London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East and have access to Premium Chat. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
Starting to look healthy now. A bit of PR from the company, not PH, would work well.
Thanks quercusrobor for putting the Tennyson note on here makes for good reading. Much appreciated.
NT - cant even get a quote to buy 10 shares at full ask
fantastic analyst note - NT - cant buy a bean and not surprised
A farm in is really the only thing that will make this soar.
All of their efforts should be on farming out to the Majors who will no doubt be back in the market soon. Goldman reckons oil will be at $75 as early as the next quarter. ‘For Sale’ sign should be up.
Thanks Quercusrobor for your trouble - very good and useful report.
For anybody not already invested tells them more or less everything they need to know.
I would have thought Block should put it on their website ASAP and issue an RNS to that effect.
I would add to that that proposed farm in is for the Patty field development which may well take place in 2020 H2/2021H1.
Block has two other wells to drill in late H2, WR-BB which will replace WR51, and RUS-BA which is a step out from RUS-2.
The Rustavi Gas field is approximately 5 miles from the BAGO Compressor station.
Think the farm out will not happen until , Block energy show that they are making profit from operations.
Now ask why this is ; its a game of chess if you as a company are making profit and say we have a massive find and need a farm out to De-Risk then the % of is more in favour of Block Energy.
If you make now profit and you need to farm out then JV has the upper hand , Example AEX was worth £40 million and had 75% of oil rights pre drill ; JV partners had offered up-to $40 million to drill for in exchanged for 50% of claim leaving 25% fully covered for drill. Result is that share price dived and now worth £16 Million even that all drill cost covered by the $40 million.
The CEO which is not on my favorite list in 2020 must say pulled some good deals , my grip is invested at 5.5p on news that gas will flow shortly which is one year out of date.
Having hedge now at 2.9p with nearly 0.1% of company's shares , so very heavy in now
Anyway happy with managements directions
Wise words Rob. What we will be seeing now along with news of drilling campaigns and possible farm outs which undoubtedly cause a short spike is clarification of cash in the bank. This will help the price rerate and very importantly hold at those levels. We should see people becoming a lot more sticky with their shares at this point hopefully. Keep them under the mattress, let the traders have their fun.
Its agreat report and thank you sharing .
On recommendation I invested heavily in predictor and what happens there is people are not selling and will hold . Therefor without massive volumes the price goes up. They also push their share with informative posts . There is constructive criticism and that's healthy. But you dont see negative none stop running down of their company. There is of course some excellent posting here and please keep them coming but less of the negative for no factual reason please .
There were reasons we believe that added to the holding back of blocks share price, this has been discussed .
But the bottom line is:
Dont keep running down bloe for the past. Yes they messed up and I lost a lot. Also why sell for a tiny mark up or a loss? I constantly see tiny sales that must surely not be making the holder rich.
PR and spin are key in the business world. I have reinvested a large sum based on where we are now! And my personal opinion is: We are shareholder and should be spreading the word in a positive fact based way!
All we need is for traders to hold . At least till they have an acceptable return. MMs are finding it too easy to spook investors out of their money .
Just my take on this and happy for other people views on moving forward.
We are almost there !
Thanks , if this was another company the share price would be triple now.
Very Positive report.
After this point the contractor’s share of Profit Oil falls to 40%. Block’s cost recovery pool currently stands at c.US$135m (the vast majority of this was acquired as part of the Schlumberger deal), which maintains Block’s net entitlement interest at the maximum 75% for the life of our model. There are no other state taxes or royalties due, making the overall terms highly favourable from the contractors’ perspective. Using a long term oil price of US$60/bbl and a 10% discount rate, our model values reserves at US$17.8/bbl.
Our Core NAV includes our estimate of 1 mmbbls currently in production, as well as c.6 mmbbls which are being targeted with the next three wells. We have applied an additional cautious 50% risking to the undrilled wells to account for geological risk, which after adjusting for net cash and other corporate items results in a risked Core NAV of 7.9p/shr. Our Total NAV also includes value for the 64 mmbbls of 2P reserves, minus the 7 mmbbls already included in Core NAV. We have haircut the NPV/bbl by 25% to reflect the timing impact in bringing these barrels onstream, and we have applied a further 75% haircut to represent geological and commercial uncertainties. The net effect is a risked Upside NAV of 17.8p/shr, leading to a Total NAV of 25.7p/shr.
