Ascent primed for take-off as the company unlocks the value of Petişovci

Ascent Resources (LON:AST) is primed for take-off, according to City broker Fox-Davies, which today reiterated its ultra-bullish 20 pence a share price target.

The stock is currently trading at 6.45 pence, which means investors could see a more than 300 per cent return on their investment if analyst Lionel Therond’s valuation is correct.  

It is based on the potential of the Petişovci gas project in Slovenia, which is one part of Ascent’s principal project, Petişovci-Lovaszi, which straddles the Hungary-Slovenia border. 

It already has a 50 percent stake in the Hungarian licence and it recently cut a deal with rival EnQuest to take its interest in the Slovenian licences to 75 percent. 

“Our recommendation is based on the potential of the Petişovci project to support and drive the share price over the next 12 months,” Therond said in a note to clients.

“Our valuation implies that the market is either over-discounting for the technical risks of this project or not willing to recognise at least the risked valuation of the asset, until a firm development plant has been completed or possibly of an actual production well is underway.”

Ascent  is a stock many people struggle to understand. There are too many moving parts to this oil and gas play, its critics claim.

While this might have been true in the past as boss Jeremy Eng amassed more 20 promising assets, the story recently became a very simple one.

The publication of a report by RPS Energy on the company’s Petişovci-Lovaszi project area in Slovenia was the game changer.

It provided independent corroboration of Ascent’s own work by confirming a P50 gas-in-place estimate of 412 billion cubic feet.

If the reserves are proved up, then Petişovci-Lovaszi will be one of the biggest onshore gas fields in Europe. 

More than that, the RPS report should help filter out the noise and focus investor attention on this one, potentially company transforming asset.

Of course there is more to Ascent than Petişovci-Lovaszi. 

It has the right to back into a former Swiss project it sold earlier this year, it must decide whether to use or lose a gas exploration licence in the Netherlands and has a gas producing asset in eastern Hungary.

Investors make the mistake of thinking the Slovenian project is something of a punt, a high risk exploration play.

Nothing could be further from the truth. It is actually a development story. The area has been drilled extensively. First in the 1940s by a fuel-hungry German army looking for oil and then in the 1980s.

Petişovci-Lovaszi’s gas is what the company describes as on the “conventional side of tight”.

By that it means its wells are expected to flow without the help of any of the state-of-the art extraction techniques associated with tight gas.

However, with the help of horizontal wells or maybe even fraccing the flow rate will improve markedly.

There is a ready market for the gas – Petişovci-Lovaszi could provide Slovenia with 10 years supply and cut entirely Slovenia's reliance on Russia for this important source of energy.  

Meanwhile, both the infrastructure and processing facilities are in place, while the political will also exists if it leaves Slovenia self-sufficient. This just leaves the small matter of getting the gas out of the ground. 

Last week Ascent shares shot up 26 percent after initial results from the first well on the Slovenian part of the Petişovci-Lovaszi project beat expectations.

The Pg-11 appraisal well encountered gas in all six target reservoir intervals, plus an ‘added bonus’ gas find in an unexploited Karpatian reservoir.

The first phase of drilling is now complete but the rig is on standby to drill a horizontal production sidetrack, although this will depend on Ascent’s findings after further analysis.

As I mentioned earlier, there are other projects of interest in the Ascent portfolio that are perhaps the icing on the cake.

Switzerland is a case in point. Ascent sold its operation there in April to eCORP Europe for 8 million euros. However it retains the right to acquire 45 per cent of any discovery from the Hermrigen 2, Essertines 2 and Linden 2 appraisal wells by paying its share of the drilling costs. 

Elsewhere the group has the promising Latina Valley oil project in Italy and two offshore blocks in the Netherlands, where it must decide by Christmas whether to bring in a farm-in partner, or surrender the licence.

“We emphasise the potential of the Petişovci-Lovaszi project for the near-term value creation and the belief that the share price will be supported by further news on the progress of this project in 2011,” Therond said.