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Finding oil in Italy distracts investors from the bigger picture at Ascent Resources

Published: 00:00 07 Jun 2007 BST

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Market:AIM Ascent Resources? immediate aim is to create a ?500 million company by developing a balanced portfolio of hydrocarbon exploration, appraisal and production assets - with an ongoing emphasis on developing reserves. The company favours boring old Europe because it is politically and economically stable, and it?s is also a major market for oil and gas with a highly developed distribution infrastructure. Recently Joe European has woken up to the fact that some of those long pipelines, which obligingly deliver gas to his back door, have a price tag attached that could involve Russian political and economic interests ? so there is also a high degree of political goodwill in Europe towards companies with plans to develop hydrocarbon reserves within Europe.

 

Ascent Resources
Ascent?s intention is to weight its portfolio of projects in favour of gas because gas prices in Europe tend to be more stable than oil prices - however, this has not held the company back from drilling for oil and finding some. The company also focuses on onshore rather than offshore projects for reasons of economy ? however, it has dipped a toe in the North Sea on prospects where (relatively cheap) jack-up rigs can be used. Where feasible, the company favours taking a majority stake in a prospect (preferably one that has already has hydrocarbons discovered on it) and farming down its stake as a way of reducing its funding obligations. Ascent forms a subsidiary company in each country in which it operates and aims to involve a local partner, thus maximising local knowledge and adapting to local custom and practice.

With this kind of confident strategising you would be forgiven for thinking that there are some experienced people involved in Ascent ? and you would be right! Board members include:

Jeremy Eng - managing director, who worked for Shlumberger, Premier Oil and Tullow Oil focussing on operations and technical management, and he was technical director of WPN Resources ? now Grove Energy.

John Kenny of JKX Oil & Gas - which now has a market cap of around of ?736 million.

Malcolm Groom - an experienced energy lawyer who has headed up three companies in the energy field.

Jonathan Legg - who (with Malcolm Groom) co-founded Consort Resources - which was a top ten UK gas producer when it was bought out.

Unsurprisingly, Ascent shares are strongly held by institutions including RAB, Framlington, Fidelity, Artemis, Meridian, Majedie, First State ?and Bruce Rowan.

Since our last update on Ascent, the company has drilled a dry hole in Spain, come up with some rather inconclusive results in Hungary and made a discovery in Italy. Ascent has 20 plus prospects across Europe providing a good diffusion of risk, so the company?s shares have held up quite well and have picked up this year on news of the discovery. In fact Ascent has outperformed the AIM Oil and Gas sector for the last three years.

Italy
A drill rig is now on site in the Latina Valley at Ascent?s recent oil discovery, Anagni-1, which has been the subject of much discussion amongst private investors. However, Ascent is some way off from being able to say what exactly it has discovered at Anagni-1. The first well was intended as an exploration well to test the Miocene and Cretaceous carbonates. However, having confirmed the presence of the carbonates and oil, the next step was to apply for approval to deepen the well from approximately 1050 metres to 1250 metres and shoot seismic, in order to determine the location of a further appraisal well updip. Assuming current plans work out, Ascent will soon have a ½ km circle of seismic reading from around the current well, and will be able to plan the next phase of drilling. The final step will be to equip the well with a pump string and to test it. This might be a quite lengthy process because of the quantity of lost circulation mud and water and the rig will meanwhile move on to the Fiume Arrone location. For further appraisal wells, the company will have to go back and seek drilling permits and also source a drill rig. This means it will be well into 2008 before a drill bit turns again at Anagni-2.

The company will to drill the Fiume Arrone-1 well in the next couple of months to test the Pliocene and Miocene sands to a depth of 1,000 metres. Ascent has a 56% working interest in this small target, with preliminary estimated at 18 billion cubic feet (bcf). Investors should have an update before the summer is out, as it is anticipated that the well will only take three weeks to drill.

Also in the Po Valley, where Ascent has two exploration permits at Cento and Bastiglia drilling permits are being sought. Reprocessed seismic in the acreage has identified 12 leads and permitting is underway for the drilling of the first two prospects. Jeremy Eng told Proactive that Ascent is negotiating to farm out for these wells to partners who can commit to financing the drilling of these wells. Rigs are in demand these days, but it is hoped that it may be possible for the company to announce drilling operations before the end of 2007.

Netherlands
The company has some early stage exploration offshore licences in Holland, 3-D seismic has previously been shot over much of these licences, but it will take the a year to complete the geological and geophysical studies. Drilling here may be some time off, but activity in the area from some of the super majors, suggests it could be worth the wait.

Switzerland
There are only a few current hydrocarbon exploration licences in this small country, which has never produced a serious amount of any kind of hydrocarbons. However, Jeremy Eng is very sanguine about Ascent?s prospects in Switzerland which he thinks has some very overlooked, potentially substantial, gas prospects that have been drilled and tested in the 70?s and 80?s. From the studies which included seismic reprocessing, geological modelling the first drilling locations have been chosen and, with any luck, Ascent will have a drill rig on site preparing for appraisal drilling just as investors celebrate the beginning of the New Year 2008 although this will be subject to a successful farm-out.

Slovenia
As the company churns through the cycle of exploration, appraisal and production, new prospects have to be found to rebalance the company?s portfolio of projects. Recently, Ascent added acreage in Slovenia and now it has a 45% interest in the Petisovci-Dolina shallow oil fields and a 15.75% interest in some deeper tight-gas plays. The company is looking to beef up production in the shallow oil fields by re-working some older wells and completing new ones. The field is small, at 5-7 million barrels, but offers more low risk, near term production to add to the company?s miniscule production in Spain.

Spain
The company recently abandoned a dry hole and made an application for a gas exploration permit in Northern Spain. The Ayoluengo field is being worked over to improve production rates, currently around 100 barrels of oil per day, which pays the company?s overheads. Recently, Jeremy Eng hinted to Proactive about the introduction of a new oil recovery technology developed in Argentina which uses an ?intelligent bucket? to increase production from elderly oil wells. This technology is comparatively cheap to use and avoids the use of water injection. To learn more click here

Hungary
Despite some slightly disappointing drill results of Hungary thus far, news flow can soon be expected from Ascents Hungarian VAM-1 well, which is currently being drilled to a depth of 1700 metres. Ascent has a 56% interest in four plays on a lot of acreage in Hungary, which offers the company oodles of targets for the foreseeable future.

While investors have been focussing on Anagni-1 in Italy, Ascent has continued to plough on drilling appraisal wells, following its plan of adding reserves first and production second. Near term news will come from exploration wells in Slovenia, Hungary and Italy while the company makes plans about (hopefully large) prospects in the Netherlands and Switzerland. Meanwhile Anagni-1 will feature again in the 2008 exploration budget. The delivery of news flow and pace of progress looks set to continue at its heady pace for the foreseeable future.

 

 

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