ft).  These Pg reservoirs are a series of interbedded sands and shales with a stacked productive gas pay of some 290 m (951 ft).   

Using the results of an extensive 3D seismic survey conducted in 2009 by Ascent and its partners, the locations of two new wells were determined.  These wells, Pg-11A and Pg-10 were successfully drilled, completed and stimulated between 2010 and 2012.  During 2017 the Company brought both of these wells into production and started exporting gas from Petišovci to INA in Croatia.

Cumulative gas production from the Pg gas field since 1988, including fuel and flare use and accounting for the gas equivalent of the historical condensate production, is 9.3 Bcfe (263.4 MMSm³).   This is 2% of the currently estimated gas initially in place ('GIIP') of 456 Bcf, (12.9 BSm³), based on independent third-party estimates.

Further details of the asset and current reserves and resources can be found on pages 11 and 12 below.

Ascent operates the Petišovci project on behalf of the Joint Venture between Ascent Slovenia Limited and Geoenergo.  Ascent has a 75% working interest in the project and carries 100% of the costs.  Until Ascent has recovered its costs in full it will receive 90% of the net revenues.

Our strategy

The Board firmly believes that the gas field at Petišovci is an outstanding prospect and therefore to date has focussed all of its resources on this project, directing our available funding towards bringing Petišovci into production. 

Ascent aims to maximise the production and sale of hydrocarbons from the Petišovci Project for the benefit of all stakeholders.  We will achieve this by carefully managing producing wells, successfully reworking existing wells and drilling further wells.

The commencement of production during the year was a significant milestone and we will now proceed with the second stage of our development plan at Petišovci while seeking to acquire additional onshore oil & gas opportunities in Central & Eastern Europe.  In order to identify the best structure through which to achieve these objectives we have decided to implement the strategic review as discussed in the Chairman's statement above.

Our markets

Dependency on imported gas is very high throughout the EU, particularly in Slovenia.  This, and the history of relatively stable gas prices in Europe underpins our strategy of exploration, development and production in this region.

Our wells are connected to existing processing facilities, intra-field and international pipelines, ensuring low cost connection and easy access to the market.

How we operate

The Company utilises a full range of advanced geophysical, geological and other state-of-the-art technology to evaluate and de-risk projects and to reap maximum benefit from its appraisal, development and production activities.  Our Petišovci project is operated through a local entity in a joint venture. Wherever possible we utilise local companies to provide services to the project effectively and efficiently. 

Our people

Ascent has a small management team, implementing a defined development programme.  This is supplemented, as the need requires, with regional technical and operational expertise to ensure the highest standards are delivered on our projects.  As an important local employer in our area of operation we take our environmental and social responsibilities seriously and always strive to be a good corporate citizen.

 

 

Chief Executive's Review

The past year was a hugely significant year for the Company and the project as we moved from an exploration to production company after ten years of operation in Slovenia.  We have overcome considerable legal, regulatory, technical and financial hurdles to arrive at this point.

2017 Highlights

-       Recompletion of Pg-10

-       Recompletion of Pg-11A

-       Refurbishment of existing infrastructure

-       Start of production from Pg-10 in April 2017 and Pg-11A in September 2017

-       Start of export production to Croatia in November 2017

-       £1 million end of year cash balance, including £0.4million of restricted cash.

-       Debt reduced from £8.7m to £49k (actual cash liability rather than accounting measure).

-       £0.8 million (almost €1m in local currency) revenue from production

Recompletion of well Pg-10

In January 2017, we finalised the recompletion work on the first of two wells, Pg-10, and perforated the production tubing at a depth of 3,102 metres.  The well was subsequently tested and a maximum stabilised flow rate of 249,000 cubic metres (8.8MMscfd) was achieved on a 12 mm choke. 

Recompletion of well Pg-11A

The workover at Pg-11A started in April 2017 and was completed in August 2017.  A section of the production tubing was removed and replaced and production well head equipment was installed.  The operation took longer than anticipated after a wireline tool became stuck in the tubing during the final procedures to remove the bottom hole plug. 

Refurbishment of the existing processing facility (CPP)

The refurbishment of existing infrastructure was required to produce gas for export.  The main work involved installing a replacement separator, sufficient for the increased pressures and flow rates expected on the export line.  This work was completed in July 2017 and the replacement separator is capable of processing 240,000 cubic metres per day (8.5MMscfd).

Commencement of production

Production from Pg-10 started on 14 April 2017 and production from Pg-11A on 15 September 2017. 

Connection and certification of the export pipeline

The 8" export pipeline which runs from the land at MRS Lendava owned by our 100% owned subsidiary, Trameta, to the field operated by INA at Medjimurje in Croatia was pressure tested and certified by the Slovenian authorities in November 2016. 

The 6" production pipeline which runs from the CPP past MRS Lendava was refurbished and recertified during the year.  At the same time, the surface infrastructure required to clean and maintain the pipeline was installed at MRS Lendava.  Following this, the connection between the two lines was installed and tested and an operational certificate issued by the Slovenian authorities.

Finally, in November 2017, the Croatian authorities issued an operating permit for the export pipeline on the Croatian side.  The export pipeline can accommodate daily production of over 800,000 cubic metres per day (28 MMscfd).

