Interim Results
Ascent Resources PLC
28 September 2007
Ascent Resources plc / Epic: AST / Index: AIM / Sector: Oil and Gas
Ascent Resources plc ('Ascent' or the 'Company')
Interim Results
Ascent Resources plc, the AIM-traded oil and gas exploration and production
company with assets in six countries across Europe, announces its results for
the six months ended 30 June 2007.
Overview
• Advanced pan-European exploration and production portfolio with over
20 projects across six countries
• Since the period-end, the group has agreed to acquire a strategic
interest in Italian drilling contractor to provide priority access to rigs
in a busy and highly competitive market
• Continued to realise value across portfolio as exemplified by the
Hungarian gas discovery and the Italian farm-out
• Completed seven wells to date in Hungary, Italy and Spain with two
discoveries - gas in Hungary and oil in Italy
CHAIRMAN'S STATEMENT
During this period Ascent has continued to advance its pan European exploration
and production portfolio. The Company, with over 20 projects across six
countries, maintains a high level of activity with its on-going programme. The
Company's strategy remains unchanged and the rationale for the strategy is
clearly demonstrated by the recently announced farm-out in Italy and the joint
development project in Hungary.
During the period four wells have been drilled by the Company bringing the total
to date to seven. All of these seven wells are in just four of the 20 projects
in Ascent's portfolio. Ten further wells are planned over the next two years at
which point just over half of the portfolio will have seen drilling activity.
The portfolio is continually reviewed both for the evaluation of suitable new
opportunities and for timely divestments.
The Company retains operator status in the majority of its projects. The Board
believes this to be an important factor in controlling the projects and it
allows Ascent to optimise work programmes. In this regard, Ascent has acquired
a strategic interest in an Italian drilling contractor. This will provide the
Company with priority access to rigs in a busy and highly competitive market.
Ascent continues to realise value across the portfolio as exemplified by the
Hungarian gas discovery and the Italian farm-out. The Board is encouraged by
the potential of the portfolio and by the early results and given the high
activity levels planned, is looking forward to further enhancement of portfolio
value.
In line with expectations we are reporting a pre-tax loss of £1,355,000 for the
six months to 30 June 2007 and cash reserves of £2,676,976.
Finally I would like to thank everyone involved with the Company for their hard
work and dedication in moving Ascent forward. The Board looks forward to further
growth in the coming months. The indications from work-in-progress are
encouraging and I look forward to developments over the next period.
John Kenny
Chairman
OPERATIONS REVIEW
Ascent's strategy is focused on developing oil and gas projects in Europe where
it can take advantage of multi-fold benefits including developed infrastructure,
deregulated local market access and political and financial stability. It
operates a portfolio approach with no single project dominating either a country
or the Company. Risk is further minimised by targeting working petroleum systems
and operating in each country with in-country management or equity partners.
With the stable European gas market, Ascent's portfolio favours gas over oil.
With the exception of the Netherlands, all of its projects are located onshore
where operating and development costs are substantially lower than they are
offshore.
The seven wells that have been completed by Ascent to date in Hungary, Italy and
Spain, were drilled first as they were all shallow wells, less than 2,000m deep
and as such, less challenging operationally. From these seven wells, two
discoveries have been made: gas in Hungary and oil in Italy. The next series of
10 wells are generally deeper and target substantially larger prospects. The
strategic interest in Perazzoli Drilling, an Italian drilling contractor is an
important aspect of the future drilling plan because drilling rigs and the
ancillary equipment for exploration projects are in short supply with high
activity levels continuing to be experienced throughout Europe.
Ascent believes that the value of the Company will be advanced in the short-term
and underpinned for the main part by proving hydrocarbon reserves and the
current activities are designed to achieve this primarily with an active
drilling programme.
SPAIN:
Production continues and on-going maintenance and efficiency programmes
including the introduction of new artificial lift technology have maintained
production without decline at about 110 barrels of oil per day net to Ascent's
88.75% interest.
In exploration, the drilling of the Hontomin-4 appraisal well was disappointing
with the reservoir present but faulted deeper and therefore below the oil-water
contact. The new Rocamundo exploration permit is expected to be issued shortly
and this brings important gas exploration opportunities close to our existing
oil production operations.
HUNGARY:
The field rehabilitation joint development project in the south western part of
Hungary has completed its technical feasibility stage and the drilling of the
first horizontal wells is planned for December.
The development activities for the three productive wells in the eastern Nyirseg
permit continue. Contracts for the construction of the facilities and pipelines
are being prepared and completion work on the wells may start before the end of
the year.
The exploration work in Nyirseg continues. The PEN-102 well was suspended and
the VAM-1 well abandoned. A 3-D seismic survey has been approved by partners
and it will encompass the PEN-102 location as well as the area around all the
proven productive wells.
SLOVENIA:
Ascent now has interests in two projects by the acquisition of NSC the operator
of a joint venture with a 45% interest in the Petisovci Dolina ('P-D') oilfield
and a 15.75% interest in the underlying Petisovci Globocki ('P-G') gasfield,
which is the subject of the MOL Tight Gasfield Re-development project.
In the P-G gasfield which is in similar formations to the reservoirs of south
west Hungary, field operations are on-going to assess the future potential of
the D-14 well and in the shallower P-D oilfield, a work programme to initiate
joint venture oil production is being prepared.
SWITZERLAND:
Following the completion of the prospectivity reports that have comprehensively
re-evaluated the hydrocarbon potential of Ascent's three exploration permits,
farm-out discussions are underway with prospective farm-in partners.
NETHERLANDS:
On the Company's exploration permits, exploration activity, notably the
interpretation of the 3-D seismic, is at an advanced stage. The choice of
drilling locations both for the appraisal of the M11-1 gas discovery and new
exploration prospects are under evaluation.
