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Ascent Resources – “pleased with the progress of the strategic review to date”. You cannot be serious!!!

By Steve Moore | Monday 6 August 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

An “Operational Update” from Ascent Resources (AST) commences “as previously announced, the company commenced a strategic review in April 2018 to review the various options available for the company to maximise value for shareholders” and later includes “the board is pleased with the progress of the strategic review to date and discussions are ongoing with a number of different parties”. Good, good - ‘Pleasing’ progress towards maximising value for shareholders then… and the shares have currently responded… er, circa 40% lower towards 0.40p!?

“There is a large amount of data in the data room, both technical and legal, which takes time for companies to review and decide on any potential offers… The strategic review has been undertaken against the backdrop of further permitting delays in Slovenia, which has deterred a number of otherwise interested parties”. I thought it was ‘pleasing progress’ though?

“Until the permits (which were applied for well over one year ago) are granted, the company is unable to undertake the planned work to re-stimulate these wells let alone commence the re-entries of the other existing Pg wells… The permitting delays will become a greater problem if the strategic review fails to identify such a partner, or if that partner seeks to make the award of the permits a condition of any transaction”. Er, given the aforementioned would that not be exactly what a prudent potential partner would do? ‘Pleasing progress’ though, hey!

Indeed, current trends will usher in “a time when, without further permits, the income from production will fail to cover the day to day costs of the group as currently constituted”. The company though states it is now taking action so, if required, it has “as long as possible either to obtain the long overdue permits or make other arrangements” - this includes the non-executive directors deferring their remuneration, CEO Colin Hutchinson moving to a part-time basis and ‘reducing his remuneration accordingly’ and the other UK-based staff in future moving to an ad hoc basis, providing support as required on a daily rate…

Could, in aggregate, allow the company to continue to trade… “to the end of the current year” - and even that “dependent on the production volumes from Pg-10 continuing on the current decline rate”!

The situation also means even on permitting success, “the company will require funding for the capital programme to re-stimulate the wells before production revenues are increased”. I thus consider it can argue ‘pleasing progress’ all it wants, but the weak both operational and financial positions to negotiate a good deal mean the current stance can only be sell / bargepole.

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