Note at this stage we have not included any value for contingent resources, including the deep gas potential (estimated by Schlumberger at 600 bcf recoverable), and the c.34 mmbbls of audited 2C oil resources. Figure 7: NAV table
Gross Interest Net Unrisked Risked mmboe % mmboe US$/boe US$m p/shr CoS US$m p/shr
Base production 1.0 1.0 17.8 17.8 1.7 100% 17.8 1.7 2021 3-well campaign 6.1 6.1 17.8 109.2 10.3 50% 54.6 5.1
Net cash (debt) 8.2 0.8 8.2 0.8
Options & warrants proceeds 3.3 0.3 3.3 0.3 Core NAV 7.1 7.1 138.4 13.0 83.8 7.9
Upside 56.9 56.9 13.3 758.3 71.4 25% 189.6 17.8
Total NAV 64.0 64.0 896.7 84.4 273.4 25.7
The second permit acquired as part of the Schlumberger deal is Block IX – a vast licence, covering almost 2,000 sq km. The acreage is covered by relatively modern 2D seismic (including 454km of 2010 vintage data), and in 2013 two wells were drilled exhibiting both oil and gas shows without commercial success.
While Block IX therefore provides interesting exploration opportunities, we expect resources to be focussed on Block XIB and West Rustavi, and therefore Block IX will provide option value, should it be able to attract an industry farm in partner willing to spearhead exploration. Importantly, all work programme obligations have been satisfied by the previous operator, and the permits have some 14 years to expiry (plus further optional 5yr extensions).
2 PRODUCTION PROFILE & FINANCIAL FORECASTS
Our production profiles are based on underlying ‘base production’ of 450 boepd (average FY21), including the c.150-200 boepd recently acquired and a conservative estimate of c.250-300 boepd from the two existing West Rustavi wells (which are currently producing 740 boepd).
On top of this, we have assumed a total of c.627 boepd (again average full year) from the three wells to be brought onstream over the course of the year resulting in FY21 annual production of 1,184 boepd.
Due to the phasing effect, production grows in 2022, averaging 1,863 boepd on our numbers, building to 2,357 boepd in 2023 assuming a resumption of drilling. In terms of costs, operations in Georgia are particularly inexpensive, and costs are largely fixed (i.e. independent of production volumes).
We anticipate annual operating costs of c.US$3.0m, with a further c.US$1.8m of corporate G&A.
Based on our assumed oil price forecast of US$60/bbl in 2021-22, we estimate operating cash flow of around US$11m, rising above US$20m in 2022 driven by increased volumes. We have assumed that Block spends just over US$8m this year on its three new wells, which leaves around US$3m of free cash flow for the year. With Block starting the year with c.US$8m of net cash, this leaves plenty in the kitty for further development drilling through 2022.
We have built a DCF model covering Block’s assets. The licences are held under production sharing contracts (PSCs), which are very generous. Operating costs and capital costs can be recovered from 50% of licence revenue, with any unrecovered costs carried over in a cost recovery pool. Remaining ‘profit oil’ is split 50:50 between the contractor and the state, until ‘Payment Date’, which is defined as the time when cumulative revenues from Cost & Profit Oil exceed total sunk capex.
The block contains four oil fields (Krtsanisi, Teleti, Patardzeuli and Samgori) which, combined, have produced in excess of 180 mmbbls of oil, predominantly from Middle Eocene horizons (the same horizon as Block’s West Rustavi field). Production from the fields peaked in the early 1980’s at 65,000 bopd (importantly without the benefit of horizontal wells and 3D seismic), however the collapsing Soviet Union resulted in sharp production decline (see profile in Figure 2), ultimately to negligible levels by the end of the century.
The production profile of the larger Patardzeuli field in particular clearly illustrates the impact of the Soviet Union’s demise (i.e. an unnatural decline curve). Over the past decade, only four new wells have been drilled on XIB, including Schlumberger’s 2019 deep gas appraisal well PAT-E1 The previous operator invested almost US$70m on the licence, including US$40m in calendar year 2018, predominantly on the drilling of a deep gas exploration well.
