A well-crafted announcement this morning ushers in continued music to the ears of Ascent Resources’ shareholders, not least ourselves as largest holder. Not only was there news on negotiations with the Government of the Republic of Slovenia and but also on the company’s Slovenian operations on the ground.

Most importantly, the board was able to confirm that direct negotiations with the Republic of Slovenia continue with a view to potentially settling the claim in an amicable manner in the short term. Investors first learnt about these negotiations in late October 2020 & which are being carried out on strictly confidential, without prejudice and privileged basis. As we commented back then, there was likely to be radio silence until such negotiations are concluded.

The big news is that Ascent this morning has highlighted that it will provide further updates as appropriate, which, reading between the lines, we think the board is marking investors’ card here for a resolution on the “near horizon”.

On the operational front, the company was also able to announce that PG-11A, one of its two development wells on the Petišovci tight gas field has now been put back into production.  People who had sat watching the Ascent share price rising significantly over recent months might have questioned why. Well, there is a lot going on behind the scenes at Ascent but at the same time local gas prices have been enjoying a good run and are now something like 175% higher than last summer.

The story from the field is that recently they have been seeing a pressure anomaly building up in the annulus and tubing at PG-11A, so the joint venture partner has put the well back into production. Not only will this allow the team to evaluate the source of the pressure anomaly and work out the best remedial action to take, but also provides some additional revenue and take advantage of these decent gas prices.

This well started flowing yesterday with an initial production rate equating to around 12,000 scm/d and will be monitored over the course of the next week for a stabilised production rate. The second well, PG-10 is currently producing at circa 5,000 scm/d whilst PG-11A had previously been shut in since December 2019.  It’s all a good chance to make the most of these vastly improved gas prices.

At this stage, we point out once again that the Government of the Republic of Slovenia seems keen to settle such cases. Slovenia does not have a brilliant record in defending these treaties. Looking at publicly available information, the current score looks something like 3-0 against Slovenia.

Of course it is one thing winning a case like this and it’s another thing getting paid. Well listen up investors as the Slovenian government 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 too.

It’s a long story but basically Ascent has had “issues” with the Slovenian government. The company has undoubtedly suffered from unfair treatment in that country which has served to damage Ascent’s €50 million plus investment in the Petisovci field. Disputes have arisen both under the UK – Slovenia Bilateral Investment Treaty (BIT) and the Energy Charter Treaty (ECT). 

In late-October 2020, the market also learnt that Ascent had completed an internal assessment of damages and that these current negotiations with the government of Slovenia won’t be prejudicing the company’s rights to pursue its investment treaty claim under the BIT and ECT. Sensibly, Ascent seem to have all their bases covered. Whilst these negotiations have been going on the board has been looking at securing litigation funding to proceed with international arbitration, just in case. We estimate the claim value to be in excess of 50m euros + costs and interest.

The situation in Slovenia has rather grabbed the headlines but, it is worth pointing out that Ascent is no longer a one project company. Ascent is very well placed to benefit from Biden’s victory which looks set to ease Cuban sanctions. Joe Biden has been promising a new Cuba policy and on the campaign trial he really highlighted his ambitions to promote human rights in Cuba and empower that country’s people to determine their own future.

Cuba represents one of the few remaining truly world-class yet largely unexploited hydrocarbon systems. In this country, the company has a highly compelling opportunity which includes six separate PSCs spread across four blocks which cover some 7,000km².Entry into Cuba has tremendous potential in our view and it looks like Ascent is on the verge of being awarded operator status. Once that is in place, it looks as though the market might really begin to learn about the size of the prize in the vast onshore licence area where Ascent is negotiating access to a highly prospective area of Cuba.

If that weren’t enough, also in Cuba, the board has already signed a number of new non-binding letters of intent in the hot battery metals mining space with either vehicles owned or backed by the Cuban government. At this stage it is worth noting that Cuba has the fifth largest nickel resources in the world.

Some respected commentators apparently scoffed when we initiated coverage on the stock 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.  Now with the stock merrily sitting at 13.25p, which is more than 300% higher, we are more than happy to confirm our stance.

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