Ascent Resources : Annual Report and Financial Statements 2022

Annual Report and

Financial Statements

2022

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 and Europe.
Contents
Chairman's Statement	2
Chief Executive Officer's Statement	3
Strategic Report	8
Summary of Group Net Oil and Gas Reserves	19
Directors' Report	20
Board of Directors	24
Directors and Advisers	25
Corporate Governance Report	26
Audit Committee Report	31
Remuneration Committee Report	32
Statement of Directors Responsibilities	34
Independent Auditor's Report	35
Consolidated Statement of Comprehensive Income	41
Consolidated Statement of Financial Position	42
Company Statement of Financial Position	43
Consolidated Statement of Changes in Equity	44
Company Statement of Changes in Equity	45
Consolidated Cash Flow Statement	46
Company Cash Flow Statement	47
Notes to the Accounts	48

Ascent Resources plc Annual Report and Financial Statements 2022 I 1

Chairman's Statement

Ascent Resources plc has been focused in recent years on defending its investment interests following the Republic of Slovenia's ban on stimulation, effectively expropriating the Company's flagship oil and gas assets. Having secured a binding damages-based agreement, successfully registered the claim and very recently constituted the Tribunal, the arbitration process is now firmly in play. This includes, as announced in August 2022, making a formal submission of the request for arbitration against the Republic of Slovenia, which included an updated preliminary damages assessment in excess of €500 million (it should be cautioned that in the event the Company is successful in its claim any amount actually received by the Company may be significantly lower). It also includes the Tribunal being constituted.

Whilst these arbitration proceedings alone, we believe, already make Ascent Resources plc a unique and compelling proposition for shareholders, the Company has also been preparing for its maiden ESG Metals/ tailings transaction. Despite recent political turmoil in Peru, the company's near-term focus remains on Latin America with its deep-rooted mining legacy and attractively priced opportunity set. Once delivered, the Company's maiden transaction is expected to provide balance to the portfolio, dovetailing in assets that can exhibit sustainable and low risk cash flow generation with the binary outcome of our potentially highly material claim. Our recent intended bid for Amur Minerals Corporation is one component of a carefully planned funding strategy for this maiden transaction, which seeks to minimises equity dilution.

Gas production at the Petisovci project in Slovenia has continued with the PG-10 and PG-11A wells producing a total of 1,164,500 scm of gas during 2022. Despite significant partner complexity in country, the Company received a net payment of €651k in 2022 as payment for hydrocarbon revenues related to the 2020 and 2021 production years. For the 2022 production, a further €1.3million net revenue remains outstanding at year end and due to the uncertainty of settlement has not been recognised in the 2022 financial statements (Note 1 - Revenue recognition). Accordingly in December 2022 ASL initiated arbitration proceedings to ensure its partners compliance with its obligations to pay owed amounts from the PG-10 and PG-11A wells in addition to ASL's claim to receive, whilst it is in a preferential cost recovery mode (i.e. until it has earnt back its investment) its share of production above the baseline production profile for the other wells on the concession area. In April 2023, after the period in review the arbitration tribunal has been constituted. The parties have agreed ASL's recognition of PG-10 and PG-11A hydrocarbons for January 2022 through to February 2023 which is a total payment of €1.4m (net of VAT). The arbitration proceedings in relation to ASL's claim for revenue from the other wells took place in mid-June 2023 and the Company awaits the tribunal decision shortly.

We thank our shareholders for their patience and ongoing support as we continue to navigate the Company away from its legacy Slovenian business and towards the exciting opportunities that we see elsewhere in ESG mining/tailings whilst continuing to pursue our arbitration claim. We look forward to updating shareholders on our progress in what we believe will be a very exciting and rewarding year for Ascent shareholders.

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Chief Executive Officer's Statement

Legacy Slovenian Investment & ECT Damages Claim

2022 has been a year of significant change directly impacting the Company's flagship project in Slovenia, with the Government of Slovenia, in April 2022, voting to implement changes to the country's mining laws which, specific to the Company, included a ban on the production of hydrocarbons with the use of any form of stimulation which then came quickly into effect in May. Given that the future development plans of the Petisovci field have always included the use of low volume hydraulic stimulation (in conformity with the EU definition on stimulation levels), which has been conducted some thirty or more times on the field during the last fifty years, the ban has now destroyed the full economic value of Ascent's investment in Slovenia given that the Company will now no longer be able to execute the field development plan to be able to produce the 400+bcf discovered gas in place in the tight rock reservoirs. As such, the Company undertook a review of the Petisovci field at the end of the year and recognising that the economic value had been substantially destroyed, took the decision to recognise a 100% write down of the historical PPE and capitalised exploration costs totalling £39.7m.

The Company responded quickly to these law changes and served the Republic of Slovenia ("Slovenia" or "the State") with a new notice of dispute of further breaches under the UK-Slovenia bilateral investment treaty ("BIT") and the Energy Charter Treaty ('ECT') on 5 May 2022. The Company then entered into a binding damages agreement, appointing Enyo Law LLP to represent it in its dispute with the State, as announced on 30 May 2022. Enyo Law LLP is a specialist arbitration and litigation legal firm who filed both of the Notices of Disputes on behalf of the Company and who represented the Company in 2021's pre-arbitration negotiations with the Republic of Slovenia. On 15 August 2022, the Company formally initiated arbitration proceedings against the Republic of Slovenia with a revised monetary damages claim in excess of €500 million, which was accepted and successfully registered by the International Centre for Settlement of Investment Disputes ("ICSID") on 1 September 2022. It should be cautioned that in the event the Company is successful in its claim any amount actually received by the Company may be significantly lower.

