Ascent Resources (LON:AST) said today a sidetrack well on its Penészlek Project in Hungary flowed much better than expected and could extend the gas field’s life by at least two years.

The East European–focused gas group said the results exceeded management's expectations and were even better than the original PEN - 105 well, from which the sidetrack was drilled.

The original PEN-105 well began production in 2010 and has recovered 0.85 Bcf (24 Mm3) of gas from the smaller southern part of the structure.

The sidetrack well, PEN-105A, was designed to drain gas reserves from the northern half of the structure. It hit approximately 20m of gas bearing formations in the targeted Miocene volcanicastic reservoirs.

Preliminary testing of a 7m perforated section of PEN-105A produced gas at a rate of 0.928 MMscfd (26,300 m3/d; 154 boepd) and it will now be reconnected to the production facilities.  

Over the coming weeks, Ascent intends to add additional perforation and to stimulate the sidtrack well with an acid wash, which doubled production at the original well.

Ascent has a 48.3 per cent in Penészlek, which is in the eastern part of the country, but its main focus is now the Petišovci project in Slovenia where the estimated GIP (gas in place) resource is 504 billion cubic feet.

Jeremy Eng, Ascent’s managing director, said: "This PEN-105A performance is a good result and can be expected to prolong the production from the Penészlek field for at least a couple of years.

Gas prices in Hungary are strong and this production will provide very useful revenue to the group pending the start-up of joint venture production from the Petišovci project in Slovenia."

Ascent Resources (LON:AST) today announced that sidetrack drilling is now underway on the PEN-105 well on the Penészlek gas field in Hungary.

The sidetrack well is 430 metres north-east of the original vertical well and it is designed to recover gas reserves isolated by a fault in the northern part of the structure, Ascent said.

The AIM quoted firm has a 48.78 per cent stake in the asset. 

"Over the years, production at Penészlek has generated revenues that have helped to cover our corporate overheads while we have advanced our flagship Petišovci Gas Project in Slovenia towards production," said managing director Jeremy Eng.

“The PEN-105 sidetrack is designed to extend the life of this largely depleting field.  As Penészlek declines in line with expectations, the loss of output will be more than replaced when Petišovci, with its 504 billion cubic feet P50 gas-in-place, comes on stream as we expect later this year.   

“This is an exciting time for the company and I look forward to updating the market on progress at both Penészlek and Petišovci in due course." 

Ascent says the sidetrack drilling operation will last around three weeks. After that the new sidetrack well will be brought into production.

The Petišovci project in Slovenia is Ascent’s primary focus. Last month, the company reported an upgrade to the gas-in-place estimate for the project.

The estimated GIP resource rises 22 per cent to 504 billion cubic feet from 412 billion cubic feet.

The report was provided by respected industry consultants RPS Energy. It was based on the findings of the recently drilled Pg-10, Pg-11 and Pg-11A wells.

Ascent also revealed that the Pg-10 and Pg-11A wells will be the first two producers put on stream during the development phase.

Those two wells provided proof-of-concept for the Petišovci project, it said. They were both fracture stimulated  which led to test rates of 8 and 2 million cubic feet per day respectively.

Ascent Resources (LON:AST) today reported an upgrade to the gas-in-place estimates  for the Petišovci project in Slovenia.

The estimated GIP resource rises 22 per cent to 504 billion cubic feet from 412 billion cubic feet.

The report was provided by respected industry consultants RPS Energy. It was based on the findings of the recently drilled Pg-10, Pg-11 and Pg-11A wells.

"The gas-in-place upgrade confirms the progress we have made over the last year as we continue to move the project towards production later this year,” said managing director Jeremy Eng.

“The timing of the recompletion of the Pg-10 and Pg-11A wells will now coincide with the construction work to be carried out on the connecting pipelines. 

“In the meantime, work on the design, procurement and modifications to the existing gas processing facilities continues.”

Ascent also revealed that the Pg-10 and Pg-11A wells will be the first two producers put on stream during the development phase.

Those two wells provided proof-of-concept for the Petišovci project, it said. They were both fracture stimulated  which led to test rates of 8 and 2 million cubic feet per day respectively.

The company explains that the bulk of the new GIP resource comes from the deeper reservoirs that were proven to be productive in the Pg-11A well.

These reservoirs comprise seven separate sands, referred by letters from ‘K’ through to ‘Q’, and RPS estimated that more than 83 billion cubic feet of gas was present within them.

