Ascent Resources (LON:AST) is a stock many people struggle to understand.
There are too many moving parts to this oil and gas play, its critics claim.
While this might have been true in the past as boss Jeremy Eng amassed more 20 promising assets, the story recently became a very simple one.
The publication of a report by RPS Energy on the company’s Petişovci-Lovaszi project area in Slovenia was the game changer.
It provided independent corroboration of Ascent’s own work by confirming a P50 gas-in-place estimate of 412 billion cubic feet.
If the reserves are proved up, then Petişovci-Lovaszi will be one of the bigger onshore gas fields in Europe.
More than that, the RPS report should help filter out the noise and focus investor attention on this one, potentially company transforming asset.
Of course there is more to Ascent than Petişovci-Lovaszi.
It has the right to back into a former Swiss project it sold earlier this year, it must decide whether to use or lose a gas exploration licence in the Netherlands and has a gas producing asset in eastern Hungary.
However Petişovci-Lovaszi is crucial to its immediate prospects, so we better take a closer look at it.
Investors make the mistake of thinking the Slovenian project is something of a punt, a high risk exploration play.
Nothing could be further from the truth. It is actually a development story.
The area has been drilled extensively. First in the 1940s by a fuel-hungry German army looking for oil and then in the 1980s.
Petişovci-Lovaszi’s gas is what finance director Simon Cunningham describes as being on the “conventional side of tight”.
By that he means the well Pg-11 is expected to flow without the help of any of the state-of-the art extraction techniques associated with tight gas.
However, with the help of horizontal wells or maybe even fraccing the flow rate will improve markedly.
There is a ready market for the gas – Petişovci-Lovaszi could provide Slovenia with 10 years supply and cut entirely Slovenia's reliance on Russia for this important source of energy.
Meanwhile, both the infrastructure and processing facilities are in place, while the political will is also there if it leaves Slovenia self-sufficient.
This just leaves the small matter of getting the gas out of the ground.
Drilling on the first well at Petişovci-Lovaszi begins later this month and the evaluation programme, which will include extensive coring amd specialist wireline logging, is expected to take around 40 days to complete.
Ascent’s experts will then compile and interpret the results. There ought to be enough data to optimise the geological modelling over the entire project area.
With such a lot of work in store, Cunningham isn’t committing to an exact release date for the results from Pg-11, saying only that they will be available at some point in the first quarter of next year.
However the information will be pivotal to the firm’s future prospects. Once management has the data it can decide how it finances the project, with the capital costs estimated at between 100 and 150 million euros.
One way to bankroll the potential 28 hole programme at Petişovci-Lovaszi might be to find a farm-in partner.
But Ascent doesn’t really want to dilute down its 75 per cent stake in the project (the Slovenian state national oil company and the semi-state company Petrol jointly own the other quarter share).
So it may look to debt-finance Petişovci-Lovaszi. Cunningham says there are sources of funding out there including possibly the European Bank of Reconstruction and Development as a possible partner.
“Farming in is about risk mitigation and funding but also provides an access to technical expertise,” the Ascent finance director said.
“It is a double edged sword. Obviously you get someone to carry you through the drilling programme.
“But it (Petişovci-Lovaszi) is fairly large and instantly producible and the returns are very, very strong.
“We would want a very good farm-in deal. And if we can’t get one, we would look at debt funding.
“If you look at what we have done in the past, we would normally have farmed in at this time.
“That we haven’t is a reflection of the fact we are definitely bullish on this project.
“If you want to transform yourself from a £25 million market cap company to a £250 million market cap and if you are going to do it organically you going to have to take a large project forward with a large interest.
“We see this first well (Pg-11) as a low risk exercise and the opportunities it opens up in terms of the funding and the farm-out are worth the risk.
“We are already in negotiations about the funding. The decisions on funding will depend on the initial flow rate from this well.
“However, even if it doesn’t flow conventionally then it won’t be the be all and end all. It is very much about understanding the field.”
One senses that Cunningham is quietly optimistic, particularly given what Ascent already knows about Petişovci-Lovaszi.
It is now a case of convincing the market of the project’s development potential.
“Where we are was drilled for oil and gas back in the 1940s by the Germans,” he explains.
“Essentially they drilled the shallow oil horizons, but deeper is the tight gas target between 2,000 and 3,000 metres.
“Gas has been flowed from those reservoirs back in the 1980s. In the old Yugoslavia they drilled down with some prehistoric completion techniques and flowed the gas.
“So 10Bcf has been flowed from the horizons we are chasing. So it is not as if there is no production history.
“Essentially it (Pg-11) is very much a technical exercise. This is tight gas, but a borderline conventional/ unconventional play if that makes sense. We are a borderline tight play.
“In the US the technology to stimulate gas from tight sands has evolved significantly in the last 20 years and is now bread and butter stuff in the industry.
“So what we are doing is not cutting edge. It has been done before, just not in this field.
“We are looking at this Pg-11 well and as far as we are concerned we expect it to be a conventional producer.
“But that’s not the main reason for this drill. The project will be a good project if it flows conventionally.
“However if we can bring this unconventional stimulation to it, the project is significant. We are talking a multiple of your flow rate using unconventional stimulation.”
As I mentioned earlier, there are other projects of interest in the Ascent portfolio that are perhaps the icing on the cake.
Switzerland is a case in point. Ascent sold its operation there in April to eCORP Europe for 8 million euros. However it retains the right to acquire 45 per cent of any discovery from the Hermrigen 2, Essertines 2 and Linden 2 appraisal wells by paying its share of the drilling costs.
Cunningham calls it a "no risk look” at a 150 billion cubic feet gas project.
“It is a big target, we always wanted to drill it,” he adds.
“The deal we have done is the best in the industry I know. “We get our money upfront and if it is successful we get to back into it. It is a free exploration option.”
Elsewhere the group has the promising Latina Valley oil project in Italy and two offshore blocks in the Netherlands, where it must decide by Christmas whether to bring in a farm-in partner, or surrender the licence.
“In each area including Slovenia, we are operating in a low risk regulatory environment, not deep water Africa,” Cunningham points out.
“We are not off the coast of Ghana or Indonesia. We are in an area where you can be fairly robust in drilling with a low risk of interference. We can drill cheaply in a safe regulatory environment.”