logo-loader

Ascent is now only months away from cash flow from Slovenian gas

Published: 14:26 07 Nov 2016 GMT

Gas pipeline
The gas could be sold at the border to Croatia’s largest oil and gas company

It may now only be a matter of months before Ascent Resources PLC (LON:AST) produces its first gas from the Petišovci project in Slovenia.

The company has just raised £4.5mln to complete the work programmes required to make it happen, and to pay off the balance of £870k due on a short term loan, which had been used to fund working capital over the last year or so prior to a court ruling that went the wrong way earlier this year.

Now, while Ascent seeks to get that judgement overturned, a new solution has been put in place that will allow initial gas production to be exported out of Slovenia and into Croatia; the gas will be sold at the border to Croatia’s largest oil and gas company.

The gas is situated in an area with plenty of existing infrastructure, so the proposition isn’t too complex.

Plugging away

Two wells were drilled at Petišovci in 2011 and recompleted in 2013. Ascent chief executive Colin Hutchinson says that if the plugs are removed they can be brought back into production fairly quickly.

“The purpose of the first phase is to get us to operating cash flow break-even,” he says. “It allows us to build up proof of what the wells can do.”

That proof should start to build from early next year.

After that, if the Slovenian court reverses its earlier decision, as Ascent hopes it will do, the plan is to build a new processing plant in Slovenia with an initial capacity of 10 million cubic feet per day (mmscfd) rising to between 30mmscfd and 40mmscfd as the field reaches peak production.

The cost of that expansion will be around €10 mln, but with cash flow coming in from the sales into Croatia, it ought to be fairly straightforward to put a debt facility in place to pay for it.

So, first thing’s first, that early cash flow.

Cash flow analysis

Analysis by broker Stockdale shows that next year Ascent should be able to generate nearly US$3mln in sales and around US$1mln in operating cash flow. That’s then likely to rise to US$1.2mln in 2018 as the early production beds down.

By then, proof of concept will be well in hand, the banks ought to be on-side, and the company will then be able to push the button on the second phase.

This will allow a greater rate of exploitation of the 456 billion cubic feet (bcf) of gas that Petišovci is estimated to contain, and ought to stimulate a major re-evaluation of Ascent’s overall worth.

It’s on this basis that Colin Hutchinson reckons Petišovci is worth “a couple of hundred million euros” to the company.

The Stockdale analysis would tend to confirm this, as it projects that, as the second phase of development gets underway in 2018, revenues for 2019 will jump to US$12.2mln, with operating cash flows hitting US$10.8mln.

This is serious money for a company that’s currently only capitalised at £9.63 mln, especially since Stockdale has deliberately used a conservative pricing model.

Indeed, gas prices in Slovenia have lately exceeded €8 per mcf, a significant premium to the European average and a boon for Ascent, which is likely to assume something of a central role in the country’s energy supply when the full potential of Petišovci is brought to bear.

Valuation

All of which leaves the question of valuation. Here is a company with a multi-million dollar asset strategically positioned in a safe jurisdiction, and yet, on a comparison of enterprise value to reserves and contingent resources its discount to peers like Aminex, IGas, Victoria and Sound is considerable.

So, with the company now on the move, it seems like that its shares will come to life too. We shall see. 

Chesnara reports strong 2023 results with improved cash generation and...

Chesnara PLC (LSE:CSN) chief executive Steve Murray discusses the company's full-year results for 2023 with Proactive's Stephen Gunnion, describing them as strong and particularly highlighting £53 million in commercial cash generation and a dividend coverage of around 150%. The company has...

1 hour, 51 minutes ago