Analysis of business performance

1.     Operational performance

Production KPI's	Apr-2017	May-2017	Jun-2017	Jul-2017	Aug-2017	Sep-2017
Total production (000s M3)	246	475	532	244	499	528
Total production (MCF)	8,689	16,765	18,783	8,616	17,639	18,653
Days producing	14	31	29	22	31	26
Average daily - 000s M3	17.6	15.3	18.3	11.1	16.1	20.3
Average daily - MMscfd	0.6	0.5	0.6	0.4	0.6	0.7
Condensate production (litres)	5,616	8,856	10,520	3,402	6,258	11,904
BOE - Gas	1,498	2,891	3,238	1,486	3,041	3,216
BOE - Condensate	35	56	66	21	39	75
Production KPI's	Oct-2017	Nov-2017	Dec-2017	Jan-2018	Feb-2018	Mar-2018
Total production (000s M3)	-	1,716	1,975	2,235	1,788	1,243
Total production (MCF)	-	60,606	69,759	78,934	63,129	43,894
Days producing	-	29	31	31	28	31
Average daily - 000s M3	-	59.2	63.7	72.1	63.8	40.1
Average daily - MMscfd	-	2.1	2.3	2.5	2.3	1.4
Condensate production (litres)	-	46,332	89,856	96,147	65,470	59,130
BOE - Gas	-	10,449	12,027	13,609	10,884	7,568
BOE - Condensate	-	291	565	605	412	372

 

In total 11.4 million cubic metres of gas and 2.2 thousand barrels of condensate have been sold in the 12 months since the commencement of production on 14 April 2017.

Between 14 April 2017 and 13 April 2018, the wells have been producing for 308 out of 365 days (84%).  Production was suspended for 17 days in July and August 2017 as part of our customers' seasonal maintenance programme.  Production was suspended from both wells for 34 days in total from the end of September to early November 2017 while the export infrastructure was connected and tested in anticipation of export production starting. 

Production from well Pg-10 has been satisfactory and in line with expectations.  It has been in production for just over one year and to date has produced 10.4 million cubic metres of gas.  In addition, the production has given us an increased understanding of the 'F' sands and their long term productive capabilities.

Well Pg-11A was a more difficult well to recomplete and bringing this well into stable production has been more challenging.  During the workover in 2017 a choke and a piece of tooling were left downhole at the end of the operation.  At the time it was expected that the well would flow satisfactorily with the restriction in place.  However, the performance of the well since September has been sub-optimal and so the operation to remove the tooling and the choke was carried out in March 2018.  The operation began on the 14 March 2018 and the well was put back into production on 28 March 2018, the tooling having been removed and the tubing opened significantly, although part of a mandrel remains stuck at 2,200 metres. 

As the water column has not yet been fully removed from the well, the flow rates and pressure have not yet fully recovered.  Ascent's engineers are currently working to remove the water and allow gas to flow more freely to the surface again.

2.     Financial performance

The financial highlights for the period are the reporting of revenues for the first time since 2013 and the significant reduction of debt which has reduced to less than £40,000 during the year.

·      Revenues for the period of £814,000 (2016: £Nil) through test production from April 2017 until the start of November 2017 and then commercial production thereafter;

o  £276,000 was derived from gas sales in Slovenia.

o  £489,000 was derived from gas sales in Croatia.

o  £49,000 was derived from condensate and other sales.

·      Gross margin generated of £411,000 (2016: £Nil) after charges to transfer the margin on test phase production to exploration and evaluation costs of £67,000 (2016: £Nil) in line with the Company's accounting policy.

·      Loss from operating activities during the period increased on the comparable period in 2016 by £237,000 to £1,619,000 as a result of the increase in activities and operational supports costs required as the Pg-10 and Pg-11A wells were brought production.

·      Loss before tax reduced by £710,000 to £1,966,000 as a result of the reduced finance costs on loan notes following their early conversion to equity.

·      Borrowings have reduced by £6 million over the year and the Company is now virtually debt free.

·      Raised £2,988,000, before costs of £161,888 in equity, during February 2017 and a further £1,500,000 before costs of £100,000 in equity during November 2017; both through heavily subscribed offers on the PrimaryBid platform.

·      £4.5 million (2016: £0.7 million) of additions to exploration and evaluation costs prior to the transfer of £24.1 million of assets into production, related to Pg10 and Pg11a and their share of the exploration cost pool following determination of commercial production in November 2017.

 

3.     Share Price performance

The operational and financial successes noted above have not translated to a positive movement in the share price.  We believe that the current share price significantly undervalues the potential of the Petišovci project and discounts the significant progress that has been made during 2017 to monetise the asset. 

The Company has a high potential asset, located in a stable EU country, which is producing sufficient gas and condensate to make the Company profitable and cash generative in future periods.  We have strong partners in Slovenia and the wider region together with a detailed understanding of the subsurface, and of the permitting and regulatory system.  The Company is well placed to grow within Slovenia and the region and I am of the view this has not been reflected in the share price during Q4 2017 and Q1 2018.

Future Field Development

The Board of Ascent has, for some time, recognised the high potential of the Petišovci reservoirs and has focussed all of its resources on bringing the first two 'new' wells (Pg-10 and Pg-11A) into production.  The next phase of the development plan is to re-enter and bring into production all suitable existing wells.  We estimate that up to seven of the existing Pg wells and well D14 are suitable candidates and we have begun the process required to re-enter these.

As part of the process, we will conventionally perforate and produce from a number of these wells; this will provide data on the pre-stimulation performance of the reservoirs, while at the same time generating revenue for the joint venture.

While the focus of the development plan is to produce the significant quantities of gas in the Pg reservoirs, the Company is also undertaking further studies of the Pontian Upper Miocene ('Pt') reservoirs where around 6 MMbls of oil has been produced in the past.  These studies will be looking to identify any untapped potential in these reservoirs, either through additional drilling or enhanced recovery techniques.

