RE: Good Initiation note from Tennyson26 Feb 2021 16:42
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
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.
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