Ascent Resources Strong Buy

Onward and Upward

16 February 2006

AIM Code After its initial flurry of deals and acquisitions last year, Ascent
AST has been progressing its exploration acreage through new
AIM Sector seismic, old seismic reinterpretation and applying for drilling
Oil permits. Six wells are planned for later this year, with Spain, Italy
and Hungary likely targets. More wells are on the horizon for
Target Price
2007. The array of projects is impressive.
20p
Share Price The jewels in the exploration crown appear to be the Italian Po
10p Valley acreage and the intriguing Swiss prospects. However,
Issued Capital: 276m Hungary also has plenty of potential and Spain also looks
(inc 19m in-money options) attractive. All of the exploration acreage is prospective and the
Market Capitalisation drilling programme promises to be an exciting ride – even one hit
£27.6m would transform Ascent.
Key Shareholders
RAB Energy Fund 16.3% Ascent has made a low cost entry into production in Spain
Framlington 13.9% through a string of deals. The Ayoluengo field may well be
Analyst capable of significantly higher production and reserves. Already,
Philip Morgan 01227 264310 the cashflow more than pays the company’s overheads.
philip.morgan@wh-ireland.co.uk Together with cash from conversion of most of the outstanding
Sales warrants, Ascent appears well-funded for its drilling programme.
Philip Haydn-Slater 020 7220 1690
philip.haydn-slater@wh-ireland.co.uk Further acquisitions in Europe are planned, as the company still
Raj Karia 020 7220 1693 sees overlooked opportunities. The steady stream of
raj.karia@wh-ireland.co.uk announcements illustrates the dynamism of the company.

* WH Ireland act as broker to Ascent and any
research on this company should not be relied
on to be independent or objective. Intended for
institutional investors only, not private clients.
The board has been strengthened with two significant
appointments. Both John Kenny, the new Chairman, and Patrick
Heren, are well known and highly regarded in the industry.

Recommendation / Comment
Ascent is a new company and has come a long way since getting going in March last year.
Announcements have kept flowing and will clearly continue to do so. We are getting closer to the kick-
off of the drilling campaign and it is likely that the shares will start another run ahead of this. The
market cap. of the company is still modest and offers excellent gearing to any success with the drill
bit. Although it would be extremely fortunate if all the wells came in, it is more likely that there will be
one or two hits in the early drilling - even one would transform Ascent at a stroke. The MD, Jeremy
Eng, has identified an overlooked niche in Europe and the company is well-placed and well-financed
to exploit it. As yet, Ascent is not known to many investors and so offers the opportunity for canny
early birds to gain exposure to a potentially lucrative little exploration play.
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 Since our initial report of September last year, Ascent has made progress on all fronts. Production has been
acquired in Spain. New seismic has been shot in Hungary. The first wells of the drilling campaign are now
shaping up. Drilling permits have been applied for in Spain and Italy and rig options are being considered. It
seems likely that drilling could commence maybe in Q3 this year and continue using the same rig for at least
six wells. The rig will be able to be moved piecemeal on trucks so it can be shuffled around between countries
without difficulty. The wells will be relatively shallow and quick to drill.

Spain

Since our last report, Ascent has moved into Spain with four separate deals. The first was the acquisition from
Northern Petroleum of a 50% stake in three exploration permits in the north of the country. The cost was a
2.5% overriding royalty in the permits. The acreage (556 sq. km.) is in the Sedano Basin and surrounds the
Ayoluengo field. There are three discoveries on the acreage, but all need appraisal. The company is planning
wells on Hontomin, discovered by Chevron in 1968, and Tozo, another Chevron find, this one dating from
1965. At the time, the modest flow rates were clearly uncommercial but times have changed. The Hontomin
field flowed at 113 b/d but Ascent believes that the discovery well penetrated the flank of the structure and is
planning to drill up-dip to see what that holds. It may be possible to re-enter the Tozo discovery well, which
flowed a few hundred barrels over an extended period but also contained an untested gas zone. Both fields
are likely candidates for drilling later this year.