Ascent has applied for new exploration permits and decisions on these
applications in the northern part of the Dutch offshore are expected to be made
soon.
ITALY:
The Anagni-1 oil discovery in the Latina Valley south-east of Rome is on
production test and is recovering drilling fluids lost during the drilling and
deepening operations. The work to date confirms excellent reservoir
characteristics with high productive capacity. The current permit for testing
operations has been extended to the end of October. Two appraisal well
locations are being chosen and geophysical surveys to determine the extent of
the structure are being planned.
In the Po Valley, the farm-out of the acreage with the provision for one or two
wells to be fully funded by the in-coming party demonstrates the excellent
prospectivity of this exploration area.
The Arrone-1 gas exploration well to the south west of Rome was abandoned
despite a strong gas kick in the secondary target. Testing was not undertaken
because the log data indicated the reservoirs were not of commercial potential.
FINANCIAL OVERVIEW
• Overall loss of £1.4m (H1 2006: £0.6m) mainly due to write down of the
Hontomin 4 Well in Spain (£0.84m) and VAM 1 Well in Hungary (£0.14m)
• A profit of £0.7m realised on the disposal of Millennium International
Resources Corporation Ltd in January for €2m
• Funding of £3.3m net of expenses secured through the issue of 25,000,000
new ordinary shares of 0.1p each at 14p per share
• Acquisition of an additional 10% interest in the Frosinone licence in
Italy satisfied by cash and the issue of 300,000 new ordinary shares
The financial results of the Group for the six months ended 30 June 2007 have
been prepared on a basis which is consistent with the recognition and
measurement principles of IFRS as adopted by the EU ('Adopted IFRS') expected to
be applied when the group IFRS consolidated financial statements for the year
ending 31 December 2007 are prepared. Where appropriate comparative numbers
have been restated.
Previously the Group had reported under United Kingdom Generally Accepted
Accounting Principles (UK GAAP). The impact of moving to IFRS on the Groups
Financial Statements are set out in note 9.
In preparing the consolidated interim financial information management have
revisited the assumptions and treatment of the Group's activities. As a result
management have corrected errors under previous GAAP in the consolidated interim
financial information. These adjustments have not been audited and a full
reconciliation to the audited position previously disclosed is set out in note
8.
CONSOLIDATED INCOME STATEMENT for the six months ended 30 June 2007
Six months Six months Eighteen months
ended 30 June ended 30 June ended 31
December
2007 2006 2006
£ £ £
Restated Restated
(unaudited) (unaudited) (unaudited)
Revenue 152,652 232,130 384,499
Cost of sales (1,406,165) (140,067) (870,215)
Gross (loss)/profit (1,253,513) 92,063 (485,716)
Other operating income - - 85,993
Administrative expenses (779,295) (797,614) (1,929,745)
Operating loss (2,032,808) (705,551) (2,329,468)
Finance income 19,724 51,332 129,117
Finance expense (29,966) - (11,514)
Profit on sale of investments held for sale 695,550 - 57,858
Share of results of associates - 59,045 -
Loss before taxation from continuing operations (1,347,500) (595,174) (2,154,007)
Taxation (7,529) (716) -
Loss for the period attributable to equity shareholders
(1,355,029) (595,890) (2,154,007)
Profit attributable to minority interests - - -
Loss for the period (1,355,029) (595,890) (2,154,007)
Loss per share
Basic 2 0.50 0.23 0.94
Diluted 0.50 0.23 0.94
CONSOLIDATED BALANCE SHEET as at 30 June 2007
30 June 30 June 31 December
2007 2006 2006
£ £ £
Restated Restated
(unaudited) (unaudited) (unaudited)
Non-current assets
Investments in associates - 338,448 -
Tangible assets
Oil and gas assets 169,396 44,040 176,788
Intangible assets
Exploration and appraisal 6,919,937 3,712,748 4,218,918
Total non-current assets 7,089,333 4,095,236 4,395,706
Current assets
Assets held for sale 148,217 - 805,303
Inventories 603,856 491,794 450,774
Trading investments 58,524 44,675 50,482
Trade and other receivables 2,311,349 563,623 2,121,568
Cash and cash equivalents 2,676,976 2,327,653 1,941,044
Total current assets 5,798,922 3,427,745 5,369,171
Current liabilities
Trade and other payables (2,929,861) (984,329) (2,481,122)
Net current assets 2,869,061 2,443,416 2,888,049
Non-current liabilities
Bank loans (1,168,921) - (917,721)
Provisions (197,943) (215,075) (194,995)
Net assets 8,591,530 6,323,577 6,171,039
Equity
Attributable to:
Share capital 292,946 256,671 264,825
Share premium account 11,688,209 7,524,123 7,943,786
Share based payment reserve 769,710 344,149 793,060
Translation reserves 13,814 1,949 (4,472)
Retained earnings (4,173,518) (1,803,684) (2,826,529)
Total equity attributable to shareholders
of the Company
8,591,161 6,323,208 6,170,670
Minority Interest 369 369 369
Total Equity 8,591,530 6,323,577 6,171,039
Six months ended Six months ended Eighteen months
30 June 30 June ended 31 December
2007 2006 2006
£ £ £
Restated Restated
(unaudited) (unaudited) (unaudited)
Loss for the period before taxation (1,347,500) (595,174) (22,154,007)
Adjustments for:
Financial income (19,724) (51,332) (129,117)
Financial expense 29,966 - 11,514
Profit on sale of investments held for sale (695,550) - (57,858)
Profit on disposal of current asset (56,357) -
investments
-
Share of results of associate - (59,045) -
Depreciation 15,937 14,103 26,110
Impairment of exploration expenditure 979,299 - 242,708
Amortisation of decommissioning costs 2,948 - 10,281
Share based payment charge - 85,611 576,380
Revaluation of investment (8,042) (2,073) -
Exchange differences 15,862 9,290 (5,247)
(1,026,804) (654,977) (1,479,236)
(Increase)/decrease in debtors (194,086) 558,175 (908,410)
Increase in creditors 464,937 183,852 1,503,910
Increase in inventories (153,083) - (450,773)
Net cash from operating activities (909,036) 87,050 (1,334,509)
Six months ended Six months ended Eighteen months
30 June 30 June ended 31 December
Restated Restated