In addition to the further potential upside in the shallow oil there exists the possibility of further hydrocarbons below the discovered Pg reservoirs.  The feasibility of drilling past 4,000 metres when carrying out future re-entries is another potential upside being assessed by our technical experts.

IPPC Permit

We submitted our original application in June 2014; in November of that year the Slovenian Environmental Agency ('ARSO') approved the content of the application and initiated a public consultation process.  In July 2015, once all reasonable objections raised by the general public had been addressed by the partners, to the satisfaction of ARSO, the permit was provisionally awarded but was immediately appealed.  In November 2015 the Environment Minister dismissed the appeal but a subsequent appeal was made to the Administrative Court. 

Ascent and its partners had followed the permitting process as advised by the authorities and confirmed by our legal advisers.  It was therefore surprising and disappointing when the Administrative Court ruled in May 2016 that Slovenia had not implemented EU Directives appropriately and we were effectively returned to the beginning of the process.  We were obliged to follow rules which had been implemented after we had submitted the original application despite Slovenian law clearly stating the opposite.  This was deeply frustrating as was the lack of any possibility for timely redress.  We were advised that the quickest way through would be to follow the revised process.

In November 2016 our revised application using the 'Preliminary Screening' procedure was approved by ARSO but was again immediately appealed.  In March 2017 the appeal was again dismissed by the Environment Minister and again a further appeal was made to the Administrative Court.  On this occasion, in November 2017, the Court ruled in our favour and confirmed that the Preliminary Screening process had been appropriately applied.

We have now submitted the baseline reports required by ARSO before the permit can be finally awarded.

Principal risks and uncertainties

Permitting risk	The single biggest issue when carrying out operations in Slovenia over the past five years has been the environmental permitting process.  This is not unique to Ascent and it is our opinion that inefficiencies and uncertainties within the environmental permitting process are a significant hurdle to economic growth in Slovenia.   The process to obtain a permit for the construction of a processing plant so that Slovenian gas can be treated and sold in the Slovenian market has taken significantly longer than should have been the case, due to the misapplication of EU Law by the Slovenian Government.   Permitting risk exists for any elements of the field development plan which require an environmental permit; mainly well stimulation and the installation of processing equipment.  This risk is mitigated by our detailed understanding of the process and our continued lobbying for a reform of the more inefficient elements of the law.
Concession extension risk	The date when the concession is due to be renewed is now only four years away which means that before any further significant investment in facilities is made the Company and its partners will need to have obtained an early extension of the concession.   The Company and its partners have, for over a year now, been completing the documentation required to seek an early extension of the concession which is due to expire in 2022.  While we are confident that an extension will be granted as a matter of course there is however no guarantee that this will be the case.   This risk is mitigated by the goals of the partners being well aligned; the fact that we have brought the field into production safely and successfully and we have started the preparatory work well in advance of the concession end date.  As a result of which we believe that the extension should be awarded in due course.
Sub-surface risk	The nature of the Petišovci Project is such that a range of health and safety, drilling, production and commercial risks are identified for the development of the resource.   The Petišovci Pg reservoirs are over-pressured and hot, relative to normal hydrostatic and thermal gradients.  The reservoir gas contains some carbon dioxide and low levels of hydrogen sulphide and mercaptan sulphur.   There is a risk that the Company is unable to effectively exploit the proven reserves and resources from the Petišovci field which may result in a lower than anticipated return on investment.  This risk is mitigated by the experience of the expert technical consultants and sub-contractors retained by the Company and the knowledge acquired by the Company from production to date.
Legal risk	Now that the Group is generating revenue from the Slovenian asset it has received legal claims relating to past activities.  Based on legal advice received we consider these to be spurious and without merit.  The Board will vigorously reject such opportunistic approaches.
Risks associated with the UK withdrawal from the European Union	As a UK registered Company with operations in the EU, there is a risk of a negative impact from the UK's departure from the European Union.  This risk is mitigated as we operate through locally owned subsidiaries selling gas produced in Slovenia to Croatia, another EU member state.

Outlook

2017 was a transformative year for the Company.  In 2018 and beyond we look forward to the continued development of the Petišovci field.  Wells Pg-10 and Pg-11A are intended to prove the commerciality of the wider field and the significant reserves and resources contained within.

While we anticipate receiving the IPPC permit to construct our own processing facility in due course this is not a priority to the Company as in the meantime we have refurbished and increased the capacity of the existing infrastructure.

The Company is in a strong position; we have an onshore European gas asset with significant potential to grow.  The net present value of this asset, as estimated by the Company and market analysts, is many times the current market capitalisation.  In addition, we have further upside potential within the Petišovci concession and opportunities within Slovenia and the wider region.  

We are delighted to have moved from an exploration company to a production company during the year.  It has been the goal that we have been working towards for many years and we now look forward to building from this base and growing the Company into a significant regional Oil & Gas producer.

 

 

 

Colin Hutchinson

Chief Executive Officer

Operations Review

Slovenia

Ascent Slovenia Ltd 75% (operator), Geoenergo d.o.o. 25% (concession holder)

 

The Petišovci Tight Gas Project, in a 98 km2 area in north eastern Slovenia, targets the development of tight gas reservoirs known to be in Miocene clastic sediments.

Ascent first acquired an interest in the Petišovci project in 2007 and in 2009 an extensive 3D seismic survey was conducted across the Petišovci concession area.

