Ascent Resources : Annual Report and Financial Statements 2021

Annual Report and Financial Statements 2021

Company Number: 05239285

Ascent Resources plc

("Ascent" or the "Company")

Ascent Resources Plc is a London Stock Exchange AIM listed energy and natural resources operating company focused on onshore gas production and ESG Metals across Hispanic Americas, Europe and the Caribbean.

Contents

Ascent Resources plc .......................................................................................................................................	B
Chairman's Statement ......................................................................................................................................	2
Chief Executive Officer's Statement ............................................................................................................................................................	2
Strategic Report ...............................................................................................................................................	6
Summary of Group Net Oil and Gas Reserves as of 31 Dec 2021 ...............................................................................	15
Directors' Report...................................................................................................................................................	16
Board of Directors .................................................................................................................................................	19
Directors and Advisers ...................................................................................................................................	20
Corporate Governance Report ................................................................................................................................	21
Audit Committee Report .................................................................................................................................	27
Remuneration Committee Report ....................................................................................................................	28
Statement of Directors' Responsibilities ..........................................................................................................	31
Independent Auditor's Report to the members of Ascent Resources plc....................................................................	32
Consolidated Statement of Comprehensive Income..........................................................................................	37
Consolidated Statement of Financial Position...................................................................................................	38
Company Statement of Financial Position ........................................................................................................	39
Consolidated Statement of Changes in Equity ..................................................................................................	40
Company Statement of Changes in Equity........................................................................................................	41
Consolidated Cash Flow Statement.........................................................................................................................	42
Company Cash Flow Statement ................................................................................................................	43
Notes to the Accounts ....................................................................................................................................	44

Ascent Resources plc Annual Report and Financial Statements 2021 I 1

Chairman's Statement

Following the completion of the "no win-no fee" style funding agreement for our international arbitration proceedings against the Republic of Slovenia, the Company is now positioned with upside exposure from a monetary damages claim significantly in excess of €100 million. These arbitration proceedings alone, we believe, already make Ascent Resources plc a unique and compelling proposition for shareholders.

The Company is also pursuing an industrial growth strategy across both onshore gas and ESG Metals where it has, for some time now, been preparing for its maiden transaction with a near term focus on Peru. Underpinning its growth strategy is its gas production at the Petisovci project in Slovenia, which continues and is of course buoyed by the strong European gas market backdrop.

Our vision remains, by the end of 2022, to have finalised this transformation of Ascent such that the Company has both sustainable cash flow generation from its operations and compelling upside exposure from a funded claim, all supported by an "on the money" ESG compatible strategy in an exciting, growth focused, part of the world.

We thank our shareholders for their support and look forward to achieving success together.

Chief Executive Officers' Statement

Legacy Slovenian Asset

2021 remained a challenging year for the Petišovci tight gas project in Slovenia, with ongoing disputes between the Company and its joint venture ("JV") partner Geoenergo as well as the JV's service provider Petrol Geo resulting in a continuing commercial stalemate and as such the Company has not recognised any revenue for the year. In March 2022, the Company announced that it had now elected to invoice for its share of production revenues for the months of April 2020 through to February 2022. Regional gas prices experienced an increase of nearly 500%, having started in January 2021 with an average monthly gas price of €18.75 / MWh and ending the year in December 2021 with an average monthly price of €112.11 / MWh. Production at PG-10 continued to produce a consistent volume of gas whilst a pressure anomaly was observed at PG-11A, leading to the well being put back into production with initial flow rates of circa 20,000 standard cubic metres ("scm") /day allowing production to be exported via the pipeline to INA in Croatia. However, production thereafter declined, as anticipated, and PG-11A is currently producing sporadic gas along with PG-10 which is sold locally to industrial buyers. Total production from the PG-10 and PG-11A wells in 2021 was 1.53 million scm of gas and 52,196 litres of condensate with the majority of the annual production being sold to local buyers.

The year started with the Company continuing to remain engaged in direct negotiations with the State Attorney's Office of the Republic of Slovenia in relation to pre-arbitration settlement discussions, following the Company having received a response in Q4 2020 to its Notice of Dispute to the Republic of Slovenia dated 23 July 2020. The Company entered into these discussions in good faith with a view to potentially settling the Company's claim in an amicable manner in the short term. In February 2021, the Company announced that the Republic of Slovenia had notified the Company that it shall be in a position to respond formally to the proposed settlement terms by the 19 March 2021 and Slovenia accordingly requested that the Company did not initiate any arbitration proceedings before such date to which the Company agreed. On 19 March 2021, the Company announced receipt of a further letter from the Republic of Slovenia claiming that an amicable settlement was not achievable.

