TIDMAST
RNS Number : 0976O
Ascent Resources PLC
04 August 2014
Ascent Resources plc
("Ascent" or "the Company")
Update on Subscription by Global Power Sources s.r.l.
Ascent will today post a letter to shareholders providing an
update in relation to the proposed subscription for new ordinary
shares in the capital of the Company for up to GBP15 million by
Global Power Sources s.r.l. ("GPS").
The full text of the letter can be found below. A copy of the
letter is also available from the Company's website
www.ascentresources.co.uk
Dear Shareholders and holders of Convertible Loan Notes
GPS Subscription
Introduction
As previously announced, the proposed subscription for ordinary
shares in Ascent Resources plc by Global Power Sources S.r.l.
("GPS") of up to GBP15 million ("the Subscription"), of which some
GBP7 million was to be used to repay existing debt, was approved by
Ascent's shareholders at a general meeting on 5 June 2014. However,
to date GPS has failed to make payment to Ascent of the GBP11.7m
required to fund the initial tranche of the Subscription ("the
Initial Subscription"). Accordingly the associated offer by Ascent
to holders of 2013 Convertible Loan Notes for the redemption of up
to half of the outstanding 2013 Convertible Loan Notes and the
conversion of the remaining 2013 Convertible Loan Notes and the
conversion of the outstanding 2014 Convertible Loan Notes have not
completed.
Under the Subscription Agreement entered into between GPS and
Ascent the long stop date for completion of the Initial
Subscription was 31 July 2014 and whilst GPS is still contractually
bound by the terms of the Subscription Agreement, Ascent is in a
position to conclude alternative arrangements to provide working
capital to the Company.
It is important to note that Ascent still has access to up to
GBP3m in funding under the terms of the 2014 Convertible Loan notes
agreed with Henderson Global Investors on 5 February 2014. Based on
the Ascent board's expectations on permitting progress this should
provide sufficient funding to take the project through the
permitting stage.
This letter sets out the background to the default by GPS; the
alternative funding arrangements open to the Company and updates
shareholders and Convertible Loan Note holders with developments at
the Petišovci project.
Background
Subscription agreement
On 16 May 2014 Ascent announced the conditional subscription for
ordinary shares by GPS of an initial sum of GBP11.7 million at a
price of 0.8p per share. Also announced was an additional
subscription by GPS of a further GBP3.3 million subject to the
performance of the Petišovci project and the adjacent methanol
plant before 31 December 2014.
The new shares to be issued as part of the Initial Subscription,
together with the shares GPS already owns, would have taken GPS's
holding to some 47.9% of the enlarged share capital of Ascent and
to some 53.1% of the enlarged total should the additional
subscription have been made.
GPS's funding arrangements
As set out in the circular to shareholders dated 16 May 2014,
GPS entered into a joint venture agreement with Salomon Werner HAB
Privee Limited, formerly known as Salomon Partners WRS Werner
Rothschild & CIE Limited ("WRS") to, inter alia, provide GPS
with funds to complete the Subscription.
Eidos Partners s.r.l. ("Eidos Partners"), as financial adviser
to GPS, confirmed in writing to the Ascent board the availability
of the funds to make the Initial Subscription and that these funds
would not be used for any other purpose but to complete the Initial
Subscription.
Additionally WRS separately confirmed in writing to Ascent that
in the event GPS did not pay for the Initial Subscription by 30
June 2014, WRS would provide Ascent with collateral pending receipt
of the Initial Subscription funds from GPS.
Current position
The Ascent board believes that WRS has not honored its joint
venture agreement with GPS and specifically has not put GPS in
funds to complete the Initial Subscription.
The Ascent board has also been informed that GPS has commenced
legal proceedings against WRS for non-performance of WRS's
obligations under the joint venture agreement.
To date, the Ascent board has received no adequate explanation
as to why the funds identified to make the Initial Subscription
have not been transferred to Ascent nor why WRS has failed to
honour its agreement with GPS.
Additionally, WRS has failed to fulfill an undertaking to Ascent
to provide adequate security to Ascent in the event that GPS did
not transfer the Initial Subscription monies by 30 June 2014.
Furthermore, to date, Eidos Partners have shown little interest
in securing the payment that they confirmed would be made.
Relationship with GPS
One of the attractions of the GPS subscription arrangement was
that GPS would be able to provide both practical assistance in
developing the Petišovci project and additional investment
opportunities, including in the alternative energy space (wind,
solar and hydro) in which GPS is already active.
GPS currently owns 21.1% of the issued share capital of Ascent
and on a fully diluted basis would hold 11.4%, making them the
Company's second largest shareholder. Ascent believes that GPS is
doing all that it can to remedy the situation and to the extent
that Ascent can assist GPS in this process it will.