RPS also estimated that the ‘F’ sands, which was previously considered as part of another reservoir, contains 9 billion cubic feet of gas in place. Fracture stimulation work has been focused on the ‘F’ sands.

“Reservoir simulation for the ‘F’ sands at Pg-10 is complete and in progress for the Pg-11A sands, these results are designed to forecast future production and we will provide the market with an update in due course," Eng added.

Ascent owns a 75 per cent stake in the Petišovci project which is a joint venture with local firm Geoenergo with the remaining 25 per cent.

Preliminary testing of the shallowest of two stages of the PG-10 well flowed at a stabilised rate of 8.5 MMscfd (240,000 m3; 1,420 boepd), Ascent said.

Today’s result follows what the company described as very encouraging results from the fracture stimulation of a first well, Pg-11A, in Petisovci in October.

Options are being studied to allow the production and associated cash flow generation of the two wells by mid 2012, the oil and gas explorer added.

Managing director Jeremy Eng said, "This result from Pg-10 is excellent and exceeds our expectations.  It follows the commercial, although less prolific, result from the Pg-11A stimulation, and gives us confidence that the redevelopment of the Petisovci field can and will now proceed.” 

Ascent added that stimulation work on both the Pg-10 and Pg-11A wells is now complete, with both to be recompleted during January and February 2012 and followed by further testing to better understand the long term productivity performance of the reservoir. 

“There is a wealth of new information that now needs to be integrated into the redevelopment plan as our understanding of the field continues to improve," Eng said.

The Petisovci project is a joint venture between Slovenia group Geoenergo, which holds a 25% interest in the project, and Ascent, which holds 75% through a subsidiary.

According to Ascent, the appraisal well provided better than expected results and it now believes that Petišovci's gas-in-place resource estimates will increase significantly.

The company revealed that the well was successfully completed after it was drilled to a depth of 3,545 metres. In its appraisal of the ‘deeper Miocene’ or 'K' sand reservoirs the well showed a total of 123 metres of new net additional reservoir, Ascent said.

This comprised 63 metres of ‘good-to-moderate’ sand quality along with another 60 metres of poorer quality sands in a 370 metre gross reservoir section.  

Importantly, gas is present throughout the 'K' sand in PG-10 and the total depth of the well is 45 metres below the recently completed Pg-11A well. As such the well increases the depth of the deepest known gas, Ascent said.

"The results from Pg-10 are highly encouraging and have defined substantial additional gas resources in the deeper Miocene 'K' sands.  Our efforts are now focussed on the fracture stimulation of Pg-10 and Pg-11A, which we believe will unlock the significant intrinsic value of the project," said managing director Jeremy Eng.

Both Pg-10 and the recently completed Pg-11A are now being prepared for fracture stimulation. The fracturing equipment is being mobilised next month.  Halliburton, one of the leading proponents of hydraulic fracturing, will carry out the process.

The projects gas-in-place resource is currently estimated at 412 billion cubic feet. But the Pg-10 reservoirs are larger and thicker than expected Ascent said it is confident that this estimate will increase significantly.

To that end Ascent plans to update the resource estimate.

Ascent has a 75 per cent interest in the Petišovci Project alongside its Slovenian partner Geoenergo, which owns the remaining a 25 per cent. 

Ascent Resources revealed this morning it has begun drilling the Pg-10 well on the Petišovci Project in Slovenia. The aim of this second redevelopment well is to confirm the quality and commerciality of the Middle Miocene reservoir, which is estimated to contain 400 billion cubic feet of gas.

Ascent Resources (LON:AST) has successfully completed drilling the Pg-11A well in the Petišovci project in Slovenia, with what it calls encouraging results.

It has confirmed the presence of good quality gas and Ascent said that well logs indicated the discovery of approximately 114 metres of new net additional reservoir in the deeper Miocene reservoir.  

Pg-11a is a sidetrack from the Pg-11 well on the Petišovci project area, one part of Ascent’s principle project, Petişovci-Lovaszi, which straddles the Hungary-Slovenia border. The previous well also found gas, in other reservoirs.

"This project continues to provide very good results for the company, starting from the 3-D seismic acquired back in 2009 through to the drilling results of Pg-11 and 11A,” said managing director Jeremy Eng.

“We have confirmed the presence of gas in all the previously known Badenian reservoirs and proven the newly discovered deeper reservoirs to be productive for gas.”  

