Colin Hutchinson on this month’s ‘crucial’ vote for Ascent Resources
Later this month, Ascent Resources will hold a meeting that will see shareholders vote on whether to reinstate its’ board’s ability to issue shares to raise cash. Here, chief executive Colin Hutchinson explains why he believes the passing of the proposal will be crucial to the company’s ongoing efforts to develop its much-troubled Petišovci tight gas project in Eastern Slovenia.
Ascent is the 75%-owner of Petišovci and had spent almost €50m on the project as at the end of 2017. It delivered first export gas production from the site in November last year from two operational wells – called Pg-10 and Pg-11A. Over the first six months of 2018, the wells generated revenues of c£1.3m.
This year has seen Ascent continue to be held back by ongoing difficulties associated with a licence called the IPPC permit, which it first applied for in 2014. This will allow the firm to build a processing plant at Petišovci that will enable it to enter the second phase of the project’s development and increase production.
Since getting initial approval from the Slovenian Environmental Agency (ARSO), Ascent’s permit has been held back by bureaucratic sluggishness, court appeals by an NGO, and requests for additional information.
Fast forward to August 2018, and the business looked to have finally made progress, reporting that the permit should be awarded by September following positive discussions with ARSO. However, this did not occur. Shortly afterwards, the business suffered yet another major blow after revealing that Slovenia’s new environment minister had decided to make further enquiries into the permit.
To make matters worse, the firm said a week later that it had been unable to contact the minister or get any meaningful comment from ARSO on the status of the permit. In response, it said it had been in regular contact with and officials from the British Chamber of Commerce and the British Embassy to understand the reasons for the intervention and its effect on its permit. It has also begun to look at commencing proceedings against the Environment Agency, the Environmental Minister, and the state of Slovenia directly in the EU courts.
Speaking to Total Market Solutions, Hutchinson said: Ascent hopes to talk to the new minister shortly to get some more clarity around his planned review: ‘Giving the extensive historical delays Ascent has already suffered on this permit, this latest setback has obviously been a disaster. We are hoping that the minister will be back at his desk next week to sit down and meet us. Hopefully, we can find what he needs to do for his internal review, assist him, and get the permit back on track. However, we are not going to know until next week at the earliest how long this process will take.
Against this challenging backdrop, Ascent launched a strategic review in April after concluding that the planned development of Petišovci was not an option without ‘significant dilution’ for shareholders. After receiving interest in the project from several industry players, the firm began to look for a partner to help it develop its existing assets, as well as initiating a formal sale process.
Following months of talks, Hutchinson tells us that the review faced a significant setback in June when frustrated shareholders denied Ascent’s board the right to issue equity securities at its AGM. Without the potential to raise cash and develop Petišovci itself, Hutchinson says Ascent has lost a great deal of its negotiating strength when it comes to securing a deal around the project:
‘We have talked to more than 20 companies about the project and are still in the process of talking to a couple of parties, but no one has put an offer down on the table yet. We were hoping to get a few companies involved and to create a bidding war, but because the permits have not come through and people know we cannot raise cash, any parties interested in the project are just sitting, waiting and watching. They know that they will probably be able to get it more cheaply in a few months’ time. It also reduces our ability to pursue the necessary permits in Slovenia given the need to conserve cash resources. We are still in the process, but there is unlikely to be any completion any time soon because there is no catalyst.’
To reverse this dynamic, Ascent called for the reinstatement of its right to issue shares without recourse to shareholders in a circular issued last week. Investors will be able to vote on the proposal in person at a meeting in London on 20 November or by post before this date.
In the circular, Ascent stressed its belief in the importance of passing the vote, claiming it will be essential in ensuring it can challenge the blocks to its permits and credibly fund itself outside of its strategic review. It added that if the resolutions do not passed, the board’s ability to fund the company will be ‘severely compromised’.
Hutchinson reiterated these points to us, adding that he believes the passing of the resolutions will be essential in preventing the company from being cornered by Slovenian authorities or participants of the strategic review:
‘When it became clear that the strategic review was not going to complete any time soon because of the permitting delay, we decided that we could not continue to limp along and would have to take matters into own hands, asking for the right to raise cash to be given back to us.
‘As it stands, we do not have the option to develop Petišovci independently, weakening our stance among Slovenian authorities and potential partners. Getting this vote is crucial as it gives us a credible alternative to walk away from the strategic review and initiate actions against the authorities around the permit. It is also just a sensible thing for public companies to have this right in case something unexpected happens. We have cash, but it won’t last forever, so it is prudent to have these rights.
‘If the resolutions do not get passed, then I think we will become entirely hostage to our strategic review, which is very opportunistic. For the time being, however, I think we still have a way through. If we can get the authority to issue shares and come to an agreement with the environmental minister, then we could continue to develop Petišovci either by signing on a partner or by raising money and continuing as an independent.’
