By Dr. Michael Green

The Slovenian government will now have to properly deal with Ascent Resources. This follows this mornings news that Ascent is appointing Enyo Law LLP and is fully funded to pursue its Energy Charter Treaty (ECT) and UK-Slovenia Bilateral Investment Treaty (BIT) arbitration claim against the country.

Ascent is the onshore Caribbean, Hispanic American and European focussed energy and natural resources company. It has now officially entered into a binding damages-based agreement which is a “no win no fee” funding deal and officially appointed Enyo Law LLP to pursue these claims.

All the Slovenian government’s dawdling tactics over the years were probably in the hope that a sabre-rattling microcap like Ascent couldn’t get such an action funded and would probably go pop in any case. So, this morning’s announcement should send a cold shiver down their spine, as to put it mildly they aren’t that good at defending such claims.

Enyo Law is a specialist arbitration and litigation legal firm which filed both of the Notice of Disputes on behalf of the company and represented Ascent in last year’s pre-arbitration negotiations with the Republic of Slovenia. Enyo will be advancing the disbursements which are expected to be incurred in the pursuit of the claim and will only be paid out of a portion of the proceeds of the arbitration in the event of a successful damages award or execution of a binding settlement agreement.

With the funding in place, this means that the gloves are now off as Ascent can now securely initiate arbitration proceedings against Slovenia. All this concerns the significant damages suffered by the company’s Slovenian investment as a result of the country’s breaches of the protections established by the ECT and BIT. Amongst other things, these include the prohibition of expropriation, the guarantee that the investments would be accorded fair and equitable treatment and Slovenia’s guarantee that the management, maintenance, use, enjoyment, or disposal of the investments would not be impaired by arbitrary, unreasonable or discriminatory measures.

In this latest announcement the company highlighted that the size of its damages has increased for reasons that include the increased gas price and the consequences of the recent legislative changes in Slovenia and are significantly in excess of a €100 million. 

Ascent’s CEO Andrew Dennan was able to point out that “Today’s completion of the ‘no win, no fee’ damages based agreement allows the Company to immediately advance its material damages claim against the Republic of Slovenia in an international forum, as we seek redress for shareholders after many years of frustration, arbitrary decision-making against the company and delays being imposed on the project. This impact has recently been amplified with our investment effectively being expropriated by virtue of the new amendments to the mining law which specifically target the destruction of our full investment value. We are delighted to have secured this arrangement on behalf of our shareholders and which now positions Ascent’s equity holders with material upside exposure to a claim seeking damages of several hundred million dollars.”

The latest move is a big milestone for the company and could serve to unlock the €50 million of investment in the project plus the loss of earnings. Last year the company was in settlement talks with the Slovenian government. This went on for 5 months and in March 2021, Ascent was talking about a €100 million plus figure. Two things have happened subsequently which have both had a quantum impact on the size of this claim –  the gas price increase and the nature of the claim.

The €100 million figure was based on a gas price of €18/MW but since then it has been as high as €250/MW. In the company’s analysis previously, they had been using a price deck of €20/MW figure which now stands at €50-75/MW. Using a €50/MW figure gives 2.5 to 3 times multiple of gas revenue.

The nature of the claim has changed from just a loss of earnings over 4-5 years, because the expansion of the project wasn’t granted approval, to expropriation and the loss of the full investment value. Changes to regulation have outlawed stimulation which the field has required to produce.

At this stage, we ought to point out that the Government of the Republic of Slovenia seems keen to settle such cases. Looking at publicly available information, Slovenia does not have a brilliant record in defending these treaties. It is one thing winning a case like this and it is another thing getting paid. Well, the Slovenian government also tends to pay up as well. It is not really that hard to see why as no government wants to discourage potential international investors from setting up shop in its country. As far as collection of any award goes, Slovenia seems to have plenty of assets outside of the country which could be used for enforcement purposes.

The company served the second notice of dispute a month ago. There is a 90-day cooling off period which ends on 3rd August 2022 when Ascent will lodge the arbitration request papers. Well Slovenia did enter discussions last time around and so there is a window opportunity now for the government over the next couple of months to act before the case moves out of their comfort zone and into an international court where they have little control of the outcome. So, watch out as Slovenia could respond at any time.

Our thinking is that Slovenia has tried five times to change the law and only after the government engaged with the company was the amendment accepted. Reading between the lines, the government made this decision having come to terms with knowing that there is a price to pay to show that the country is really open for business for international companies.

Align Research initiated coverage on Ascent with a Conviction Buy stance and a target price of 18.34p in mid-September 2020 when the shares were trading at 3.25p. That target price was solely based on possible Petišovci scenarios where we looked at the two alternative scenarios of either litigation or development, with both outcomes being thoroughly risked.  Since then, the stock has been over the 10p mark. Now with the shares at sitting at 3.65p, we believe investors have a chance for a second bite of the cherry and we are more than happy to confirm our stance.

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