The company highlighted that the Pg-11 and Pg-11A wells have successfully confirmed the main technical parameters for the Middle Miocene Badenian tight gas reservoirs, as well as discovering deeper gas reservoirs that will substantially increase gas-in-place estimates.  

Currently the project’s core area has more than 400 billion cubic feet of gas gas-in-place (P50 estimate) – about 69 million barrels of oil equivalent. 

The results from these two wells will help determine the configuration of the initial production and whether conventional completions or simple, low cost fracture stimulations (on the vertical sections) are best suited to optimise production.  

Notably Ascent said it currently has sufficient financial resources to put both wells into production under either scenario – however horizontal side-tracks are not considered to be cost effective at this time.

Ascent will now drill a second redevelopment well, Pg-10, and it will complete the testing of Pg-11a.

Eng emphasised the potential to add even more value with the next well: “The Badenian reservoirs, the original focus of the field redevelopment plan, have already provided the company with a substantial project.  

"However, if the Pg-10 well, which is close to the area of the original field development in the Badenian, also confirms the presence of gas in the deeper reservoirs in the western part of the field, the additional upside in gas volumes should be very significant indeed."

Ascent owns a 75 percent stake in the Petišovci Project, with the remaining 25 percent held by a joint venture between a Slovenian company and the state oil firm.

Broker view

Ascent Resources (LON: AST), the Europe-focused oil and gas explorer and developer, said the outlook for 2011 and beyond is highly encouraging as it reported its final results for 2010.

“Having proved up our core portfolio we are now focused on extracting value from it and, in line with this, aggressive work programmes are underway,” said the firm’s chairman John Kenny.

House broker FinnCap said that the results, which “were always likely to be a sideshow” as the firm awaits drilling results from Slovenia, revealed no nasty surprises and that the operating update was solid.

Ascent’s strategy involves combining lower-risk field redevelopment projects in areas with existing infrastructure with higher-risk exploration projects. The firm has a diversified portfolio of assets and appraisal interests across five countries: Hungary, Slovenia, Switzerland, Italy and the Netherlands.

A primary objective in the near term for Ascent is to advance its Petišovci/Lovászi/Ujfalu tight gas project in Slovenia and Hungary. The firm now holds a 75 percent interest in the Petišovci asset, having acquired earlier this year a further 48.75 percent from EnQuest in return for a 22.5 percent equity stake in Ascent, and a 50 percent interest in both the Lovászi and Ujfalu assets.

During the year, Ascent had the entire project independently verified with P50 gas in place estimates of 412 billion cubic feet. “The challenge for us in 2011 is not so much finding the gas, which we know is there, but how to unlock this gas in a commercial manger given it is largely a tight gas asset,” said Kenny.

Ascent is currently in the first phase of developing the project, having drilled on well already with another well scheduled to be drilled later this summer. Over the next three to four years the firm expects to drill 10 to 15 more wells.

Ascent believes that it can generate net operating cash flow of €3 million from the first well in 2011, rising to €10 million in 2012 and €24 million for the period 2013 to 2015. 

But the firm pointed out that the project would need more than €150 million to develop the entire field.

During the year, the firm produced revenue of £1.8 million (2009: £898,000) with a gross profit of £442,000 (2009: £219,000 loss). The overall loss before tax was reduced to £6 million (2009: £10.5 million), after stripping out an unusual gain on the sale of the firm’s Swiss assets.

The revenue came from Ascent’s Penészlek project in eastern Hungary where two wells are still producing more than 1.5 million cubic feet of gas per day, generating around €300,000 per month.

FinnCap said the following the £17 million placing in March Ascent is now fully funded for its current capex programme.

At 11.17am, Ascent’s shares were down 4.3 percent at 3.1 pence each.

Ascent Resources (LON: AST), the Europe-focused oil and gas explorer and developer, said the outlook for 2011 and beyond is highly encouraging as it reported its final results for 2010.

“Having proved up our core portfolio we are now focused on extracting value from it and, in line with this, aggressive work programmes are underway,” said the firm’s chairman John Kenny.

Ascent’s strategy involves combining lower-risk field redevelopment projects in areas with existing infrastructure with higher-risk exploration projects. The firm has a diversified portfolio of assets and appraisal interests across five countries: Hungary, Slovenia, Switzerland, Italy and the Netherlands.

A primary objective in the near term for Ascent is to advance its Petišovci/Lovászi/Ujfalu tight gas project in Slovenia and Hungary. The firm now holds a 75 percent interest in the Petišovci asset, having acquired earlier this year a further 48.75 percent from EnQuest in return for a 22.5 percent equity stake in Ascent, and a 50 percent interest in both the Lovászi and Ujfalu assets.