The structure has two sets of reservoirs, the shallower Upper Miocene and the deeper Middle Miocene.  The Middle Miocene Badenian reservoirs, or Pg sands, are the focus of Ascent's development objectives; however, the shallow reservoirs, which were extensively developed during the 1960s, are not considered to be fully depleted.

The north-east region of Slovenia has been an oil and gas producing area since the early 1940s and contains much of the infrastructure necessary for processing and exporting produced hydrocarbons.

Two new appraisal wells, Pg-10 and Pg-11, drilled in 2010/2011 to a total vertical depth of 3,497 m and 3,500 m respectively, confirmed gas in all six Middle Miocene Badenian reservoirs ('A' to 'F' Pg sands).  Gas flowed for the first time from the shallowest 'A' sands and, in addition, gas and condensate were sampled from the Lower Badenian 'L' to 'Q' sands.  Pg-10 proved productive from the 'F' sands and Pg?11A (Pg-11 was side-tracked for technical reasons to Pg-11A) from the deeper 'L' to 'Q' sands.  Both wells were successfully fracture stimulated resulting in flow rates of 8 MMscfd from the 'F' sands and 2 MMscfd from the 'L, M and N' sands, proving the commercial potential of both wells.

During 2017 both Pg-10 and Pg-11A have been brought into production.  In April 2017 test production commenced from Pg-10 with the resulting gas sold to a local industrial customer.  In November 2017 export production began.  This followed the upgrade and installation of infrastructure and the recommissioning of the export pipeline which links the Petišovci field in Slovenia with the Medjimurje field in Croatia which is operated by INA.  Total production for the year was 5,989,921 cubic metres of gas, resulting in revenue of £814,000. The Company is entitled to 90% of the proceeds of revenue from production until such time as back costs have been recovered.

Back-in Rights

Netherlands

As part of the Sale and Purchase Agreement signed in 2013 with Tulip Oil for the Company's former Dutch licences, Ascent has the right to re-purchase a 10% interest in each of the Dutch licences once Tulip has made a final investment decision with respect to the commercial development of the Terschelling-Noord Field.

 

 

Summary of Group Net Oil and Gas Reserves

Net Reserves and Resources

 

	Net Attributable			Net Attributable			Net Attributable
	Reserves			Contingent Resources			Prospective Resources
	(Bcfe)			(Bcfe)			(Bcfe)
	P90	P50	P10	Low	Best	High	Low	Best	High
Slovenia	41	88	173	42	76	140	-	-	-

 

These figures are based on RPS gas-in-place estimates with a management assumption of a 50% recovery factor and Ascent's 75% participation.

Tested and/or produced commercial sands are included as reserves while untested and unproduced sands remain as resources.  The condensate content of gas is not included.

Remaining reserves have been adjusted to take account of historic field production and estimates of process flare and fuel, which to the end of 2017 were 9.3 Bcfe.  Ascent's share of this production and gas use is 7.0 Bcf.

Proven Reserves (P90) are those quantities of petroleum which can be estimated with reasonable certainty to be commercially recoverable, from known reservoirs and under current economic conditions, operating methods and government regulations.

Proven + Probable Reserves (P50) includes those unproven reserves which are more likely than not to be recoverable.

For the P90 (P50 and P10) Reserves there is at least a 90% (50%; 10%) probability that the quantities actually recovered will equal or exceed the estimate. 

Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more contingencies.  Contingent resources may include, for example, projects for which there are currently no viable markets or where commercial recovery is dependent on technology under development or where evaluation of the accumulation is insufficient to clearly assess commerciality.

Prospective Resources are those quantities of petroleum which are estimated to be potentially recoverable from undiscovered accumulations.

The range of estimates shown for each category of reserves or resources is a measure of the uncertainty inherent in the estimation of producible volumes and includes the current perceptions of geological, operational and commercial risk.

 

 

Summary of Ascent Resources plc's Licence Interests as at 31 December 2017

Permit	Subsidiary	Working Interest	Permit Area Gross	Net	Status
		(%)	(km2)	(km2)
Operations
Slovenia
Petišovci Concession	Ascent Slovenia Limited	75	98	73	Oil & gas exploitation
Back in rights
The Netherlands
M10a/M11 Terschelling-Noord	Ascent Resources Netherlands BV		110	59	Gas exploration and appraisal

 

 

Glossary

 

M	Thousand*		cf	Cubic feet
MM	Million*		scf	Standard cubic feet
B	Billion*		scfd	Standard cubic feet per day
km2	Square kilometres		Bcfe	Billion cubic feet equivalent
m3	Cubic metres

*    These are 'oilfield' units, as commonly used in the oil and gas industry.  Other units conform to the Système International d'unités (SI) convention

 

 

Directors' Report

The Directors present their Directors' Report and Financial Statements for the year ended 31 December 2017 ('the year').

Principal activities

The principal activities of the Group comprise gas and oil exploration and production.  The Company is registered in England and Wales and is quoted on the AIM Market of the London Stock Exchange.

The Group's corporate management is in London and its oil and gas interests are in Slovenia.  The Group operates its own undertakings both through subsidiary companies and joint ventures.  The subsidiary undertakings affecting the Group's results and net assets are listed in Note 11 to the Financial Statements.

Future developments

The Company has identified the European gas market as a relatively stable and secure arena in which to compete.  The European market continues to be a net importer of gas whilst diversity of supply is central to the energy security strategy of most nations.  The Petišovci field in Slovenia has the potential to supply a significant proportion of the country's gas requirement for many years.

Financial risk management

Details of the Group's financial instruments and its policies with regard to financial risk management are given in Note 25 of the Financial Statements.