As well as the drilling of PAT-E1, Schlumberger’s investment also included significant seismic work, with comprehensive 2D and 3D seismic coverage recently reprocessed by WesternGeco. Importantly, this data, alongside the >200 well and production data, can be integrated into Block’s recently completed seismic programme at West Rustavi (which incidentally overlaps the neighbouring dataset), which should substantially improve regional understanding of the subsurface
. The level of historical investment in the permits is also expected to provide Block with a substantial, >US$130m cost recovery pool, which substantially improves returns to the contractor until these costs are recovered. Block, guided by the work of the previous owner, has identified 13 near term development targets on Block XIB, which we expect to become the company’s operational focus on completion of the West Rustavi drilling campaign.
Since these essentially serve as redevelopment of Patardzeuli, from a geological perspective they are particularly low risk, with plenty of behind pipe and infill opportunities. In addition to this low risk re-development, the deep gas potential, which originally attracted Schlumberger to the permit, has blue-sky potential.
The vertical PAT-E1 well encountered gas shows throughout the target reservoir, with an estimated discovered resource of around 600 Bcf. Schlumberger concluded however that additional work is required to establish the commerciality of the tight reservoir.
Given the higher risk/higher reward profile than the rest of Block’s portfolio, we expect the company to market the deeper gas horizon for farm out. Block will likely seek to divest a portion of its interest in return for drilling finance to fund a horizontal appraisal well on the discovery.
In contrast to the majority of the previous wells in the area, the new wells will be drilled with substantial lateral sections. Block is planning far longer horizontal sections than its previous campaign, twice as long in some cases, which should maximise the intersection of small fractures within the reservoir, and in turn should maximise flow rates. The first well in Block’s 2021 programme (WR-BA) will be drilled on West Rustavi, in close proximity to Block’s successful WR-38Z well (see Figure 4, above).
The well will be drilled with a long horizontal section, with the planned c.1,100 metre section expected to be the longest horizontal section ever drilled in country. Water management will be key, particularly in later life, and accordingly the wells will be completed with external packers to provide water cut off capability.
The following wells in the campaign will depend somewhat on the results from WR-BA, however the likely to include JKT-1ST and WR-BB. JKT-1ST is a re-entry and sidetrack of a 2012 vertical exploration well (see Figure 4, above).
Despite its close proximity to the successful KRT-39 well (which has produced c.0.5 mmbbls to date), the vertical JKT-1 well failed to intersect sufficient levels of fracturing for flow.
With a long horizontal leg within an already proven reservoir, and the added benefit of new 3D seismic, we consider JKT-1ST to be geologically very low risk. WR-BB is situated close to Block’s successful WR-51 well, however its horizontal section will run in the opposite direction to WR-51 (see Figure 4). Block has identified a further four mature drilling targets which are likely to be added to the drilling programme in due course.
1.2BLOCK XIB (FORMER SCHLUMBERGER PERMIT)
Early last year, Block announced that it had reached an agreement with neighbour Schlumberger to acquire its two upstream licences in country, including Georgia’s most prolific licence, Block XIB. Schlumberger, a forced seller as a result of its closure of its upstream E&P business under which the assets were held (SPM), found itself marketing the asset during the peak of the first wave of the Coronavirus pandemic.
Accordingly, Block was able to acquire the assets for a hugely attractive price, with zero cash outlay and only a modest equity consideration (Schlumberger has a c.16% fully diluted equity position in Block).
Block also negotiated to include the former operator’s 30,000 bbls of crude inventory on the licence, with a market value in excess of US$1m at the time. Figure 5: Block XIB Source: Block XIB is considered the most significant block in the history of Georgian oil production.
ASSET UPDATE AND NEAR TERM WORK PROGRAMME 1.1WEST RUSTAVI
Block’s West Rustavi field spent the bulk of 2020 shut-in, with the company taking the opportunity to install gas processing facilities while oil prices were particularly low. A 6-slot early production facility, with an expandable nameplate gas capacity of over 3 mmscf/d was installed, with wells WR-38Z and 16aZ hooked up and, since early this year producing into the grid.
The initiation of gas sales also allowed Block to reinstate oil production from the two wells. Given that the wells were shut in for the best part of a year, flow rates may take a while to stabilise.
Early indications however suggest that the two wells are performing particularly strongly at rates of 740 boepd – considerably higher than the c.300 boepd that the wells were producing at suspension. Late last year Block raised US6.5m of fresh equity for a new three well drilling campaign on West Rustavi.