(unaudited) (unaudited) (unaudited)
Investing activities
Financial income 19,724 51,332 129,117
Payments for investing in exploration (3,387,792) (732,029) (3,120,155)
Acquisition of property, plant and equipment (4,268) (5,832) -
Acquisition of subsidiaries held for resale - - (855,786)
Proceeds from disposal of current asset 1,352,637 206,549 -
investments
Proceeds from disposal of subsidiary held for
resale - - 987,629
Acquisition of associated undertaking - (100,995) -
Acquisition of subsidiaries - (388,343) (158,144)
Cash acquired with subsidiaries - 24,922 77,533
Net cash from investing activities (2,019,699) (944,396) (2,939,806)
Financing activities - - -
Financial expense (29,966) - (11,514)
Loans received/ paid 251,199 - 1,346,620
Loan to an associated undertaking - (131,902) -
Cash proceeds from issue of shares 3,618,434 10,500 1,282,515
Share issue costs (175,000) - (75,615)
Net cash from financing activities 3,664,667 (121,402) 2,542,006
Net increase / (decrease) in cash and cash
equivalents 735,932 (978,748) (1,732,309)
Cash and cash equivalents at beginning of 1,941,044 3,306,401 3,673,353
period
Cash and cash equivalents at end of period 2,676,976 2,327,653 1,941,044
NOTES TO THE FINANCIAL INFORMATION for the six months ended 30 June 2007
1 Accounting policies
Reporting Entity
Ascent Resources plc ('the Company') is a company domiciled in England. The
address of the Company's registered office is 30 Farringdon Street, London, EC4A
4HJ. The consolidated interim financial information of the Company as at and for
the six month period ended 30 June 2007 comprise the Company and its
subsidiaries (together referred to as the 'Group') and the Group's interest in
associates.
The consolidated financial statements of the Group for the 18 months ended 31
December 2006 are available from the Company's website at
www.ascentresources.co.uk.
Non-statutory accounts
The comparative figures for the period ended 31 December 2006 are not the
company's statutory accounts for that financial year. Those accounts, which were
prepared under UK GAAP, have been reported on by the company's auditors and
delivered to the registrar of companies. The report of the auditors was (i)
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report, and
(iii) did not contain a statement under section 237(2) or (3) of the Companies
Act 1985.
In preparing the consolidated interim financial information management have
revisited the assumptions and treatment of the Group's activities. As a result
management have corrected errors under previous GAAP and have been restated in
the condensed consolidated interim financial information. These adjustments
have not been audited and a full reconciliation to the audited position
previously disclosed is set out in note 8.
The financial information for the 6 months ended 30 June 2007 and 30 June 2006
is unaudited.
Basis of Preparation
The next annual consolidated financial statements of the Ascent Resources plc ('
the Group') will be prepared in accordance with International Financial
Reporting Standards as adopted for use in the EU (IFRS).
The financial results of the Group for the six months ended 30 June 2007 have
been prepared on a basis which is consistent with the recognition and
measurement principles of IFRS as adopted by the EU ('Adopted IFRS') expected to
be applied when the Group IFRS consolidated financial statements for the year
ending 31 December 2007 are prepared.
The financial information has been prepared under the historical cost convention
using a fair value measurement of available-for-sale investments. The principal
accounting policies set out below have been consistently applied to all periods
presented.
The financial information has been prepared on a going concern basis.
This consolidated interim financial information was approved by the board of
Directors on 28 September 2007.
Errors under previous GAAP
In the course of the IFRS conversion management reviewed the assumptions made in
determining the fair value of key acquisitions that make up the Group. As a
result management have restated the transactions recorded in the UK GAAP
position as at 31 December 2006, a full reconciliation has been provided in
note 8.
Transition arrangements
IFRS 1 permits companies adopting IFRS for the first time to take certain
exemptions from the full requirements of IFRS in the transition period. The
interim financial information has been prepared on the basis of the following
material exemptions:
• Business combinations prior to 1 July 2005 have not been restated to
comply with IFRS 3 'Business Combinations'
• IFRS 2 'Share-based Payments' has been applied retrospectively to
those options that were issued after 7 November 2002 and not vested by 1 July
2005.
• IFRS 1 'First time adoption of International accounting standards'
translation differences have been deemed to be zero at the IFRS transition date.
The disclosures required by IFRS 1 concerning the transition from UK GAAP to
IFRS are given in note 10.
Estimates and judgements
The preparation of the consolidated interim financial information requires
management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and
liabilities, income and expense. Actual results may differ from these estimates.
The key estimates and assumptions made by management in applying the Group's
accounting policies are set out below:
• The fair value of the licences and geophysical data acquired during
the period ended 31 December 2006 and 30 June 2007, £2,999,919 and £848,722
respectively have been determined by management and are supported by reference
to similar transactions and managements experience and understanding of the
industry and local markets.
• The Group has continued to account for its operations under the
successful efforts method previously reported in the financial statements for
the 18 months ended 31 December 2006. Management have reviewed the oil and gas
exploration costs for possible impairment, as a result management considered it
appropriate to write off £979,000 of capitalised costs (31 December 2006:
£242,000, 30 June 2006 £ nil).