Results and dividends

The loss for the year after taxation was £2.0 million (2016:  £2.7 million).  The Directors do not recommend the payment of a dividend (2016: Nil).

Post balance sheet events

In March 2018 the Company carried out an operation at Pg-11A to remove a choke and some stuck tooling left downhole at the end of the workover operation in August 2017.  At the time it was expected that the well would flow satisfactorily with the restriction in place.  However, the performance of the well since September has been sub-optimal and so the operation to remove the tooling and the choke was carried out.   The tooling was removed, and the tubing opened significantly, although part of a mandrel remains stuck at 2,200 metres. As the water column has not yet been fully removed from the well, the flow rates and pressure have not yet fully recovered.  Ascent's engineers are currently working to remove the water and allow gas to flow more freely to the surface again.  The results of the operation are not clear at the date of this report.

Directors

The Directors of the Company that served during the year, and subsequently, were as follows:

Colin Hutchinson

Clive Nathan Carver

Nigel Sandford Johnson Moore

William Cameron Davies

Relevant details of the Directors, which include committee memberships, are set out on page 17 .

 

 

Directors' interests

The beneficial and non-beneficial interests in the issued share capital and CLNs of the Company were as follows:

	Ordinary shares of 0.1p each.		Convertible loan notes.
	At 31 December 2017	At 31 December 2016	At 31 December 2017	At 31 December 2016
Clive Carver	3,304,231	-	-	34,166
Nigel Moore	1,339,275	5,975	-	13,333
Cameron Davies	1,340,800	7,500	-	13,333
Colin Hutchinson	1,570,370	270,270	-	10,001

 

Directors' emoluments

Details of Directors' share options and remuneration are set out in Note 4 to the Financial Statements, under the heading 'Directors' remuneration'.

Third party indemnity provision

The Company has provided liability insurance for its Directors.  The annual cost of the cover is not material to the Group.  The Company's Articles of Association allow it to provide an indemnity for the benefit of its Directors which is a qualifying indemnity provision for the purposes of the Companies Act 2006.

Share capital

Details of changes to share capital in the period are set out in Note 18 to the Financial Statements.

As at 12 April 2018 the Company has been notified of the following significant interests in its ordinary shares, being a holding of 3% and above:

	Number of ordinary shares	%
Hargreaves Lansdown (Nominees) Limited <15942>	254,610,943	11.22
Interactive Investor Services Nominees Limited <SMKTNOMS>	211,185,736	9.31
Hargreaves Lansdown (Nominees) Limited <HLNOM>	198,422,171	8.75
Barclays Direct Investing Nominees Limited <Client1>	195,506,143	8.62
HSDL Nominees Limited	155,138,981	6.84
Hargreaves Lansdown (Nominees) Limited <VRA>	149,326,807	6.58
Interactive Investor Services Nominees Limited <SMKTISAS>	117,007,551	5.16
HSDL Nominees Limited <Maxi>	92,166,811	4.06
Share Nominees Ltd	91,488,407	4.03

 

Shareholder communications

The Company has a website, www.ascentresources.co.uk , for the purposes of improving information flow to shareholders, as well as potential investors.

Employees

The Company's Board composition provides the platform for sound corporate governance and robust leadership in implementing the Company's strategies to meet its stated goals and objectives.

The Group's employees and consultants play an integral part in executing its strategy and the overall success and sustainability of the organisation.  The Group has a highly skilled and dedicated team of employees and consultants and places great emphasis on attracting and retaining quality staff.  As an international oil and gas company, we facilitate the development of leadership from the communities in which we operate.  There is a large pool of qualified upstream oil and gas exploration and production professionals in the areas in which we operate, and we are committed to building and developing our teams from these talent pools.

The Group holds its employees and consultants at all levels to high standards and expects the conduct of its employees to reflect mutual respect, tolerance of cultural differences, adherence to the corporate code of conduct and an ambition to excel in their various disciplines.

Disclosure of information to auditors

In the case of each person who was a Director at the time this report was approved:

·      so far as that Director was aware there was no relevant audit information of which the Company's auditors were unaware; and

·      that Director had taken all steps that the Director ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditors were aware of that information.

This information is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

Going Concern

The Financial Statements of the Group are prepared on a going concern basis as detailed in Note 1 to the financial statements.

Auditors

In accordance with Section 489 of the Companies Act 2006, a resolution for the reappointment of BDO LLP as auditors of the Company is to be proposed at the forthcoming Annual General Meeting.

Approved for issue by the Board of Directors

and signed on its behalf

 

 

 

 

Clive Carver

Chairman

16 April 2018

 

 

Board of Directors

Clive Carver

Non-executive Chairman

Clive Carver qualified as a chartered accountant with Coopers & Lybrand in London in 1986. Since then he has focussed on the corporate finance and corporate broking arena, including working for Kleinwort Benson and Price Waterhouse Corporate Finance. He was successively head of corporate finance at broking firms Seymour Pierce, Williams de Broe and finnCap.

He is executive Chairman of Caspian Sunrise PLC and non-Executive Chairman of Tax Systems PLC and appScatter PLC all of which have their shares quoted on AIM.

Colin Hutchinson

Chief Executive Officer & Finance Director

Colin Hutchinson is a fellow of the Institute of Chartered Accountants in Ireland, he holds a law degree from the University of Dundee and an MBA from Warwick Business School.  Colin previously served as the Company's Finance Director.  After completing his accountancy training with Deloitte, he gained significant international experience while working in commercially orientated finance roles with a mix of technology and energy companies.  Prior to joining Ascent, he was Group Financial Controller & Company Secretary at Lochard Energy plc and Co-Founder & Finance Director at Samba Communications Ltd.   