The Ascent board's primary concern however is the best outcome
for Ascent shareholders and Convertible Loan Note holders.
Accordingly, Ascent intends to commence proceedings against GPS and
others in the event that a different funding plan is pursued and a
loss to Ascent occurs. This could occur through alternative funding
being raised on less favourable terms, or due to the costs
associated with the Subscription and the GBP1 million due to Ascent
under a previous agreement with GPS, which was due to be waived as
part of the negotiations in relation to the current subscription by
GPS.
Financial position of the Company
In the event that the Initial Subscription is not completed,
Ascent is able to call on the undrawn portion of the 2014
Convertible Loan Notes, which amounts to GBP3 million in total.
The terms of any drawdown under this facility would depend,
inter alia, on the price at which any third party investors provide
the Company with new funds.
In the absence of alternatives sources of funding the Ascent
board plans to begin the drawdown of the 2014 Convertible Loan
Notes at the end of August 2014.
Petišovci project
Permitting
The permitting phase in relation to the Petisovci project has
taken longer to complete than was originally expected. This is in
part due to changes in the circumstances of the project and the
permitting regulations, but also in part due to the exceptional
level of technical detail required by the Slovenian
authorities.
Most recently, the decision by the state-owned electricity
company to construct a new high voltage power line in the vicinity
of the existing gas processing plant has resulted in several months
delay while the various interested parties and regulatory
authorities assessed the impact thereof. In addition, extended
negotiations have been underway between the project partners and
certain land owners, to acquire a suitable site for construction of
a new gas processing plant.
Further delays have been caused by the considerable uncertainty
and conflicting legal advice on the applicability of new EU
regulations regarding competitive tendering for all parts of the
construction phase.
Ascent management's expectation is that, in line with stated
government timelines, the permitting required for phase one of the
Petišovci project will be put to public consultation early in Q1
2015.
Notwithstanding the above difficulties, progress has been made
as follows:
-- We have reached advanced stages of discussions with the
owners of the methanol plant in relation to the terms of an offtake
agreement to supply gas from the Pg-10 & PG-11A wells. The
methanol plant continues to offer the potential for early revenue
in advance of the construction of infrastructure required for the
sale of gas into the national grid.
-- We have submitted the key Integrated Pollution Prevention and
Control permit application to the Slovenian Environment Agency
-- Certain rules on public procurement in Slovenia have been
relaxed, which should lead to shorter lead times when issuing
tenders for construction contracts.
-- We reached mutual agreement with Plinovodi d.o.o., the
Company which owns the pipeline to which our gas would flow,
regarding the contract for the upstream pipeline network connection
to the natural gas transmission system. This is being reviewed by
the market regulator (the Energy Agency).
-- We believe that a new gas processing plant, in addition to
processing the gas from Pg-10, Pg-11A and the existing older Pt
(shallow wells) and Pg. (deep wells), will also allow us to
increase the production from the old wells. In particular, it will
open up opportunities to stimulate, re-perforate or take other
actions to improve production rates, which has not been worthwhile
up to now, due to the lack of any market for unprocessed gas.
-- We are in advanced discussions with an international funding
institution for a project loan for phase one of the project. This
is subject to their due diligence which we expect to be completed
in the coming months.
Ascent funding strategy
To date, Ascent has sought to fund the permitting and
construction phases with a mixture of project finance and equity. A
prime concern was to shorten the period to first gas by funding the
acquisition of long lead-time items before the permitting phase is
complete.
On the basis of the delays in permitting referred to above, the
commercial banks we have been working with have now made the
receipt of full permitting a condition precedent for providing any
funding advances. This effectively precludes Ascent from using such
facilities to fund long lead-time equipment.
Revised funding strategy
In recognition of the above, the Ascent board has decided to
focus on funding the Company through to completion of permitting.
Once this has been achieved, the Company will look to other sources
of finance to fund the construction stage, including project loans
and farm-out funding.
Longer-term outlook
The Ascent board believes that Petišovci remains a project with
significant potential, which has been confirmed by the interest
shown by GPS and other parties.
Significant progress continues to be made, together with our
partners in Slovenia, to bring the asset into production. Once the
project is fully permitted and with workable project loans in
place, Ascent is expected to move steadily towards production and
income. Management's estimate of the NPV10 of Ascent's share of the
asset is in excess of EUR150m. The Ascent board expects that the
project will provide material cash flows to the Company from Q1
2016.
Enquiries:
Ascent Resources plc.
Clive Carver
Tel: +44 (0)20 7251 4905
finnCap (Nominated Adviser and Broker)
Charlotte Stranner / Matthew Robinson
Tel: +44 (0) 20 7220 0500
This information is provided by RNS
The company news service from the London Stock Exchange
END
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