• Management have made use of reports for estimating the group's proved
and probable reserves prepared by an external consultant for the calculation of
its depletion of oil and gas interest charge. Reports are made annually and
used as the basis for the years charge. During the period ended 30 June 2007
depletion costs totalled £11,660 (31 December 2006, £219,787, 30 June 2006,
Nil).
• Management has estimated the useful economic lives of its plant and
machinery based on their experience and knowledge of these assets.
• On 7 March 2007 the Company acquired Nemmeco Slovenia Corporation, a
company incorporated in the British Virgin Islands for €150,000 and contingent
consideration dependent on the future resources confirmed within the licences.
• Management have been provided with a written estimate of
decommissioning costs and have applied a cost of capital of 5% and inflation
rate of 2.5% to calculate the decommissioning asset and matching liability which
is unwound over the life of the project. As at 30 June 2007 management recorded
a decommissioning asset of £107,000 (31 December 2006 £121,000; 30 June 2006
£111,000) and decommissioning liability of £124,023 (31 December 2006, £121,075,
30 June 2006 £121,023).
Basis of consolidation
The financial information incorporates the results of the Company and entities
controlled by the Company (its subsidiaries). Control is achieved where the
Company has the power to govern the financial and operating policies of an
investee entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the period are
included in the consolidated income statement from date that control commences
until the date that control ceases.
Where necessary, adjustments are made to the results of subsidiaries to bring
the accounting policies used into line with those used by the Group.
Where the Group has significant influence over entities, but not control over
the operating financial and operating policies. The consolidated interim
financial information include the Group's share of the total recognised gains
and losses of associates on an equity accounted basis, from the date that
significant influence commences until the date that significant influence
ceases.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Business combinations and goodwill
On acquisition, the assets and liabilities and contingent liabilities of
subsidiaries are measured at their fair values at the date of acquisition. Any
excess of cost of acquisition over the fair values of the identifiable net
assets acquired is recognised as goodwill. Any deficiency of the cost of
acquisition below the fair values of the identifiable net assets acquired (i.e.
discount on acquisition) is credited to profit and loss in the period of
acquisition. Goodwill arising on consolidation is recognised as an asset and
reviewed for impairment at least annually. Any impairment is recognised
immediately in profit or loss and is not subsequently reversed.
Oil & Gas Exploration Assets
All licence/project acquisitions, exploration and appraisal costs incurred or
acquired on the acquisition of subsidiary are accumulated in respect of each
identifiable project area. These costs, which are classified as non-current
assets are only carried forward to the extent that they are expected to be
recouped through the successful development of wells in the area or where
activities in the area have not yet reached a stage which permits reasonable
assessment of the existence of economically recoverable reserves (successful
efforts). Pre-licence/project costs are written off immediately. Other costs
are also written off unless commercial reserves have been established or the
determination process has not been completed. Thus accumulated cost in relation
to an abandoned area are written off in full against profit in the year in which
the decision to abandon the area is made.
When production commences the accumulated costs for the relevant area of
interest are transferred from exploration and appraisal intangible assets to oil
and gas tangible assets as developed oil and gas assets.
Impairment of oil and gas exploration assets
The carrying value of oil and gas exploration assets is assessed on at least an
annual basis or when there has been an indication that impairment in value may
have occurred. The impairment of oil and gas exploration assets is assessed
based on the Directors' intention with regard to future exploration and
development of individual significant areas and the ability to obtain funds to
finance such exploration and development.
Impairment of developed oil and gas assets
When events or changes in circumstances indicate that the carrying amount of
expenditure attributable to a successful well may not be recoverable from future
net revenues from oil and gas reserves attributable to that well, a comparison
between the net book value of the cost attributable to that well and the
discounted future cash flows from that well is undertaken. To the extent that
the carrying amount exceeds the recoverable amount, the cost attributable to
that well is written down to its recoverable amount and charged as an
impairment.
Depletion of developed oil and gas assets
Costs carried in each well are depreciated on a unit of production basis using
the ratio of oil and gas production in the period to the estimated quantity of
commercial reserves at the end of the period plus production in the period.
Costs in the unit of production calculation include the net book value of
capitalised costs plus estimated future development costs. Changes in estimates
of commercial reserves or future development costs are dealt with prospectively.
Decommissioning costs
Where a material liability for the removal of production facilities and site
restoration at the end of the field life exists, a provision for decommissioning
is recognised. The amount recognised is the present value of estimated future
expenditure determined in accordance with local conditions and requirements. An
asset of an amount equivalent to the provision is also added to oil and gas
exploration assets and depreciated on a unit of production basis. Changes in
estimates are recognised prospectively, with corresponding adjustments to the
provision and the associated asset.
Revenue recognition
Oil sales revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for the Group's share of oil and
gas supplied in the period.
Inventories
Inventories, including inventories of gas and oil held for sale in the ordinary
course of business are stated at weighted average historical cost less provision
for deterioration and obsolescence or, if lower net realisable value.
Foreign currency
The company's strategy is focussed on developing oil and gas projects across
Europe funded by shareholder equity and other financial assets which are
principally denominated in Sterling. The functional currency is Sterling.
The assets and liabilities of foreign operations, including fair value
adjustments arising on consolidation, are translated to Sterling at foreign
exchange rates ruling at the balance sheet date. The revenues and expenses of
foreign operations are translated to Sterling at the average rate ruling during
the period. Foreign exchange differences arising on retranslation are
recognised directly in a separate component of equity.
Transactions in foreign currency are recorded at the rates of exchange
prevailing on the dates of the transactions. At each balance sheet date,
monetary assets and liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date. Exchange gains
and losses on short-term foreign currency borrowings and deposits are included
with net interest payable.
Exchange differences on all other transactions, except relevant foreign currency
loans, are taken to operating profit.
Dividends
Dividends are recognised as a liability in the period in which they are
declared.
Taxation
The tax expense represents the sum of the tax currently payable and any deferred
tax.