On 8 November 2021, the Company announced the signature a binding damages-based agreement with Enyo Law LLP, a specialist arbitration and litigation legal firm who had previously filed the Notice of Dispute and represented the Company in the pre-arbitration negotiations, to commence proceedings against the Republic of Slovenia under the Energy Charter Treaty and the UK-Slovenia Bilateral Investment Treaty. In May 2022 the 'no win-no fee' style arrangement completed

2 I Ascent Resources plc Annual Report and Financial Statements 2021

and allows the Company to securely initiate arbitration proceedings against the Republic of Slovenia under the ECT and BIT. Enyo are funding the payment of advanced disbursements which are expected to be incurred in the pursuit of the claim, and these disbursements along with the time of Enyo's lawyers will only be paid out of the proceeds of the arbitration in the event of a successful damages award or execution of a binding settlement agreement (if achieved sooner).

As referenced in the first paragraph, commercial disputes between the Company and its JV partner Geoenergo and JV service provider Petrol Geo continued throughout the year. The Company has rejected all invoices received by Petrol Geo on the basis of a fundamental change in circumstances, with the project now only producing a fraction of the production volumes it expected to be producing when it signed the relevant contracts back in 2013, amongst a number of other matters that Ascent has highlighted to its counterparties and which remain under discussion, including the Company's Gas Sale revenues entitlement under the joint operating agreement. In October 2021 the Company announced that following a recent stakeholder engagement process in Slovenia and a productive Operating Committee Meeting between the partners, that the JV was aligned on key future workstreams relating to the long-term concession renewal, environmental impact assessment and permitting. The Company also announced that it was in constructive dialogue with its JV partners regarding resolution of all disputed legacy matters and the restructuring of certain production costs.

During the year the concession holder, Geoenergo, filed the requested documents ahead of the deadline to be granted an automatic 18-month concession extension pursuant to Article 11 of the Act on Intervention Measures implemented in Slovenia to assist the economy in mitigating the consequences of the COVID-19 pandemic. Accordingly, the concession expiry date will now be 25 November 2023. Post period in review, the Company announced in March 2022 that it had now elected to invoice for its share of production revenues for the months of April 2020 through to February 2022. The Company remains hopeful that working with its partners they can agree terms to resolve the historic disputes and allow all the parties to begin to recognise monthly cash revenue streams from the remaining production.

Post period under review, in April 2022 the Republic of Slovenia approved amendments to its Mining Law which now include a total ban on exploring and/or producing hydrocarbons with the use of any form of mechanical stimulation, furthermore the Company understands it is now no longer possible to have a mining concession approved if stimulation is included in the extraction plan. Accordingly, the Company does not expect to complete the workstreams relating to the EIA and re-stimulation of the PG-10 and PG-11A wells, given that the Company has subsequently been deprived of its reasonable expectation to continue the historic practice of undertaking low volume mechanical stimulation to produce the tight rock gas reservoir, as has been done over thirty times in the last fifty years. In light of these legislative changes, which the Company believes are specifically targeted to preclude Ascent's investment in Slovenia from succeeding and amount to a form of expropriation, the Company notified the Republic of Slovenia of a second notice of dispute on 5 May 2022 and that such latest actions constitute a loss of the full investment value. The Company is currently reviewing future field development plans that do not involve any form of stimulation, such that a concession renewal may be possible before or on the extended expiry date.

New Environment, Social & Governance ('ESG') Metals Strategy & Peru Market Entry

In February 2021 the Company announced, following a period of reviewing different special situations, that it was now focusing its strategy to include ESG Metals as a new target sector within its resource focused business.

ESG Metals includes secondary mining and recovery opportunities typically involving the reclassification, through highly efficient recovery techniques, of stockpiled surface mining waste (often previously viewed as a liability for mining companies) as a valuable asset for reprocessing and commercial sale to industry, governments and metals traders. The Company sees waste management, remediation and restoration of land impacted by historic and on-going mining activities as a critical element in the global ESG agenda and integral to the transition to a low carbon economy. The Company is looking at a number of potential projects in Hispanic America and South Africa as well as Europe. In particular, the Company believes that there are good opportunities in gold, silver, platinum, base metals and ferrochrome, where the economics are especially attractive and the opportunity set has the ability to deliver lowest cost quartile sustainable metal production from legacy mining tailings, with low geological risk. Such opportunities have the potential to provide strong cash returns without exploration risk and only require modest upfront capital outlay.

Ascent Resources plc Annual Report and Financial Statements 2021 I 3