Hot on the heels of this deal came the news that the company had bought a 50% interest in Northern
Petroleum Exploration from Gold Oil for 0.37m shares and cash. This gave an 11.25% interest in the
Ayoluengo field itself. A further 52.5% in Ayoluengo then came through the acquisition of Teredo Oils for 1.5m
new Ascent shares plus some cash. The stake in the field has now been raised to 88.75% with a further
acquisition from POGE. Ascent’s average purchase price of just over $6 per barrel of proven reserves
appears highly attractive. (Nippon Oil has recently paid over $13 per barrel for BP’s stake in the higher cost
Statfjord field). Ayoluengo is a rather tired old field which has already produced 17 million barrels (mb), with
further recoverable reserves of 200,000 barrels proven. Its production has dwindled to around 115 b/d.
However, the field is a suitable candidate for rejuvenation and the partners aim to increase output “at the
earliest opportunity.” Only six of the original 36 wells are now producing. Recompletions are possible near
term and horizontal drilling could also increase output in due course. This would increase the proven reserves
and decrease the cost – the previous operator, Northern, assessed potential extra reserves at 2mb. If this is
close, Ascent will have obtained an excellent deal. We welcome the move into production as it pays the
overheads and ensures that the company can fund its initial exploration programme.

Switzerland

The company has two exploration permits in the Berne Canton, awarded in August. Both have unappraised
gas discoveries on them. We are still awaiting approval of the application for a third permit, in the Vaud
Canton, which contains a 1962 oil discovery.

All three permits had old seismic surveys. These are currently being reprocessed in Hungary to determine
whether more seismic is needed or whether a well can be sited and drilled without.

Netherlands

Ascent has a 90% interest in a joint venture with GTO, who are technical specialists. After seismic
reprocessing and geological work, the JV applied for three full and three part blocks in September. The two
areas applied for are old government land and under-explored – it is likely that other companies will be
interested in taking a share of the action. The award of permits is due shortly.

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Hungary

Ascent’s operations in Hungary are carried out through its 90% interest in Petro Hungaria, a joint venture with
Geomega, a local geological and geophysical company.

The major exploration interest lies in the two Nyirseg permits in the northeast of the country. Old seismic has
been reinterpreted, 270 km of new seismic has been shot and data has been exchanged with another
company. The company now plans to identify sites for two wells and drill when permits are granted, possibly
as early as the third quarter. The abandoned Peneszlek gas field looks a candidate for redevelopment.

The company has a Memorandum of Understanding with state firm, MOL, to redevelop tight gas fields using
state-of-the-art stimulation techniques. Although around 20% of US domestic gas production stems from such
sources, tight gas is largely neglected in Europe. There are a number of suitable fields throughout Hungary
and the first two fields are currently being selected. The company hopes that stimulation equipment from
Germany may be available for a pilot project around mid year.

The mooted coal bed methane venture with local operator Rotaqua remains a possibility.

Italy

Italy is becoming a key country for Ascent and it seems that more projects are “under review.” The most
exciting acreage is two large exploration contracts in the central part of the prolific gas-producing Po Valley.
The interest here derives from a new play, namely the drilling of stratigraphic traps. Hitherto, the fields were
found in structural traps, now all drilled, but advanced seismic techniques have been locating smaller fields in
the new play. Ascent has identified twelve leads from an initial review of its purchased seismic data, but is
reprocessing the data to identify drilling locations. When this is done the company will need to apply for drilling
permits, which takes at least ten months, so drilling will probably not kick off until next year.

Drilling will take place sooner in the Latina Valley, as the permitting process for the shallow Anagni well is
complete. However, we would caution that this well is primarily aimed at obtaining parameters for a seismic
programme rather than looking for oil and gas. The acreage surrounds a shallow producing field, Ripi. Ascent
believes that the Ripi oil is characteristic of older, deeper oil as is the case elsewhere in Italy and will be
targeting the larger deep prospects.