The tax currently payable is based on the estimated taxable profit for the
period. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable
or deductible. The Group's liability for current tax is calculated using the
expected tax rate applicable to annual earnings.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences
can be utilised. The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset
to be recovered.
Share-based payments
The cost of providing share-based payments to employees is charged to the income
statement over the vesting period of the related share options or share
allocations. The cost is based on the fair values of the options and shares
allocated determined using the Black-Scholes method. The value of the charge is
adjusted to reflect expected and actual levels of vesting.
Charges are not adjusted for market related conditions which are not achieved.
Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
If the effect is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of
the time value of money and, where appropriate, the risks specific to the
liability.
Non- current assets held for sale
Immediately before classification as held for sale, the measurement of the
assets ( and all assets and liabilities in a disposal group) is brought up to
date in accordance with applicable IFRSs. Then on initial classification as
held for sale, non current assets and disposal groups are recognised at the
lower of carrying amount and fair value less costs to sell.
Impairment losses on initial classification as held for sale are included in
profit or loss, even when there is a revaluation. The same applies to gains and
losses on subsequent remeasurement.
Financial instruments
Financial assets and financial liabilities are recognised on the balance sheet
when the Group becomes a party to the contractual provisions of the instrument.
Investments are classified as either held-for-trading or available for sale at
initial recognition and this designation is re-evaluated at each balance sheet
date. Trading investments are initially measured at cost, including transaction
costs. At subsequent reporting dates trading investments are measured at fair
value or at cost where fair value is not readily ascertainable. Gains and losses
arising from changes in fair value are recognised directly to the income
statement.
Trade and other receivables are measured at initial recognition at fair value,
and are subsequently measured at amortised cost using the effective interest
method. A provision is established when there is objective evidence that the
Group will not be able to collect all amounts due. The amount of any provision
is recognised in the income statement.
Cash and cash equivalents comprise cash held by the Group and short-term bank
deposits with an original maturity of three months or less.
Trade and other payables are initially measured at fair value, and are
subsequently measured at amortised cost, using the effective interest rate
method.
Financial liabilities and equity instruments issued by the Group are classified
in accordance with the substance of the contractual arrangements entered into
and the definitions of a financial liability and an equity instrument. Equity
instruments issued by the company are recorded at the proceeds received, net of
direct issue costs.
Interest bearing bank loans, overdrafts and other loans are recorded at the
proceeds received, net of direct issue costs. Finance costs are accounted for on
an accruals basis in the income statement using the effective interest method.
Cash and cash equivalents comprise cash balances and call deposits.
Financial Risk management
The Group's financial risk management objectives and policies are consistent
with that disclosed in the consolidated financial statements for the 18 months
ended 31 December 2006.
Segmental Analysis
The Group has one business segment: oil and gas exploration and production.
All exploration and production activities are conducted in Europe. There is only
one geographic segment.
Six months ended Six months Eighteen month
30 June ended 30 June ended 31
December
2 Loss per share 2007 2006 2006
£ £ £
(unaudited) (unaudited) (unaudited)
Loss per share 0.50 0.23 0.94
Loss
Loss for the purposes of basic and diluted 1,355,029 595,890 2,154,007
earnings per share being net profit
attributable to equity shareholders
Number of shares
Weighted average number of ordinary shares for
the purposes of basic earnings per share 272,431,166 256,266,227 229,697,066
Number of dilutive shares under option - - -
Weighted average number of ordinary shares for
the purposes of dilutive earnings per share 272,431,166 256,266,227 229,697,066
The calculation of diluted earnings per share assumes conversion of all potentially dilutive ordinary shares,
all of which arise from share options. A calculation is done to determine the number of shares that could have
been acquired at fair value, based upon the monetary value of the subscription rights attached to outstanding
share options.
3 Acquisition of subsidiary
On 7 March 2007 the Group acquired 100 per cent of the issued share capital of Nemmeco Slovenia
Corporation (NSC) for consideration of €150,000 satisfied by shares and deferred contingent consideration
NSC holds two licences in North Western Slovenia. This transaction has been accounted for by the purchase
method of accounting. The fair value adjustments and the consideration paid for Nemmeco Slovenia
Corporation are provisional figures, being the best estimate currently available. Further adjustments may
be necessary when additional information is available concerning some of the judgemental areas.
4 Share capital
The movements in the share capital are summarised below: Number of
shares
As at 1 July 2005 208,518,168
Shares issued in lieu of services provided 1,011,816
Shares issued on acquisition of PEOS AG 1,175,100
Shares issued on acquiring 50% of Northern Petroleum Exploration Limited 370,370
Shares issued on acquisition of Teredo Oils Limited 1,500,000
Shares issued on acquisition of Millennium International Resources Corporation
Limited 678,906
Shares issued for cash 100,000
Shares issued to GTO Limited Joint Venture for funding exploration 814,941
Shares issued for acquisition of 25% interest of La Lora field by NPEL 562,967
Exercise of warrants for cash 50,092,418
At 31 December 2006 264,824,686
Shares issued on acquisition of Nemmeco Slovenia Corporation Ltd 680,205
Placing of new shares 25,000,000
Exercise of warrants for cash 1,049,451
Shares issued on acquisition of additional 10% of Frisinone Licence 1,391,408
At 30 June 2007 292,945,750
5. Share capital and reserves
Share Share Trans- Share Retained Total Minority Total
Capital premium lation based earnings parent interest equity
reserve payment equity
reserve
£ £ £ £ £ £ £ £
Balance at 1 July 2005 208,518 5,020,634 -- 290,600 (691,732) 4,828,020 369 4,828,389
Loss for the period - - - - (2,154,007) (2,154,007) - (2,154,007)
Assets available for sale - - - - 19,210 19,210 - 19,210
Issue of shares during the
period 56,307 2,998,767 - - - 3,055,074 - 3,055,074
Share issue costs - (75,615) - - - (75,615) - (75,615)
Exchange differences on
translation - - (4,472) - - (4,472) - (4,472)
of foreign
Operations
Equity-settled share based
payment - - - 502,460 - 502,460 - 502,460
transactions
Balance at 1 January 2007 264,825 7,943,786 (4,472) 793,060 (2,826,529) 6,170,670 369 6,171,039
Issue of shares during
the period 28,121 3,744,423 - - - 3,772,544 - 3,772,544
Loss for the period - - - - (1,355,029) (1,355,029) - (1,355,029)
Assets available for sale - - - - 8,040 8,040 - 8,040
Exchange differences on
translation - - 18,286 - - 18,286 - 18,286
of foreign operations
Equity-settled share based payment - - - (23,350) - (23,350) - (23,350)
transactions
Balance at 30 June 2007 292,946 11,688,209 13,814 769,710 (4,173,518) 8,591,161 369 8,591,530
6 Events after the balance sheet date
• Progressed testing operations in the Anagni-1 in the Latina
Valley, Italy following further deepening of the well to 1,355 metres.
