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Ascent Resources’ potential is 'clearly being underestimated' - finnCap

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The potential of Ascent Resources (LON:AST) assets is clearly being underestimated by the market, according to research by city broker finnCap.

The broker believes that Ascent’s projects could deliver nearly 10x upside if they prove successful.

“Trading at a 60% discount to total NAV (Net Asset Value) Ascent is by far the cheapest stock in our coverage universe, providing a highly attractive entry point,”  finnCap analyst Will Arnstein said.

He adds: “we believe there are near-term catalysts that could drive a material re-rating.”

The analyst highlighted the 414 billion cubic feet (Bcf) Petişovci-Lovaszi re-development project, and its plans to drill five other exploration and appraisal wells planned in 2011, as two of the main catalysts.

This morning Ascent told investors that it has mobilised the rig for the first well in the Petişovci-Lovaszi programme.

This well, Pg-11 will be the first to drill on the Slovenian portion of the Petişovci-Lovaszi project area. Depending on the weather drilling is expected to get underway on or around 16 December 2010.

The Pg-11 well has a number of important objectives and the evaluation programme is designed to collect sufficient data for development planning, as well as calibration of the 3-D seismic to optimise the geological modelling over the entire project area, Ascent said.

FinnCap believes that the Petisovci-Lovaszi gas field provides a material re-development opportunity .

“A recent CPR (Competent Persons report) by RPS has confirmed Petisovci-Lovaszi as a significant under-exploited tight gas field with 412 Bcf of GIIP (billion cubic feet Gas Initially In Place)”,  Arnstein added.

“The field has been partially developed in the past, producing 10 Bcf without the benefit of modern drilling and completion technologies,

“Ascent believes a recovery rate of 65% should be achievable from reservoirs of this type, providing a huge re-development opportunity for the company.”

Additionally the analyst also highlighted that Ascent’s innovative sale of its Swiss assets, may still provide exposure to high impact drilling at no cost.

In April, Ascent sold the assets for €8 million and retained an option to get back into the projects after its new owners have drilled up to six exploration/appraisal wells.

Overall Arnstein believes that Ascent’s value could rise rapidly.

In terms of his current valuation, Arnstein said: “Our total NAV for Ascent is 15.6p per share and is made up of an -1.2p core NAV and a 16.8p risked NAV.”

“With most of Ascent’s activities in the exploration and appraisal phase, core NAV is currently limited, but could rise substantially within the next year as projects move rapidly to development.”

Separately other analysts have also gave upbeat comments on Ascent and the Petisovci-Lovaszi project.

Fox-Davies stressed that Ascent has taken important steps to progress the work on Petisovci-Lovaszi.

“This asset has the potential to drive near-term value and it is welcome news that the drilling operations are underway; Pg-11 will be the first in a 4-well drilling programme,” the broker said.

“We look forward to further updates from the evaluation programme and maintain our Buy recommendation.”

Quick facts: Ascent Resources PLC

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AIM:AST

Price: 4.8 GBX

Market Cap: £5.25 m

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