Nigel Moore

Non-executive Director

Chairman of the Audit Committee and member of the Remuneration Committee

Nigel Moore is a Chartered Accountant and was a former partner at Ernst & Young for thirty years until 2003.  For the last ten years at Ernst & Young he specialised in the oil and gas sector, advising a wide range of client companies, providing significant input to strategic options, new opportunities and helping to deliver shareholder value.  During the last 15 years Nigel has been a member of a number of boards focussed on extractive industries.

Cameron Davies

Non-executive Director

Chairman of the Remuneration Committee and member of the Audit Committee

Cameron Davies is an international energy sector specialist and the former Chief Executive of Alkane Energy plc.  He has a PhD in Applied Geochemistry from Imperial College, is a Fellow of the Geological Society of London and a member of the European Petroleum Negotiators Group and the PESGB.  He has an excellent track record of exploration success and also growing profits in a quoted energy company.  His career successes include the discovery of the third largest oilfield in Tunisia.  In 1994 he founded Alkane Energy plc and managed the business from original concept, through venture capital funding and an IPO to become a profitable operator of c. 160 MW of gas to power generation plants.  In Q4 2016 Alkane was acquired for c.£61 million by Balfour Beatty Infrastructure Partners when Cameron resigned as a director.

He is also non-Executive Chairman of Powerhouse Energy PLC.

 

Directors and Advisers

Directors	Clive Carver Colin Hutchinson Nigel Moore Cameron Davies
Secretary	Colin Hutchinson
Registered Office	5 New Street Square London EC4A 3TW
Nominated Adviser and Joint Broker	WH Ireland Corporate Brokers 24 Martin Lane London EC4R 0DR
Auditors	BDO LLP 55 Baker Street London W1U 7EU
Solicitors	Taylor Wessing LLP 5 New Street Square London EC4A 3TW
Bankers	Barclays Corporate Banking 1 Churchill Place London E14 5HP
Share Registry	Computershare Investors Services PLC The Pavilions Bridgwater Road Bristol BS13 8AE
PR & IR	Yellow Jersey PR Limited 33 Stockwell Green London SW99HZ
Company's registered number	05239285

 

 

 

Corporate Responsibility

Ascent operates a Management System that embodies Environmental, Health, Safety ('EHS') and Social Responsibility ('SR') principles.  This system defines objectives to be met by Ascent, its subsidiaries, affiliates, associates and operated joint ventures (hereinafter collectively referred to as Ascent) in the management of EHS and SR.

The policy of the Board of Ascent is to be fully accountable for the necessary practices, procedures and means being in place so as to ensure that each EHS and SR objective is demonstrated in full and that continuous improvement practices are operating to ensure that the required practices, procedures and means are being monitored, refined and optimised as necessary.  The Board will accordingly review and report regularly to external stakeholders as to the achievement of the objectives of this policy.

In accordance with this policy, the Executive Directors of Ascent are directly and collectively responsible to the Board for demonstrating that the EHS and SR objectives are attained throughout Ascent.  The Executive Directors have adopted Management System Guidelines as guidance for demonstrating this.

The objectives of the Environment, Health, Safety and Social Responsibility Policy are:

§  Ascent shall manage all operations in a manner that protects the environment and the health and safety of employees, third parties and the community.

§  The Executive Director provides the vision, establishes the framework, sets the objectives and provides the resources for responsible management of Ascent's operations.

§  Leadership and visible commitment to continuous improvement are critical elements of successful operations.

§  A process that measures performance relative to policy aims and objectives is essential to improving performance.  Sharing best practices and learning from each other promotes improvement.

§  Effective business controls ensure the prevention, control and mitigation of threats and hazards to business stewardship.

§  Risk identification, assessment and prioritisation can reduce risk and mitigate hazards to employees, third parties, the community and the environment.  Management of risk is a continuous process.

§  Safe, environmentally sound operations rely on well-trained, motivated people.  Careful selection, placement, training, development and assessment of employees and clear communication and understanding of responsibilities are critical to achieving operating excellence.

§  The use of internationally recognised standards, procedures and specifications for design, construction, commissioning, modifications and decommissioning activities are essential for achieving operating excellence.

§  Operations within recognised and prudent parameters are essential to achieving clear operating excellence.  This requires operating, inspection and maintenance procedures and information on the processes, facilities and materials handled, together with systems to ensure that such procedures have been properly communicated and understood.

§  Adhering to established safe work practices, evaluating and managing change and providing up-to-date procedures to manage safety and health risks contribute to a safe workplace for employees and third parties.

§  The minimisation of environmental risks and liabilities are integral parts of Ascent's operations.

§  Third parties who provide materials and services (personnel and equipment) or operate facilities on Ascent's behalf have an impact on EHS and SR excellence.  It is essential that third-party services are provided in a manner consistent with Ascent's EHS and SR Policy and Management System Guidelines.

§  Compliance with regulatory requirements and company guidelines must be periodically measured and verified as part of the continuous improvement process.

§  Preparedness and planning for emergencies are essential to ensuring that all necessary actions are taken if an incident occurs, to protect employees, third parties, the public, the environment, the assets and brand of Ascent.

§  Effective reporting, incident investigation, communication and lessons learned are essential to attaining and improving performance.

§  Open and honest communication with the communities, authorities and stakeholders with which Ascent operates builds confidence and trust in the integrity of Ascent.

