Ascent Resources plc (AIM: AST), the European oil and gas exploration and production company, speaks to DirectorsTalk on progress towards its goal of delivering gas in 2016 through its alternative route to market and the Integrated Pollution Prevention & Control (“IPPC”) Permit application for the installation of a gas treatment facility in Slovenia.
Route to first gas
The Company’s preferred route to market for some time has been one independent of the IPPC application process as this is cheaper and quicker than the IPPC route.
In the past few days one of the two legal agreements required to progress this route has been agreed by the project team and is now with the various boards of the entities concerned for formal approval. The second agreement is at an advanced stage and the expectation of the project group is that it will be approved before the end of June.
Signing the agreements on schedule means that the Company will be positioned to achieve its goal of commercial gas production in 2016. Accordingly, the Company has begun to issue purchase orders for some of the longer lead items required to commence production and looks forward to providing shareholders with a more detailed explanation of the route once contracts have been signed.
IPPC Permit
On 5 May 2016, the Administrative Court returned the IPPC application to the Slovenian Environment Agency (“ARSO”) on the basis that the application should have followed regulations brought into force after our application had been submitted. This was despite these new regulations specifically stating that applications already submitted should continue to follow the prior process. The Court did not find any fault with the content of the application.
Since the decision of the Administrative Court, the Company has held a series of meetings with its partners, lawyers, consultants and government officials. Having taken advice from retained and independent legal experts, the Board remains satisfied that the application submitted on behalf of the joint venture (“JV”) was fully compliant with Slovenian law. The Company will make every reasonable effort to ensure that this unexpected, and in the Board’s and its advisers opinion, clearly wrong decision, is corrected.
The current position is that we have been informed that ARSO will request that the JV partners carry out a preliminary screening procedure under the new process. This procedure would then be reviewed by ARSO to determine whether a full environmental impact assessment is required.
Ascent does not intend to perform a repetitive preliminary screening or an environmental impact assessment as the original application to the ARSO and the Environment Minister had been approved. To repeat these reviews and assessments would not add to the ARSO’s understanding of the nature of the project and is therefore unnecessary and time consuming bureaucracy.
The Company has received advice that an appeal to a higher court in Slovenia is possible and we hope that an alternate court may come to a conclusion more consistent with Slovenian law. The Company also understands that it has grounds for an action for damages against the Slovenian government and the Company intends to pursue every available avenue for redress.
Nevertheless, the Company still views the installation of a gas processing plant in Slovenia as a long term route to market and hopes that this can be achieved without undue delay.
Slovenian Press Release
The Company and its partners have released the text below to the Slovenian media to illustrate the damage that the Administrative Court has inflicted on Slovenia and on investors in the project.
Translated Slovenian Press Release in full
On May 5 2016 the Administrative Court of Republic Slovenia rejected the environmental permit issued by the Environment Agency from June 19 2015 for a gas processing plant Petišovci and remanded the case back to the Agency. Project partners Geoenergo, Ascent Slovenia Ltd. and Petrol Geoterm are disappointed at the decision. The Court’s ruling will have extremely negative consequences not only on business and development of the Petrol Geoterm, but also on ability to meet business goals and it brings into question the survival of the project of natural gas production in Petišovci, socio-economic development and jobs in Pomurje region. The Court’s ruling sends extremely negative signal to foreign and domestic investors, as it clearly shows a lack of support from the State to all investors in Slovenia who operate in accordance with the law and are willing to invest in Slovenia.
Project partners (Geoenergo, Ascent Slovenia Limited and Petrol Geoterm) believe that the ruling from the Administrative Court on 5 May 2016 has extremely negative consequences not only on the project itself, but on socio-economic development of wider local community. All investments related to a new gas processing plant activities, which is estimated to cost 10 million euros, were stopped. The court’s ruling brings a negative light on the legal system of the State and it reduces investors’ confidence in Slovene business environment, which has been traditionally recognised as a place full of various obstacles by many domestic and foreign investors, even though the Government has been working hard to develop an investor-friendly environment.
Disputable ruling from Slovenian Administrative Court
The Administrative Court made an unexpected ruling in case of a permit for the new gas processing plant issued by ARSO on 19 June 2015.
The Court decided to send the case back to the Environment Agency. The Court’s explanation of this ruling does not mention any content issue in the permit. The only reason for their decision lies within the fact that a preliminary screening, a process related to environmental impact assessment question, should have been done prior to obtaining an environmental permit – as it is stipulated in the Decree on environmental encroachments that require environmental impact assessments (O.J. RS no. 51/14), even though that this Decree explicitly says that all procedures which have started before the new EIA Decree came into force shall be done in accordance with the old EIA Decree.
Further to this the Court supported its case with the EU Commission’s opinion no. 2012/2162, which asked Slovenia to amend its Decree on environmental encroachments that require environmental impact assessments (O.J. RS no. 78/06, 72/07, 32/09, 95/11, 20/13) and to adjust it to be in line with Directive 2011/92, and specifically with some of its provisions. This however does not fulfil the criteria for the direct usage of provisions according to legal experts’ opinions.