The Company appointed Mr Klaus Reichert (German/Irish) as its arbitrator in November 2022. Mr Reichert is a very experienced arbitrator having participated in over 250 disputes. In December 2022, Slovenia appointed Ms Brigitte Stern, a French professor and experienced arbitrator. Post period end Dr Raed Fathallah (Canadian, French, Lebanese) was appointed as president arbitrator and accordingly on 7 March 2023 the Tribunal was constituted in accordance with Article 37(2)(a) of the ICSID Convention. Following a procedural first session in April 2023 the case will continue to progress through the structured arbitration process. It should be cautioned that in the event the Company is successful in its claim any amount actually received by the Company may be significantly lower.

The claim results from what the Board believe to be a populist campaign carried out by Slovenia against the Company and its investment, which has prevented the development of the Petišovci oil and gas field. In particular, Slovenia has prevented the restimulation of two wells (PG-10 and PG-11A) in 2017, which was necessary to maintain the levels of gas produced from the tight rock reservoir (as has been done multiple times over the last fifty years). This frustration of the ability to develop the field was initiated via a decision of the State's regulator, the Slovenian Environment Agency ("ARSO"), which determined that an Environmental Impact Assessment ("EIA") would be required to be approved in order to conduct the low-volume hydraulic stimulation, even though such an EIA was not required and never had been previously under Slovenian law, and ARSO's conclusion was contrary to the conclusion of Slovenia's own expert bodies. This decision significantly slowed down the development of the field by the Company. Pending such low-volume hydraulic

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stimulation, the amount of gas produced by the field was very significantly reduced, resulting in a significant loss of the Company's revenues.

At the same time, the Minister of the Environment and Spatial Planning of Slovenia repeatedly made public statements portraying Ascent, as well as the Petišovci project, in a negative light, and the Company believes that leaks were made by ARSO to the press. This further demonstrates that ARSO was biased against the Company and that the ARSO's decision was politically motivated. Slovenia's campaign against the investors culminated in a complete ban on low-volume hydraulic stimulation, which came into effect on 5 May 2022. The Board believes that statements made during the parliamentary debate on the ban leave no doubt that the Investors were being specifically targeted by it. This has left Ascent with no choice but to execute on its claim in relation to Slovenia's measures that have destroyed the value of Ascent's investments in the Slovenian energy sector, and which have de facto deprived Ascent of its right to produce gas in Slovenia. Ascent's rights have been unlawfully expropriated by Slovenia, in breach of the country's obligations under international law and both the ECT and the BIT. The Company has therefore sustained losses for which it is seeking compensation. The Company remains amenable to discussing settlement with the Republic of Slovenia following its review of the matter or otherwise pursuing this significant damages claim through to a binding result for the Company.

Slovenia Operational Update

Throughout the year the wells in the concession area have continued to produce small volumes of gas into the buoyant gas market with sales continuing to local industrial buyers through the low pressure pipeline. Total production from the PG-10 and PG-11A wells in 2022 was 1.1 million scm of gas and 37,855 litres of condensate and the average realised gas price for this production was €125/MWh, resulting in net invoiceable hydrocarbon revenues of €1.3 million due to ASL from the PG10 and PG11A wells only.

The Company's subsidiary, Ascent Slovenia Limited ("ASL"), continued to manage the ongoing disputes with its joint venture ("JV") partner Geoenergo as well as the JV's service provider Petrol Geo. (Geoenergo is 50% owned by Nafta Lendava which is a 100% Slovenian government controlled entity and 50% owned by Petrol which is a publicly listed 30% Slovenia State controlled company, Petrol Geo is a connected party by virtue of being a 100% subsidiary of Petrol). Whilst these disputes resulted in a continuing commercial stalemate throughout the period under review, ASL made some progress when in August 2022 it was able to agree recognition of payment for the outstanding hydrocarbon sales proceeds from the PG-10 and PG-11A wells for the period April 2020 through to December 2021 which was a total gross sum of €832k. As part of the agreements with Geoenergo for Ascent to receive these proceeds, ASL also agreed to recognise costs of €181k which Geoenergo claims to have paid in relation to the concession extension, as a result the Company received a net payment of €651k in August 2022. ASL was also successful in agreeing its share of the PG-10 and PG-11A revenues for the first half of 2022 amounting to €857k, however despite Geoenergo's prior confirmation that they would make this outstanding and owed payment in August as well, at the financial year end this amount was still outstanding as is the amount for the invoices raised and sent through the second half of 2022.

The revenue recognition dispute has been through a mediation process in September 2022, following which in December 2022 the Company raised some new equity proceeds to lodge its arbitration claim against Geoenergo in pursuit of a binding and enforceable resolution to this matter as well as resolution over ASL and Geoenergo's different interpretations of the joint venture contract relating to ASL's entitlement to hydrocarbons produced above a contractual base line performance profile whilst ASL is in a preferential cost recovery mode (i.e. until it has earnt its investment back). The arbitration is in process and has a long stop date, according to the Ljubljana Arbitration Centre rules, of 26 October 2023 to reach a binding result. The Company expects to make meaningful progress on this claim in the summer months of 2023, with the Company and its in country legal advisors remaining confident in the merits of ASL's claims which seek

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