During 2017, the Group was Operator of one project which was closely managed for maintaining the EHS and SR policy aims.

There have been no breaches of any applicable Acts recorded against the Group during the reporting period.

 

 

 

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Directors' Report, the Strategic Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year.  Under that law the Directors have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union.  Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period.  The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the AIM Market.

In preparing these financial statements the Directors are required to:

•        select suitable accounting policies and then apply them consistently;

•        make judgements and accounting estimates that are reasonable and prudent;

•        state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and

•        prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006.  They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Website publication

The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a website.  Financial statements are published on the Company's website (www.ascentresources.co.uk) in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions.  A copy of the Annual Report will be available on the firm's website later today.  The Annual Report will be sent to shareholders in due course.  The maintenance and integrity of the Company's website is the responsibility of the Directors.  The Directors' responsibility also extends to the ongoing integrity of the Financial Statements contained therein.

 

 

Independent auditor's report to the members of Ascent Resources plc

Opinion

We have audited the financial statements of Ascent Resources plc (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2017 which comprise the consolidated income statement and statement of comprehensive income, the consolidated and company statement of changes in equity, the consolidated and company statement of financial position, the consolidated and company cash flow statement, and notes to the financial statements, including a summary of significant accounting policies.

 

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

 

In our opinion:

•     the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at 31 December 2017 and of the group's loss for the year then ended;

•     the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

•     the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

•     the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

 

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Use of our report

This report is made solely to the parent company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the parent company's members those matters we are required to state to them in an auditor's 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 parent company and the parent company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

 

•     the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

 

•     the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group's or the parent company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

 

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

Matter	Our Response
Classification of the Petišovci asset and carrying value of the exploration, evaluation costs and PP&E   Classification   The group determined that particular assets in the Petišovci field had reached commercial feasibility with commercial production during the year. As such, £24.1m was transferred from exploration and evaluation costs to property, plant and equipment ("PP&E") in 2017 as detailed in notes 9 and 10 . The assessment that certain assets had reached commercial feasibility and commercial production represents a judgement by management, together with the cost to be transferred from the exploration cost pool to PP&E.   Judgement was also required in determining an appropriate depreciation policy to apply to the producing assets, which involved significant estimates and judgement including the selection of inputs to the depletion method, gas reserves included in the calculations and the extent to which future capital expenditure to access the relevant reserves are included in the calculation.   Carrying values of exploration, evaluation and producing assets The group's exploration and evaluation assets associated with the remaining Petišovci license area represent material assets on the group's statement of financial position. As at 31 December 2017, the group's exploration and evaluation assets totalled £18.6m (2016: £37.5m) as detailed in note 10.   Management were required to perform an impairment indicator review to assess whether there were any indicators of impairment for these assets and whether impairment is appropriate. Following this assessment, the Board concluded that no impairment was required. For further details see note 1.   Additionally, management are required to assess the producing assets for indicators of impairment at each reporting date and have performed an impairment review using the discounted cash flows for the producing asset cash generating unit accordingly. As detailed in note 1, the assessment of any impairment to the carrying value of the producing asset requires significant estimation by management. The key estimates and judgements include oil price, reserves, decline rates, and discount rate.   Given the inherent judgement involved in determining whether particular assets should be transferred to PP&E and subsequent depreciation policy, the costs to be transferred and the assessment of the carrying value of the exploration and evaluation assets and PP&E, we considered this area to be a key audit matter.	Classification   We considered management's judgement that particular assets, namely the Pg10/Pg11a wells and associated infrastructure, met the criteria for transfer to PP&E under the group's accounting policies and IFRS. This included assessment of the reserves per the independent Competent Person's assessment of gas reserves, together with review of production data and the margins generated from the wells following supply under the INA contract.   We reviewed the breakdown of the costs transferred to production assets, agreeing costs to historic accounting records and considered the appropriateness of the classification. In respect of costs not specifically attributed to the wells and infrastructure, such as the original acquisition cost for the field, we assessed the methodology used for allocating such costs between exploration and evaluation assets and PP&E and confirmed key inputs to supporting evidence.           We assessed the depreciation policy and considered whether it is in line with IFRS and with industry practice. We agreed the inputs to the calculations. This included confirming the consistency of the reserves with the Pg10/11a field plan and impairment model, confirming that the estimated capital expenditure is consistent with those models and agreeing production data to customer statements.   Carrying values of exploration, evaluation and producing assets   We reviewed and challenged management's impairment assessment for exploration and evaluation costs which was carried out in accordance with IFRS 6 in order to determine whether there were any indicators of impairment. In doing so we confirmed that the licences remain valid, made inquiries of management regarding the future planned exploration and considered the group's internal plans and budgets.   We reviewed and challenged management's discounted cash flow forecast models for both the exploration and evaluation assets and producing assets separately, which form part of their impairment review. In doing so, we considered the appropriateness of the cash generating units used for the impairment reviews.   We have reviewed the key assumptions in the models, challenging the appropriateness of estimates with reference to empirical data and external evidence where available for inputs such as gas prices, reserves, production rates and capital expenditure . We sensitised the key inputs such as discount rate and short and longer-term gas prices to assess the impact on headroom.   We agreed the reserves used in the models to the most recent Competent Person's report and assessed the objectivity, competence and independence of these experts.   We have considered management's assessment that the IPPC permit will be approved, which forms a judgement within the impairment reviews. In doing so, we have reviewed Board minutes, legal documents and correspondence regarding the permitting process.   We assessed the disclosures included in the financial statements in notes 1, 9 and 10.
Our findings: We found management's judgements regarding the classification of the Petišovci assets and the depreciation policy to be appropriate. We found management's conclusion that there is no impairment required for the exploration and evaluation costs or PP&E to be supportable and the estimates to be balanced and well considered.
Matter	Our Response
Revenue recognition and cut-off   During the year the group generated £0.8m of revenue from the sale of hydrocarbons from the Petišovci field.  In accordance with the group's accounting policy revenue on test production is recorded at nil margin with a reduction in cost of sales and exploration and evaluation assets. Once commercial production has been established revenue and costs are recorded in the income statement.   Management were required to exercise judgement in determining the extent to which revenues represented test production versus commercial levels of production, considering factors such as the volumes produced and profitability of such production. In addition, management were required to determine an appropriate revenue recognition policy with the commencement of sales. These factors were considered to increase the risk associated with revenue recognition for our audit.   Additionally, recognition of revenue carries an implicit fraud risk and we considered the risk to be around the manipulation of cut-off around year end and, as such, cut-off was an area of key focus for our audit.	We reviewed the revenue recognition policy disclosed in the financial statements as per note 1, considering its compliance with IFRS and industry standards as well as the customer contracts and Joint Operating Agreement.   We considered the consistency of the accounting for revenue and costs of production with the judgements as to when commercial production was achieved set out above.   We reviewed the accounting treatment of gas produced and costs associated with the production during the pre-production phase and commercial production phase, to ensure that the treatment is consistent with the group's accounting policy.   We agreed a sample of sales transactions in the year to supporting documentation.   We performed cut off procedures on revenue around the year end to satisfy ourselves that revenue is recognised in the correct period and that corresponding costs of sales are appropriately accounted for.
Our findings: We found the revenue recognition policy to be appropriate and found that revenue had been recorded in the appropriate period.