Recovered fluids are sampled daily and show traces of oil in over 65% of
the samples
• Signed an agreement with Deltana Energy Limited to farm-out a 50%
interest in the 1,113 sq km Cento and Bastiglia exploration permits in the
Po Valley of Italy
• Plugged and abandoned its 56% owned Arrone-1 well in the Fiume
Arrone Exploration Permit in Italy after receiving log results which
deemed it not to be commercial
• Finalised Hungarian joint venture with MOL for the redevelopment
of the Bajcsa Gasfield in south western Hungary
• Purchased a 22.5% interest in Italian drilling contractor
Perazzoli Drilling Limited, enabling it to more efficiently schedule its
exploration and appraisal drilling programmes
7 Errors under previous GAAP
In preparing the condensed consolidated interim financial information,
management have revisited the assumptions and treatment of the Group's accounts.
As a result, management have corrected several errors under previous GAAP.
The impact of which is summarised below for 30 June 2006 and 31 December 2006.
i) In respect of the acquisitions of the acquisitions of Ascent Resources
Italia srl on 19 July 2005 and Teredo Limited on 4 October 2005, management
inappropriately assessed the fair values of the assets, liabilities and
contingent liabilities acquired as being equal to the previous carrying value.
Management have determined that this was an inappropriate basis and have
identified the assets and liabilities acquired and attributed a fair value to
them on a line by line basis. The resulting effect is to attribute the
previously recorded negative goodwill to assets and liabilities acquired. The
net effect of these adjustments is to increase net assets by £166,000 as at 31
December 2006 (30 June 2006 £43,000) and to decrease the Group's retained
earnings for the period ended 31 December 2006 by £166,000 (30 June 2006
£43,000) being the reversal of the negative goodwill previously amortised
through the income statement. In addition the charges associated with the
positive good will have been reversed out
ii) Management identified consideration received in March 2007 in respect
of the disposal of the remaining licence interest disposed of by Ascent Gabon
limited in July 2005 amounting to £24,000. The consideration was not accounted
for in the 18 months ended 31 December 2006 in error.
iii) Management identified £492,000 inventory previously disclosed as
tangible fixed assets as at 30 June 2006. The effect of this restatement
between tangible fixed assets and inventory has no impact on total equity or the
loss for the period.
iv) Management have identified a brought forward adjustment in respect of
share based payments as at 30 June 2006. Previously the share based payment
reserve had been understated by £291,000 and retained earnings had been
overstated by the same amount representing vested share options as at 1 January
2006.
v) A decommissioning asset was not set up for the period ended 30 June 2006
in accordance with UK GAAP. The effect of this restatement to set up a
decommissioning asset and matching liability is to gross up assets and
liabilities by £285,000.
vi) In the course of their investigation management have reallocated
expenses between administration costs and cost of sales to ensure that the
presentation is consistent to prior years and most truly represent the business,
there is no impact on retained earnings or equity as a result of this adjustment
The following tables identify the impact on the previously reported numbers.