In December, Ascent announced the acquisition of a new Italian exploration permit, a 40% stake in the Fiume
Arrone permit west of Rome (partnering Italmin and JKX). Two wells were drilled in the ‘50s, one reporting gas
shows. A well is to be drilled this year, aimed at a gas target identified by seismic.

Gabon

Ascent was awarded a 20% interest in the Ibekelia permit, adjacent to the Olowi Marin oilfield and between the
two previous blocks, where the company retains a 1.75% interest. Ascent promptly sold a 10% stake in
Ibekelia to Afren and retains a 10% interest in this one year technical evaluation agreement.

New Projects

The 2005 Annual Report, published in December, says that Ascent “is currently assessing new projects in
Hungary, Spain and Italy as well as in three new countries where the company is not currently operating. It is
likely that some new projects will be added to the portfolio in the coming months.” Since that time there has
been only the Fiume Arrone acquisition in Italy so there are probably more to come. The company has
indicated that there are still low cost entry opportunities, some including inexpensive production.

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Financial Position

The company currently has just under £4m cash and appears to be adequately funded for its existing plans
into 2007. Finances were boosted by £2.2m by the conversion of 43m 5p warrants into shares with an
incentive warrant of 1 for 4 with the right to subscribe for new shares at 12p up to end 2007.

Management Changes

The company has recently replaced the last two directors from the company’s original incarnation, Hugh
Warner and David Steinepreis. The new Chairman is John Kenny, a co-founder of JP Kenny Group, one of
whose companies has become JKX Oil & Gas. John is currently Head of Commercial Activities at JKX. JKX
has since become a partner with Ascent in its latest Italian block and one wonders if there is scope for wider
co-operation between the companies. JKX is a £536m market capitalisation company and could be a useful
partner for Ascent. At the same time, Jonathan Legg was moved from non-exec to be an executive director.

The second new appointment is Patrick Heren, a renowned gas expert for 30 years. Patrick founded World
Gas Intelligence, which was the first international gas journal and the Heren Index has become the most
widely used price index for European gas and power prices. His advice and contacts should prove extremely
valuable to Ascent.

Shareholding Structure

The seven largest shareholders hold 68% of the shares in issue. The free float is thus rather limited and the
shares are likely to be sensitive to good news. The conversion of the warrants resulted in some selling of the
shares – this process is likely to be close to being over.

VALUATION AND APPRAISAL

Our model is little changed from our last note and will not be included in full. The risk-discounted figure for
the company has risen slightly to €302m, equivalent to £204m or 75p per share. This suggests that there
is little in the share price for any drilling success. As the company has a portfolio of around sixteen licenses,
many of them with unappraised finds and several with oil seeps, it is quite clear that Ascent’s potential is still
largely unrecognised by the market.

We have been impressed by the calibre of directors that the company has managed to recruit and this should
lend confidence to new investors. Ascent continues to be well-managed by Mr. Eng, whose dynamicism shows
no sign of flagging. The recent presentation at an Oilbarrel Conference was well received by delegates.

In our view, the drilling campaign due to begin around mid year will attract attention and the shares could start
to move ahead of that time – maybe quite soon. On top of that, it seems likely that new deals will be signed,
which will keep the company’s name to the fore. The bigger prospects to be drilled next year when the
permitting process is completed will ensure that the company will continue to be noticed.

Ascent is not likely to become a large company with its current interests. However, if it achieves success in a
few of its prospects, it should be able to move up a league or two. In due course, Ascent plans to take stakes
in bigger projects in order to ratchet it further up the scale.

We think that Ascent has put all the building blocks in place to become a medium-sized European oil and gas
exploration and production company over the next 2-3 years. Getting in at this stage looks highly attractive to
those prepared to wait for an investment to outperform steadily over that time. Of course, any substantial
success from drilling would produce a much faster return.