Ascent announced its final results for the year ended December 31, 2010.
I am pleased to report that 2010 was a year of solid progress for Ascent both operationally and in terms of positioning the Company for steady near- and long-term growth in shareholder value.
Our strategy remains to combine lower risk field redevelopment projects in areas with existing infrastructure with selected higher risk exploration projects all designed to provide a balanced risk/reward profile with good potential upside. To this end, we have a diversified portfolio of principally onshore, hydrocarbon exploration, redevelopment and appraisal interests across five European countries: Hungary, Slovenia, Switzerland, Italy, and the Netherlands. We are initiating relatively simple development models to advance these projects, utilizing the latest technology and working with local organizations in each jurisdiction to increase efficiency. As a result of the work undertaken during 2010 and 2011, we anticipate ramping up production towards the end of 2011 and beyond.
Our primary near-term objective is to advance the Petišovci/Lovászi/Ujfalu tight gas project in Slovenia/Hungary. We now hold a 75% interest in the Petišovci asset, having acquired a further 48.75% from EnQuest PLC post year end in return for a 22.5% equity stake in Ascent and a nil cost option of 150,903,958 additional shares, and a 50% interest in the Lovászi and Ujfalu assets. During the year we had independently verified P50 gas in place estimates for the entire project of 412 Bcf. (11.7 Bm3; 68.7 MMboe) and for that reason we consider it relatively low-risk. The challenge for us in 2011 is not so much finding the gas, which we know is there, but how to unlock this gas in a commercial manner given it is largely a tight gas asset.
Phase 1 of the project's development program included the drilling of Pg-11 well in December 2010 to define the main project parameters. On completion of drilling in February 2011, we were able to confirm gas in all of the six Middle Miocene Badenian reservoirs as well as, most excitingly and unexpectedly, the Lower Miocene Karpatian reservoir, which we hope will increase the gas in place estimate by in excess of 100 Bcf. The data collected, in conjunction with the full 3-D seismic which we acquired during the year across the whole project area, has led us to believe that we can extract the gas using modern drilling techniques, either by drilling horizontally or by fracking. In order to determine the right method to use, Phase 2 of the program is currently underway with a deeper horizontal sidetrack to enable us to fully delineate the Lower Miocene Karpatian reservoir and depending on these results we may follow this up with a sidetrack well in the Middle Miocene. Subsequently, in the late summer of 2011, we plan to drill another well, Pg-10. Following this, if successful, it is hoped that production can commence before the end of the year. To achieve this target, a simple pipeline connection and a carbon dioxide ('CO2') reduction plant is required to connect any producing wells in the project to the national pipeline network.
Going forward, our development plan envisages 10-15 more wells being drilled over a three- to four-year period. It is estimated that if production from the wells is in line with current projections, that net operating cash flow from the first well brought on stream during 2011 could be €3 million in 2011 rising to €10 million in 2012 and €24 million for the period 2013-2015, based on €7 Mscf. gas pricing. The project's net CapEx however is not inconsiderable requiring in excess of €150m to develop the entire field.
We are also focused on two other core projects: Hermrigen/Essertines/Linden in Switzerland and Frosinone/Strangolagalli in Italy. The Swiss project is another known oil and gas discovery, which was unexploited due to the low price of gas in 1982 and lack of pipeline infrastructure at that time. We consider that this is also a low risk project as Ascent sold its 90% interest to eCORP European International Ltd ('eCORP') in April 2010 for €8 million, while retaining a 45% back-in right on any success for three conventional appraisal prospects and a 22.5% back-in right for a further three secondary conventional prospects for apportioned cost. eCORP anticipates drilling the Hermrigen well early in the summer of 2011 once the permit is received.
Finally, the Frosinone/Strangolagalli oil exploration and redevelopment project in Italy has also been making headway. New seismic was shot last year in the Strangolagalli Concession and this year a latest generation satellite reconnaissance survey was commissioned, enabling us to plan a new three-well drilling program for 2011/2012. Further seismic has been commissioned at the Frosinone Exploration License to identify drilling locations. We are currently exploring our options in terms of financing an exploration program but as all the drilling would be targeting reservoirs about 1,000 meters deep, costs should be relatively low, yet the upside could be significant for a Company of our size.
Also on the theme of finance, production continues at our 48.8% held Penészlek project in Hungary, where we are currently generating gross gas sales of approximately €300,000 per month. The strong European gas market conditions have been working in our favor; with over 50% of European gas imported and forecast to rise to circa 75% in line with the declining North Sea production, we anticipate these favorable pricing conditions to continue. Production at Penészlek is expected to continue for about another 12 months with another sidetrack well, PEN-105, targeted for the summer of 2011 prior to the field being fully depleted.
The self-financing Penészlek project is useful as it provides the Company with cashflow for overheads, however post the year end in March 2011, it was necessary to raise additional funds by way of a placing in order to progress our core Petišovci/Lovászi/Ujfalu project. We were therefore very pleased to raise £17 million, before expenses, primarily with high quality institutional investors. This has provided the capital to significantly advance our Petišovci/Lovászi/Ujfalu project and we believe that if successful the money could be enough to get us to production/cash flow generation before the year end.
On a corporate level, we have made a number of changes. In September 2010 we appointed finnCap Ltd as the Company's Nominated Adviser and Broker to strengthen our profile within the fund and wealth management arena. Earlier in the same month we also made changes to our Board with the appointment of Dr. Cameron Davies as a Non-executive Director. Cameron is an international energy sector specialist and the former Chief Executive of Alkane Energy plc. He has an excellent track record of exploration success and growing profits in a quoted energy company. He brings with him the technical skills and broad network of international energy industry contacts which will be invaluable in progressing Ascent's extensive portfolio of European oil and gas development and exploration assets.
At the same time, both Legal Director Malcolm Groom and Non-executive Director Jonathan Legg, who had been with the Company since 2005, stepped down from the Board to focus on other commitments. At the end of 2010, Simon Cunningham, our Finance Director, also stepped down from the Board to re-locate to Australia. I would like to take this opportunity to thank them all for their work during their long association with Ascent.
Simon was replaced by Scott Richardson Brown as Executive Finance Director, who had been appointed in November 2010 as a Non-executive Director. Scott is a qualified Chartered Accountant and subsequent to his experience as an auditor, he spent over 10 years working with AIM, FTSE 250 and FTSE 100 companies, both in a corporate finance advisory role and, recently, as Corporate Finance and Investor Relations Director of CSR.
Additionally, post the year end, as part of the agreement with EnQuest PLC, Graham Cooper was nominated to join our Board as a Non-executive Director in February 2011. Graham brings with him a wealth of experience which will be very valuable to the Company. EnQuest will also provide technical support to Ascent for the Petišovci Project, as well as for the evaluation of future European business development opportunities.
With a strong team in place as well as a solid investor base, a healthy balance sheet and an exciting portfolio of diversified assets, the outlook for 2011 and beyond is highly encouraging. Having proved up our core portfolio we are now focused on extracting value from it and in line with this, aggressive work programs are underway. The Petišovci/Lovászi/Ujfalu tight gas project is particularly promising, which in tandem with our other projects, will, I am confident, create real and lasting value for our shareholders.
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