The campaign is due to commence in early Q2, and will benefit from new 3D seismic, as well as the lessons learned during the last drilling campaign in 2019. To recap, the 2019 campaign yielded mixed results.
The re-entries of existing Soviet wells were cost effective, however the age of the wells and mismanagement by the original operators added risk. Well 16aZ was a case in point. Initial flow rates were highly encouraging, with flush production of over 1,000 boepd.
The wellbore however soon started producing water, which substantially inhibited oil and gas production. Well WR-38Z was more successful, flowing at a sustained rate of over 500 boepd, however the third well in the programme, WR-51, had to be abandoned due to wellbore integrity issues.
In addition to the drilling results, the subsequent 3D seismic has provided colour on the most effective drilling sites for future development wells.
The tight West Rustavi reservoir relies on natural fracturing in order to flow at commercial rates, and therefore it makes sense to target the regions which are most heavily fractured. However, should these fractures provide a conduit to the underlying groundwater, oil and gas zones could be bypassed in favour of the more mobile water (as with 16aZ).
Accordingly, Block will target the reservoir sweet spots, where fractures provide solid levels of hydrocarbon production but major faults do not provide the pathway for water production. The next wells to be drilled on West Rustavi have been selected with these factors in mind. They will be situated close to existing wells which have demonstrated moderate, but stable flow rates. This, supported by 3D data, suggests that there are not the more substantial faults
present which could cause the wells to water out prematurely.
Block Energy High impact gas appraisal potential:
Schlumberger was originally attracted to Georgia by the Lower Eocene gas play, regionally estimated to contain in excess of 8 Tcf recoverable. The company drilled just one well before the Schlumberger board made the executive decision to divest direct upstream exposure. The PAT-E1 well was successful in that it encountered gas over an 1,800 metre section, however the reservoir at this location was relatively tight and additional work, likely horizontal appraisal drilling, is required to establish commerciality.
Funding for the well may come from internal cash flow, or from industry farm out Value offering:
We calculate a Core NAV of 7.9p/shr (on a fully diluted basis), based on the existing producing assets, plus a risked value for the three upcoming wells.
We have attributed a further 17.8p/shr for the undeveloped 2P reserve base, taking risked Total NAV to 25.7p/shr.
Our target price, set at Core NAV, offers some 155% upside to the current share price.
In terms of cash flow multiples, today’s 3.1p/shr is equivalent to an EV/EBITDA (FY21) of just 1.4x, falling to below 1x over the course of next year.
Our target price of 7.9p/shr would imply a multiple of 5.1x in FY21, and 1.8x in FY22, competitive with AIM listed peers, which trade on a weighted average FY21 multiple of 3.8x (ranging from 1.4x to c.30x).
Figure 3: NAV table Gross Interest Net Unrisked Risked mmboe % mmboe US$/boe US$m p/shr CoS US$m p/shr Base production 1.0 1.0 17.8 17.8 1.7 100% 17.8 1.7 2021 3-well campaign 6.1 6.1 17.8 109.2 10.3 50% 54.6 5.1 Net cash (debt) 8.2 0.8 8.2 0.8 Options & warrants proceeds 3.3 0.3 3.3 0.3 Core NAV 7.1 7.1 138.4 13.0 83.8 7.9 Upside 56.9 56.9 13.3 758.3 71.4 25% 189.6 17.8 Total NAV 64.0 64.0 896.7 84.4 273.4 25.7
Block EnergyOUT OF THE BLOCKS
Block Energy (BLOE LN) is a Georgian focused E&P, with a substantial portfolio of producing, redevelopment and exploration opportunities. Following last year’s acquisition of Schlumberger’s upstream assets in Georgia, Block now boasts some 66.5 mmbbls of 2P reserves across seven oil and gas fields.
Current production is in the order of c.900 boepd, however is set to increase strongly with a fully funded development drilling campaign which is due to commence in the coming weeks.
With inexpensive new development wells, workovers and infrastructure upgrades, the company sees a clear roadmap to 5,000 bopd and beyond.
Running parallel, Block plans to work up high impact appraisal opportunities, including the Lower Eocene gas play which originally attracted Schlumberger to the region.