7 Errors under previous GAAP (continued)
Restated consolidated Profit and loss account
Eighteen months ended Errors under Ref Eighteen months
31 December 2006 previous GAAP ended 31 December
2006
Audited Unaudited Restated
Unaudited
£ £ £
Group turnover 384,499 -
384,499
Cost of sales ( 320,343) (549,872) vi (870,215)
Gross profit/(loss) 64,156 (549,872) (485,716)
Administrative expenses before
amortisation of goodwill (1,652,726) 307,164 vi (1,345,562)
Impairment of exploration assets (242,708) 242,708 vi -
Amortisation of goodwill 142,071 (142,071) i -
Share based payments (576,380) - (576,380)
Other operating income 139,180 23,881 ii 163,061
Group operating loss (2,126,407) (118,190) (2,244,597)
Interest receivable 129,117 - 129,117
Interest payable (11,514) - (11,514)
Loss on ordinary activities
before taxation (2,008,804) (118,190) (2,126,994)
Taxation - - -
Loss on ordinary activities
after taxation (2,008,804) (118,190) (2,126,994)
Minority interest 30,678 - 30,678
Loss for the period (1,978,126) (118,190) (2,096,316)
7 Errors under previous GAAP (continued)
Restated consolidated Balance sheet as at 31 December 2006
31 December Errors under Ref 31 December
2006 previous GAAP 2006
Unaudited
Audited Restated
Unaudited
£ £ £
Fixed assets
Intangible assets 4,807,400 (699,276) i 4,108,124
Decommissioning asset 110,794 - 110,794
Goodwill (863,369) 863,369 i -
Tangible assets 198,215 (21,427) i 176,788
4,253,040 142,666 4,395,706
Current assets
Current assets investments 855,786 - 855,786
Stocks 450,773 - 450,773
Debtors 2,097,687 23,881 ii 2,121,568
Cash at bank and in hand 1,941,044 - 1,941,044
5,345,290 23,881 5,369,171
Creditors: amounts falling
due within one year (2,196,384) (284,737) i (2,481,121)
Net current assets 3,148,906 (260,856) 2,888,050
Total assets less current 7,401,946 (118,190) 7,283,756
liabilities
Creditors: amounts falling due (917,722) - (917,722)
after one year
6,484,224 (118,190) 6,366,034
Provision for liabilities and
Charges (194,995) - (194,995)
6,289,229 (118,190) 6,171,039
Minority interest 30,309 - 30,309
Net assets 6,319,538 (118,190) 6,201,348
Capital and reserves
Called up share capital 264,825 - 264,825
Share premium account 7,943,786 - 7,943,786
Share based payment reserve 793,060 - 793,060
Profit and loss account (2,682,133) (118,190) i, ii (2,800,323)
Shareholder's funds 6,319,538 (118,190) 6,201,348
Consolidated profit and loss account
Six months Errors under Ref Six months
ended 30 June previous GAAP ended 30
2006 June 2006
Unaudited Restated
Unaudited
£ £ £
Group turnover
232,130 - 232,130
Cost of sales
(140,067) -
(140,067)
Gross profit
92,063 - 92,063
Other Operating Income
Administrative expenses before (801,512) 1,949 (799,563)
amortization of goodwill
Amortisation of goodwill - - -
Other operating income 59,045 - 59,045
Group operating loss (650,404) 1,949 (648,455)
Interest receivable 51,332 - 51,332
Interest payable - - -
Loss on ordinary activities
before taxation (599,072) 1,949 (597,123)
Taxation (716) - (716)
Loss on ordinary activities
after taxation (599,788) 1,949 (597,839)
Minority interest 3,994 - 3,994
Loss for the period (595,794) 1,949 (593,845)
Restated consolidated balance sheet as at
30 June 2006
30 June 2006 Errors under Ref 30 June 2006
previous GAAP Restated
Unaudited Unaudited
Unaudited
£ £ £
Fixed assets
Intangible assets 3,722,435 (130,710) i,iii,vi 3,591,725
Decommissioning asset - 121,023 v 121,023
Goodwill 35,965 (35,965) i -
Tangible assets 65,467 (21,427) i 44,040
Investments in associated undertakings 338,448 - 338,448
4,162,315 (67,079) 4,095,236
Current assets
Current assets investments 44,675 - 44,675
Stocks - 491,794 iii 491,794
Debtors 563,623 - 563,623
Cash at bank and in hand 2,327,653 - 2,327,653
2,935,951 491,794 3,427,745
Creditors: amounts falling due within (699,592) (284,737) i (984,329)
one year
Net current assets 2,236,359 207,057 2,443,416
Total assets less current liabilities 6,398,674 139,978 6,538,652
Creditors: amounts falling due after - - -
one year
6,398,674 139,978 6,538,652
Provision for liabilities and
charges (94,052) (121,023) v (215,075)
6,304,622 18,955 6,323,557
Minority interest 3,890 - 3,890
Net assets 6,308,512 18,955 6,327,467
Capital and reserves
Called up share capital 256,671 - 256,671
Share premium account 7,524,123 - 7,524,123
Share based payment reserve 53,549 290,600 iv 344,149
Profit and loss account (1,525,831) (271,645) i, iv (1,797,476)
Shareholder's funds 6,308,512 (18,955) 6,327,467
8 Transition to IFRS
Ascent Resources plc reported under UK GAAP in its previously published financial statements for the 18
months ended 31 December 2006. The analysis below shows a reconciliation of the restated net assets and
profit under UK GAAP as at 31 December 2006 to the revised net assets and profit under IFRS as reported in
this consolidated interim financial information. In addition, there is a reconciliation of net assets under
UK GAAP to IFRS at the transition date for this company, being 1 July 2005 . There is also a reconciliation
of net assets and profit under UK GAAP to IFRS at the comparative interim date, being 30 June 2006.