 

 

Our application of materiality

	Group materiality	Basis for materiality
FY 2017	£650,000	Materiality based on 1.5% of group assets.
FY 2016	£800,000	Materiality based on 2% of group assets.

 

 

We consider total assets to be the financial metric of the most interest to shareholders and other users of the financial statements, given the group's status as an oil and gas exploration and development company with commercial production only commencing in November 2017, and therefore consider this to be an appropriate basis for materiality. We had previously used a slightly higher percentage of total assets but having considered market trends the materiality benchmark was revised downwards.

 

Materiality in respect of the audit of the parent company was set at £585,000 (2016: £720,000) using a benchmark of 1.5% (2016: 2%) of total assets, limited to 90% of group materiality.

 

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.

 

Performance materiality is the application of materiality at the individual account or balance level set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. Performance materiality was set at 75% (2016: 75%) of the above materiality levels.

 

We agreed with the audit committee that we would report to the committee all individual audit differences identified during the course of our audit in excess of £30,000 (2016: £40,000). We also agreed to report differences below these thresholds that, in our view, warranted reporting on qualitative grounds.

 

There were no misstatements identified during the course of our audit that were individually, or in aggregate, considered to be material in terms of their absolute monetary value or on qualitative grounds.

 

An overview of the scope of our audit

Our group audit focused on the group's significant components which comprised Ascent Resources Plc and Ascent Slovenia Limited. Whilst materiality for the financial statements as a whole was £650,000, each significant component of the Group was audited to a lower level of performance materiality of £430,000. Both of the components were audited by BDO LLP.

 

The remaining components of the Group were considered non-significant and such components were subject to analytical review procedures together with substantive testing on group audit risk areas applicable to that component, carried out by the group audit team.

 

Other information

 

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

 

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

 

Opinions on other matters prescribed by the Companies Act 2006

 

In our opinion, based on the work undertaken in the course of the audit:

 

•     the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

•     the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

 

Matters on which we are required to report by exception

 

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

 

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

 

•     adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

•     the parent company financial statements are not in agreement with the accounting records and returns; or

•     certain disclosures of directors' remuneration specified by law are not made; or

•     we have not received all the information and explanations we require for our audit.

 

Responsibilities of directors

 

As explained more fully in the directors' responsibilities statement set out on page 21 , the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the financial statements, the directors are responsible for assessing the group's and the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

 

Auditor's responsibilities for the audit of the financial statements

 

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

 

Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities . This description forms part of our auditor's report.

 

 

Ryan Ferguson (Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor

London, United Kingdom

16 April 2018

 

 

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

 

 

 

Consolidated Income Statement & Statement of Other Comprehensive Income

For the year ended 31 December 2017

 

 

		Year ended	Year ended
		31 December	31 December
		2017	2016
	Notes	£ '000s	£ '000s
Revenue	2	814	-
Cost of sales	2	(403)	-
Gross profit		411	-
Administrative expenses		(2,030)	(1,382)
Loss from operating activities	3	(1,619)	(1,382)
Finance income	5	-	159
Finance cost	5	(347)	(1,453)
Net finance costs		(347)	(1,294)
Loss before taxation		(1,966)	(2,676)
Income tax expense	6	-	-
Loss for the year		(1,966)	(2,676)
Loss for the year attributable to equity holders of the parent		(1,966)	(2,676)
Loss per share
Basic & fully diluted loss per share (Pence)	8	(0.10)	(0.49)

 

 

		Year ended	Year ended
		31 December	31 December
		2017	2016
		£ '000s	£ '000s
Loss for the year		(1,966)	(2,676)
Other comprehensive income
Foreign currency translation differences for foreign operations		898	2,997
Total comprehensive (loss) / income for the year		(1,068)	321

 

The Notes on pages 35 to 58 are an integral part of these consolidated financial statements.