RE: plenty buying21 Aug 2019 16:56
"We have assumed average Brent oil prices of US$65/bbl in 2019, with a long term assumption of US$70/bbl
from 2020 onwards. Consistent with the CPR, we have assumed a sales discount of US$9/bbl, which largely
accounts for transportation and marketing costs, although we understand that there may be scope to narrow this
differential – particularly as offtake volumes increase.
Operations in Georgia are inexpensive, and costs are largely fixed. On completion of the infrastructure upgrades,
we anticipate annual operating costs of c.US$2.4m for West Rustavi, with a further c.US$0.2m at
Norio/Satskhenisi. Based on our forecasted 1,288 bopd in FY20, this corresponds to unit opex of US$5.5/bbl.
With sales of US$3.6m forecast for 2019, we estimate that Block will record a modest operating loss of US$0.7m
this year (including central overheads), however profitability is expected to rise sharply in 2020, with US$17.5m
of EBITDA from sales of US$22m. According to our numbers, 2021 will see the asset reach “Payment Date”
(see Discounted Cash Flow Analysis, below), and as such, we expect Block’s net entitlement interest to fall to
61% (from 70% in 2020). This leads to sales of US$18m, and EBITDA of US$14m. Even with a >US$20m
investment programme over 2019-21, we expect cash to build up strongly on the balance sheet, with net cash
of c.US$15m by the end of 2020 and US$25m by the end of the following year. This provides plenty of scope to
expand the development drilling programme, and further ramp up production through 2021 and beyond."
July 2019
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