Re-stated Effect of
transition to
Reconciliation of equity at 31 December previous GAAP IFRS
2006
Notes IFRS
£ £ £
Non-current assets
Intangible assets
- exploration costs 4,108,124 - 4,108,124
- decommissioning costs 110,794 - 110,794
Tangible assets 176,788 - 176,788
Current assets
Subsidiary undertakings held for resale 805,304 - 805,304
Inventories 450,773 - 450,773
Trading investments 50,482 - 50,482
Trade and other receivables 2,121,568 - 2,121,568
Cash and cash equivalents 1,941,044 - 1,941,044
Current liabilities
Trade and other payables (2,481,122) - (2,481,122)
Non-current liabilities
Bank loans (917,722) - (917,722)
Provisions (194,995) - (194,995)
Net assets 6,171,039 - 6,171,039
Equity
Attributable to:
Minority interest C (30,309) 30,678 369
Share capital 264,825 - 264,825
Share premium account 7,943,786 - 7,943,786
Share based payment reserve 793,060 - 793,060
Translation reserves A (12,275) 7,803 (4,472)
Retained earnings ABC (2,788,048) (38,481) (2,826,529)
6,171,039 - 6,171,039
Effect of
transition to
Reconciliation of equity at 1 July 2005 Previous GAAP IFRS
Notes IFRS
£ £ £
Non-current assets
Intangible assets
- exploration costs 164,973 - 164,973
Current assets
Subsidiary undertakings held for resale 987,629 - 987,629
Inventories 57,418 - 57,418
Cash and cash equivalents 3,673,353 - 3,673,353
Current liabilities
Trade and other payables (54,984) - (54,984)
Net assets 4,828,389 - 4,828,389
Equity
Attributable to:
Minority interest 369 - 369
Share capital 208,518 - 208,518
Share premium account 5,020,634 - 5,020,634
Share based payment reserve 290,600 - 290,600
Retained earnings (691,732) - (691,732)
4,828,389 - 4,828,389
Re-stated Effect of
previous GAAP transition to IFRS
Reconciliation of equity at 30 June 2006
Notes IFRS
£ £ £
Non-current assets
Intangible assets
- exploration costs 3,591,725 - 3,591,725
- decommissioning costs 121,023 - 121,023
Tangible assets 44,040 - 44,040
Current assets
Investment in an associated undertaking 338,448 - 338,448
Inventories 491,794 - 491,794
Trading investments 44,675 - 44,675
Trade and other receivables 563,623 - 563,623
Cash and cash equivalents 2,327,653 - 2,327,653
Current liabilities
Trade and other payables (984,329) - (984,329)
Non-current liabilities
Provisions (215,075) - (215,075)
Net assets 6,323,577 - 6,323,577
Equity
Attributable to:
Minority interest C (3,890) 4,259 369
Share capital 256,671 - 256,671
Share premium account 7,524,123 - 7,524,123
Share based payment reserve 344,149 - 344,149
Translation reserves A - 1,949 1,949
Retained earnings ABC (1,797,476) (6,208) (1,803,684)
6,323,577 - 6,323,577
Re-stated Effect of IFRS
transition to
Reconciliation of loss for the period previous GAAP IFRS
ended 31 December 2006
Notes
£ £ £
Revenue 384,499 - 384,499
Cost of sales (870,215) - (870,215)
Gross loss (485,716) - (485,716)
Other operating income 85,993 - 85,993
Administrative expenses A (1,345,562) (7,803) (1,353,365)
Share based payments (576,380) - (576,380)
Operating loss (2,321,665) (7,803) (2,329,468)
Interest receivable 129,117 129,117
Interest payable (11,514) - (11,514)
Profit on sale of investments held for 57,858 - 57,858
sale
Other gains and losses B 19,210 (19,210) -
Loss before taxation from continuing (2,126,994) (27,013) (2,154,007)
operations
Taxation - - -
Loss for the period attributable to equity (2,126,994) (27,013) (2,154,007)
shareholders
Profit attributable to minority interests 30,678 (30,678) -
Loss for the period (2,096,316) (57,691) (2,154,007)
Re-stated Effect of IFRS
transition to
Reconciliation of loss for the period previous GAAP IFRS
ended 30 June 2006
Notes
£ £ £
Revenue 232,130 - 232,130
Cost of sales (140,067) - (140,067)
Gross profit 92,063 - 92,063
Administrative expenses (799,563) 1,949 (797,614)
Operating loss (707,500) 1,949 (705,551)
Finance Income 51,332 - 51,332
Share of results of associates 59,045 - 59,045
Loss before taxation from continuing (597,123) 1,949 (595,174)
operations
Taxation (716) - (716)
Loss for the period attributable to equity (597,839) 1,949 (595,890)
shareholders
Profit attributable to minority interests 3,994 (3,994) -
Loss for the period (593,845) (2,045) (595,890)
A IAS 21 - An average rate is used to translate the income statements of foreign subsidiaries, whereas
previously under UK GAAP, the foreign subsidiaries were translated at closing rate.
B IAS 39 - Investment in Afren Plc will be classified as a financial instrument available for sale, and will
have to be carried at fair value with the re-measurement gain or loss posted through equity. Previously
under UK GAAP, this was held at cost.
C Under International accounting standards losses that exceed minority interest in the Equity of a subsidiary
may create a debit balance on minority interests only if the minority has a binding obligation to fund the
losses.
Cash flow statement
The Group's consolidated cash flow statements are presented in accordance with IAS 7. The statements
present substantially the same information as that required under UK GAAP, with the following principal
exceptions:
1. Under UK GAAP, cash flows are presented under nine standard headings, whereas IFRS
requires the classification of cash flows resulting from operating, investing and financing activities.
2. The cash flows reported under IAS 7 relate to movements in cash and cash equivalents,
which include cash and short term liquid investments. Under UK GAAP, cash comprises cash in hand and
deposits repayable on demand.
Independent review report to Ascent Resources plc
by KPMG
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2007 which comprises Consolidated Income Statement,
Consolidated Balance Sheet, Consolidated Cash flow Statement and the related
notes We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company in accordance with the terms of our
engagement. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the AIM
Rules which require that the interim report must be presented and prepared in a
form consistent with that which will be adopted in the company's annual accounts
having regard to the accounting standards applicable to such annual accounts.
As disclosed in note 1 to the financial information, the next annual financial
statements of the group will be prepared in accordance with IFRSs as adopted by
the European Union.
The accounting policies that have been adopted in preparing the financial
information are consistent with those that the directors currently intend to use
in the next annual financial statements. There is, however, a possibility that
the directors may determine that some changes to these policies are necessary
when preparing the full annual financial statements for the first time in
accordance with IFRSs as adopted by the European Union.
Review work performed
We conducted our review having regard to the guidance contained in Bulletin 1999
/4: Review of interim financial information issued by the Auditing Practices
Board for use in the UK. A review consists principally of making enquiries of
management and applying analytical procedures to the financial information and
underlying financial data and based thereon, assessing whether the accounting
policies and presentation have been consistently applied unless otherwise
disclosed. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit performed in accordance with International Standards on
Auditing (UK and Ireland) and therefore provides a lower level of assurance than
an audit. Accordingly, we do not express an audit opinion on the financial
information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007.
KPMG Audit Plc
Chartered Accountants 28 September 2007
This information is provided by RNS
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