During the year, Ascent had the entire project independently verified with P50 gas in place estimates of 412 billion cubic feet. “The challenge for us in 2011 is not so much finding the gas, which we know is there, but how to unlock this gas in a commercial manger given it is largely a tight gas asset,” said Kenny.

Ascent is currently in the first phase of developing the project, having drilled on well already with another well scheduled to be drilled later this summer. Over the next three to four years the firm expects to drill 10 to 15 more wells.

Ascent believes that it can generate net operating cash flow of €3 million from the first well in 2011, rising to €10 million in 2012 and €24 million for the period 2013 to 2015. 

But the firm pointed out that the project would need more than €150 million to develop the entire field.

During the year, the firm produced revenue of £1.8 million (2009: £898,000) with a gross profit of £442,000 (2009: £219,000 loss). The overall loss before tax was reduced to £6 million (2009: £10.5 million).

The revenue came from Ascent’s Penészlek project in eastern Hungary where two wells are still producing more than 1.5 million cubic feet of gas per day, generating around €300,000 per month.

At 8.40am, Ascent’s shares were down 6.5 percent at 3 pence each.

Fox-Davies kept a ‘buy’ recommendation on Ascent Resources (LON:AST) after its latest update on the Pg-11A well at the Petišovci gas project in Slovenia.

The Petişovci is one part of Ascent’s principal project, Petişovci-Lovaszi, which straddles the Hungary-Slovenia border. The Pg-11 well is the first of two important wells that the company is hoping will demonstrate the field’s commercial potential.

Yesterday Ascent told investors that it had flowed gas from an open-hole test of the Karpatian reservoir – the very top of the reservoir. The results suggest that hydraulic fracturing may be necessary.

The company has previously described Petişovci-Lovaszi’s gas as being on the ‘conventional side of tight’, meaning that the wells are expected to flow without the help of the state-of-the art extraction techniques usually associated with tight gas.

“The observed gas flow rate of 90 thousand cubic feet would appear to indicate that fraccing may be required after all for the commercial development of this horizon,” Fox-Davies analyst Shahin Amin said in a note to clients.

“However, it is important to note that the flow rate was observed only over an open section of 50m (the well is yet to reach the planned total depth of 3,500m) and that the formation can be over 200m thick.” 

The analyst also said that it is important not to over emphasise the outcome of one well in such an unconventional play. Amin stressed that the successful development may take an incremental ‘learn as you drill’, but pointed out the challenge is to do this within budget and funding constraints.  

“We understand that the company has budgeted 9.1 million euros for both Pg-11A and Pg-10 and in our opinion it will be important for the company to demonstrate a commercial development concept based on these two wells.  

“If following the completion of Pg-11 and Pg-10 it is deemed necessary to frack the selected horizons, then Ascent will have the challenge of mobilising a fracking operation for only two wells.”

According to Amin Ascent may therefore have to consider re-entering and fracking previously drilled wells to optimise on the costs.

Fox-Davies currently has a 15 pence a share target for Ascent (current price: 3.7 pence), and the analyst is waiting for more information from Pg-11A and the outcome of Pg-10 before reviewing the risked valuation.

Yesterday Ascent ‘s managing director Jeremy Eng said:  “Operations are progressing steadily at our Petišovci project in Slovenia and we are pleased that the first test on the Karpatian proved the presence of producible gas.

“The lower than expected carbon dioxide levels in the gas, if confirmed by laboratory analysis, will be advantageous as CO2 processing equipment may not be required in the early stages of the redevelopment,” he added.

Gas samples and the core will now be analysed and integrated with the extensive geological and engineering data already obtained from the well. Then Ascent plans to drill another 450 metres to a depth of 3,500 metres, to delineate the full extent of the reservoir.

Ascent acknowledged that while the Karpatian reservoir may produce at commercial rates un-stimulated, the well may require hydraulic fracturing.

Operations on the Pg-11A restarted in April this year and it has since been re-drilled to a depth of about 3,000 metres.

Back in March, Ascent raised £17 million via a share placing to advance the Petišovci/Lovási/Ujfalu project, through the drilling and completion of the Pg-11 sidetrack, the Pg-10 and Ujfalu-III wells, and capitalising on the area’s P50 estimated gas in place of 412 billion cubic feet (Bcf).

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

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

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

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

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