Additionally, the Court supported its case with a wrong point within the Decree on environmental encroachments that require environmental impact assessments (O.J. RS no. 51/14), based on which a preliminary screening should have been done. The reason for such belief is that the Court categorised the IPPC plant as a B.3.1 of Annex 1 of a Decree mentioned earlier but this was not the subject of the permitting process at all – the correct categorisation would be no. 2 from Annex 1.
The facts presented above are questioning the adequacy of the permit evaluation and correctness of procedures particularly due to the fact that after the permit was sent back to the Environment Agency the Investor was left without any legal remedies to use against this questionable decision from the Court.
The Project Partners are therefore reasonably questioning Slovenian regulations, especially due to the fact that at the date the application was submitted an old EIA Decree (Decree on environmental encroachments that required environmental impact assessments (O.J. RS no. 78/06, 72/07, 32/09, 95/11, 20/13)) was in force and that its legal successor a Decree on environmental encroachments that require environmental impact assessments (O.J. RS no. 51/14) specifically excluded any procedures that started prior its validation (as was the case with this application).
The investor is now left without any rights and legal security, which is in fact provided by the Slovene Constitution.
Ascent Resources plc standpoint regarding the Court’s ruling
Ascent Resources plc is an oil & gas exploration and production company listed on the AIM market of the London Stock Exchange (“the Company”).
“Despite a EUR42 million investment, ten years of intensive work and meticulous compliance with the law, a Slovenian court has refused to approve Ascent Resources application for an Integrated Pollution Prevention and Control (IPPC) permit for a new processing plant to bring Petišovci gas up to national grid quality. The Company’s Petišovci gas production project represents the largest direct investment in Slovenia by a UK public company to date and is a visible example to other companies of the investment opportunities available in the country.
The application for the permit was carefully prepared by the Company assisted by its local JV partners and expert technical and legal consultants, in accordance with Slovenian law. Ascent also complied with all requests for information and clarification throughout the public consultation and appeals process which has lasted almost two years. Following initial approval of the permit by the Slovenian Environment Agency (ARSO) and the subsequent confirmation of that decision by the Environment Minister, the Company and its advisors were optimistic that this long and expensive process was reaching a positive conclusion to the benefit of all concerned. However, an environmental activist group objected to the award of the permit and now a Court has now upheld this objection.
Given the level of investment, length of the process and the meticulous compliance with Slovenian law, the Company was extremely surprised and disappointed by the Court’s decision to deny the award of the IPPC permit for reasons concerned with the application of Slovenian and EU regulations rather than any concerns about the project itself. The decision sends out a negative signal to the international investment community implying that Slovenian law cannot be relied upon by foreign or domestic companies to support significant infrastructure investments.
Ascent Resources has faced many bureaucratic and other obstacles over the decade of its involvement in this project, especially in the last four years as it moved to the development phase. In order to commence long term tests of the gas flow rates from the initial two wells in the Petišovci field, the company is pursuing alternative routes to market for the gas which do not need a standalone processing plant.
The planned development of the Petišovci gas field could involve the investment of over EUR20 million directly into Slovenia over the next five years, a figure which could exceed EUR100 million over the life of the field. The delay in gas production from Petišovci means that Slovenia will continue to be dependent on imports for its energy requirements despite having a significant undeveloped resource within its own borders.”
Colin Hutchinson, CEO, Ascent Resources PLC
Petrol Geoterm standpoint regarding the Court’s ruling
“Petrol Geoterm regrets the ruling of the Court and believes that such decision will have a direct negative impact on the functioning and development of the company. New gas processing plant would enable better gas processing and thus provide a higher quality gas and more possibilities for further implementation and development of field activities explains Miran Jug, Director of Petrol Geoterm.
The company emphasizes that all procedures were carried out correctly and in accordance with the law, and they will continue to strive to obtain the environmental permit for the construction of a new gas processing plant. “Without environmental permit a new gas processing plant cannot be installed and the gas cannot be put into the national grid, which means that we cannot provide the services that we offer to our customers,” adds Jug.
Geoenergo standpoint regarding the Court’s ruling
Geoenergo is also highly disappointed about the decision of the Administrative Court. According to legal experts, the decision of the Administrative Court is based solely on alleged procedural errors of ARSO which is unreasonable since the procedures for obtaining environmental permit were conducted in compliance with Slovenian legislation. New gas processing plant was designed properly and in compliance with all the requirements for environmental protection and public health.
Geoenergo, a concession holder and Ascent Slovenia Limited signed a Joint Operations Agreement and have for the past few years been making big investments in the project of re-development of oil and gas field in Eastern Slovenia. Success of the project is now questionable because of the Administrative Court’s ruling.
The future of redevelopment project, which would contribute not only to the development of the local economy, but would also ensure greater energy independence of Slovenia, is threatened. Pomurje energy industry, once a driver of economic and social development of the region, could be revitalized again if we increased gas production. This would undoubtedly have a positive impact on local economy. Production of hydrocarbons in the region has been running since 1943 and no negative effects on the environment were ever detected.
Geoenergo warns that the first direct consequence of the Court’s decision is already visible. “We were forced to reject all received bids for the construction of Measuring Regulation Station Lendava-Petišovci (i.e. the entry point of the Slovenian gas transmission network) and to stop all investments related to new gas processing plant. Cancelling investments into plant, whose value is estimated at EUR 10 million, means that the goal to send gas into the national gas grid cannot be met.”
