Ascent Resources (AIM: AST) has sold its 100% owned Swiss subsidiary, PEOS AG, to eCORP Europe International in a cash-deal worth €8 million. Ascent’s Swiss unit held beneficial interests in various permits in Switzerland, including a 90% beneficial interest in the Hermrigen, Linden and Gros de Vaud permits.
Investors likes the news, sending shares up nearly 15 percent in early deals.
Under the terms of the deal, Ascent will retain farm-in rights relating to conventional discoveries made on the disposed permits.
"This is an outstanding deal. We have realised €8 million from our investment in our Swiss assets, retained without obligation the opportunity to participate in any production opportunities from conventional reservoirs and completely removed the funding risk for these projects”, Ascent MD Jeremy Eng commented.
“Importantly, in this instance, we have achieved a far stronger result than working within a traditional farm-out partnership structure”.
Ascent noted that since 2005, it has actively developed and marketed the Swiss assets. Towards the end of 2009, the company launched a farm-out initiative for the Hermrigen appraisal project.
In addition to the €8 million, consisting of a €5 million up-front payment and a €3 million payment due subject to the completion of agreed commercial conditions, Ascent retains certain rights in respect to eCORP’s future discoveries on the permits.
The company has the right to acquire 45% of any conventional discovery from the Hermrigen 2, Essertines 2 and Linden 2 appraisal wells by paying 45% of drilling costs, post discovery. Additionally, Ascent and eCORP have identified a further three prospects held by PEOS, in relation to these prospects Ascent can acquire 22.5% of any discovery by paying 22.5% of the drilling costs, post discovery.
Furthermore, eCORP has irrevocably committed to drill the Hermrigen-2 appraisal well and permitting is underway for drilling in Q4 2010.
Ascent stated that in both instances the company has no obligation to participate in a discovery, and separately, should eCORP elect not to drill these wells Ascent retains the option to fund the developments in its own right.
According to Ascent, the Swiss projects are estimated, by Tracs International, to contain gross contingent conventional resources in excess of 600Bcf of gas. Specifically, "management estimate gross contingent reserves of potentially 150Bcf in the Muschelkalk and Bunter layers of the Hermrigen prospect", Ascent stated.
"ECORP is pleased to have the opportunity to control the operations of PEOS on these permits and work at an enhanced pace to bring much needed gas resources to Switzerland through a combination of conventional and unconventional gas development, alongside the potential construction of underground gas storage facilities", eCORP chief executive John F. Thrash said.
ECORP expects to commence site operations to drill the Hermrigen-2 appraisal well in the fourth quarter of 2010, and it is committed to begin drilling before October 2011.
Ascent highlighted that it has some very strong projects within its portfolio, with some in production, some projects nearing production and multiple projects where defined exploration and appraisal is set to add value. This cash deal is expected to benefit its progress elsewhere in its European oil and gas portfolio.
“The additional funds will be used to expand our intensive work programme across our portfolio, which includes our drilling and production programme in Hungary, the exciting prospects of the Anagni-2 appraisal well in Italy, alongside further drilling and exploration work scheduled in Slovenia”, Jeremy Eng added.
“Furthermore, having retained the farm-in option with PEOS, we can also look forward to additional activity in Switzerland and the possibility of confirming the presence of a sizeable reserve."
Astaire Securities featured the group in its Morning Report, calling today's news "a great deal for Ascent, bolstering the balance sheet with useful additional cash while providing the company with the option to participate in future wells retrospectively should these be successful".
In a further note, Fox-Davies Capital said it welcomed this "positive deal" on the Swiss assets, adding: "Ascent has realised €8m in cash from the assets and keeps some equity in the exploration upside of the licences; however in case of failure there are no associated costs for the company."
The transaction, which is quite different from a traditional farm-out arrangement, therefore seems to have very limited downside and brings Ascent’s Swiss projects back into play, the broker added.
In Italy, earlier this week, Ascent completed operations on the Fontana-1 well in Italy's Latina Valley achieving sufficiently encouraging results to proceed with the permitting of a hydrocarbon appraisal well, Anagni-2.
Fontana-1 was drilled as a geological appraisal well to collect cores from a carbonate platform identified while drilling the nearby Anagni-1 well. At Fontana-1, a core sample taken from the limestone of the target Carbonate Platform formations contained live oil. Furthermore, Ascent noted that the target formations have been found over 300m shallower than in the original Anagni-1 well.
The Anagni-2 well, located within 1km of Fontana-1, will now target a smaller adjacent structure. At the Anagni-2 location, Ascent expects that the target will be even shallower, at an estimated depth of approximately 300m below ground level.
The company also updated investors on the on-going work in eastern Hungary, on the Penészlek project. At the Penészlek project, Ascent is currently returning to PEN-101 to ready the well to complete remedial work required to ready it for production.
At PEN-101, the company will drill a short sidetrack to bypass damaged cementation. Prior to the short-term disruption at PEN-101 Ascent achieved initial production rates, during preliminary testing, in excess of 1MMscfd (million standard cubic feet per day). Previously, Ascent said this initial production rate is expected to be increased through similar stimulation as used with the currently producing PEN-105 well.
PEN-105 was completed and shut-in in December whilst the company connected it to the main export pipeline, and production subsequently began last month.
Disclosure: The author holds no positions in the company