With our 7.9p/shr target price offering 155% upside, we initiate coverage with a BUY recommendation. Upcoming multi well drilling programme:
Block expects the first of a minimum three well development drilling programme to commence in early May. Each well is drilled close to existing successful wells, and drilled based on the updated subsurface model, benefiting from new 3D seismic and drilling data.
As such the campaign, from a geological perspective, is low risk. The wells are each targeting initial rates of c.500 bopd, costing c.US$3m per well, and on an unrisked basis, are worth a combined c.11p/shr on our numbers.
Cash generative:Even without the impact of the new wells, at current production levels and commodity prices Block is strongly cash flow positive, generating in the region of US$6m/yr of free cash flow.
Each new well producing 500 boepd would add an incremental c.US$3m which, on top of existing free cash flow can be reinvested in new wells to grow production organically.
In a success case, our organic growth model estimates c.US$20m of EBITDA in 2022 rising to US$27m in 2023, with cash on the balance sheet growing above US$50m by the end of 2023.
Summary financials 2021 2022 2023 Total production (boepd) 1,184 1,863 2,357 Sales (US$m) 16.0 25.2 31.9
Costs* (US$m) (4.8) (4.8) (4.8) EBITDA (US$m) 11.2 20.4 27.
1 EV/EBITDA** 1.4x (0.2x) (1.0x) Capex (US$m) (8.2) - (6.0) Free cash flow (US$m) 3.0 20.4 21.1 Net cash (debt) (US$m) 11.2 31.6 *OPEX plus G&A. **Fully diluted, at 3.1p/shr. Medium term development opportunities:
The Schlumberger acquisition added a host of brownfield redevelopment opportunities. As Figure 2 shows below, the assets were delivering over 70,000 bopd predominantly from the Samgori and Partardzeuli fields before the Soviet Union collapsed, prompting an abrupt decline in production levels.
identified a host of redevelopment opportunities, in particular on the Patardzeuli field, which on full redevelopment could sustain substantial levels of production. Figure 2: Samgori and Patardzeuli field production profile
Do you think they will announce the updated oil and gas rates before spudding the next Rustavi well? If the wells water out like last time they don’t won’t to be plumbing this again surely?
I suspect that Block wished to announce the field development plan after the First Gas invoice RNS later in March, together with the new Broker forecast based on that plan.
Link look dropped now
AJW - I still cannot find it - "click on skip then receive" - yes but where.?
Click on skip then receive.
Reminder to all : HOLD
Am repeating what's already been posted but the report is excellent reading .
OUT OF THE BLOCKS
Block Energy (BLOE LN) is a Georgian focused E&P, with a substantial portfolio of producing,
redevelopment and exploration opportunities. Following last year’s acquisition of
Schlumberger’s upstream assets in Georgia, Block now boasts some 66.5 mmbbls of 2P
reserves across seven oil and gas fields. Current production is in the order of c.900 boepd,
however is set to increase strongly with a fully funded development drilling campaign which
is due to commence in the coming weeks. With inexpensive new development wells,
workovers and infrastructure upgrades, the company sees a clear roadmap to 5,000 bopd and
beyond. Running parallel, Block plans to work up high impact appraisal opportunities,
including the Lower Eocene gas play which originally attracted Schlumberger to the region.
With our 7.9p/shr target price offering 155% upside, we initiate coverage with a BUY
Upcoming multi well drilling programme: Block expects the first of a minimum three well
development drilling programme to commence in early May. Each well is drilled close to
existing successful wells, and drilled based on the updated subsurface model, benefiting from
new 3D seismic and drilling data. As such the campaign, from a geological perspective, is low
risk. The wells are each targeting initial rates of c.500 bopd, costing c.US$3m per well, and on
an unrisked basis, are worth a combined c.11p/shr on our numbers.
Cash generative: Even without the impact of the new wells, at current production levels and
commodity prices Block is strongly cash flow positive, generating in the region of US$6m/yr
of free cash flow. Each new well producing 500 boepd would add an incremental c.US$3m
which, on top of existing free cash flow can be reinvested in new wells to grow production
organically. In a success case, our organic growth model estimates c.US$20m of EBITDA in
2022 rising to US$27m in 2023, with cash on the balance sheet growing above US$50m by the
end of 2023.
Hello AL - yes I tried the link yesterday - it didn't work on my laptop.......