Material news was released this morn by Ascent Resources in which the company provided an update on the dispute with the Government of the Republic of Slovenia concerning the company’s unfair treatment in that country and how its investment of more than €50 million in the Petisovci field has been damaged. These disputes are being pursued under the UK – Slovenia bilateral investment treaty (BIT) and the Energy Charter Treaty (ECT) remediation avenues.
At the back end of July 2020, Ascent submitted a Notice of Dispute which got the legal ball rolling. In this morning’s announcement, the company notes the recent press speculation in Slovenia and can confirm that it is now entering into direct negotiations with the Republic of Slovenia. Ascent goes on to point out that the view is to potentially settle the claim in an amicable manner before the end of 2020. Apparently, all these negotiations will be carried out on a strictly confidential, without prejudice and privileged basis.
At the same time, Ascent also pointed out this morning that it has completed an internal assessment of damages and that these current negotiations with the government of Slovenia won’t be prejudicing the company’s rights to pursue its investment treaty claim under the BIT and ECT. Whilst all this is going on, sensibly the board of Ascent will be continuing to secure litigation funding to proceed with international arbitration, if a settlement is not be reached.
When Ascent served Slovenia with a Notice of Dispute back in July 2020, we learnt that at the same time, the company had appointed an independent quantum expert to provide an estimate of the total damages. Given all the shenanigans that have gone on there over many years which have served to stall Ascent meeting its goals, this could have all the makings of a being a lofty figure. With that information in its possession, the board will be in discussions with specialist litigation financiers, some of whom have become particularly interested in the case since the company put in the Notice of Dispute. We estimate the damages claim to be in excess of £40m – a settlement of even half this equates to over 26p per share. The current stock price reflects less than a 10% chance of settlement let alone the company’s other assets.
Ascent is no longer a one project company however. In Cuba, the company has submitted an application to become an operator. This move concerns onshore producing block 9B and onshore blocks 9A, 12 and 15 which the company added to its asset portfolio following the arrival of the new management team earlier on this year. Negotiations on Production Sharing Contracts for these blocks were planned to kick off earlier on this month.
The company has done well to focus on Cuba which is one of the few remaining world-class yet largely unexploited hydrocarbon systems. In the country, Ascent is carving out a highly compelling opportunity as it includes six separate PSCs spread across four blocks which cover some 7,000km². The entry into Cuba has tremendous potential in our view and over the coming months Ascent is likely to gain operator status. Once that is in place, it looks as though the market might really begin to learn about the size of the prize in the vast onshore licence area where Ascent is negotiating access to a highly prospective area of Cuba. The deals provide an attractive mix of development, appraisal and exploration potential which gives Ascent a nice balance of opportunities right across the cycle.
Management as seem happy to diversify away from oil and gas in the search for appealing Special Sits plays which offer a unique balance of risk and reward. We have really been impressed by the quality of Ascent’s deal flow from Cuba. As reported previously, the board has signed a number of new non-binding letters of intent in the ht battery metals mining space in Cuba. At this stage it is worth pointing out that Cuba has the fifth largest nickel resources in the world.
Although the new board has only been in place for a matter of months, they have already begun to highlight the multiple mining opportunities that exist across the battery metals space, especially nickel, and there looks to be a good opportunity to mirror the oil deals already being negotiated where it is expected they will once again be following the organic route as with the company’s oil forays. The move into Cuban battery metals exploration/mining would provide attractive complementary new world exposure.
Some scoffed when we trotted out our target price for Ascent of 18.34p on initiating coverage on the stock with a Conviction Buy stance when the shares were trading at 3.25p in mid-September 2020 as per HERE. Our target price was based on possible Petišovci scenarios where we looked at the two alternative scenarios – the litigation path (making an educated estimate of the amount that might be awarded by the court, the time period until payment – all of which was risked) and the development path. With just 76m shares in issue, and the claim quantum likely to be over 10 times the current market cap, with the stock now at 4.625p we are more than happy to reconfirm our Conviction Buy stance.
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