Block Energy P. Regulatory News (BLOE)

Block Energy Plc / Index: AIM / Epic: BLOE.L / Sector: Oil and Gas

5 October 2018

Block Energy Plc ("the Company", "Block" or "the Group")

MOU Agreed for Gas Offtake from West Rustavi Licence

Block Energy Plc, the exploration and production company focused on the Republic of Georgia, is pleased to announce it has signed a Memorandum of Understanding ("MOU") with Bago Ltd ("Bago"), one of the largest private gas suppliers and purchasers in Georgia, for a proposed offtake agreement for gas produced at the Company's West Rustavi permit ("West Rustavi" or "the Licence"). Block currently holds a 25% working interest ("WI") in West Rustavi (increasing to a 75% WI after earn-ins described in the Company's Admission Document of 4 June 2018) which has proven reserves and gross, unrisked contingent resources ("2C") of 608 Billion Cubic Feet ("BCF") gas and 37.9MMBbls of oil.

Under the proposed terms of the MOU and subject to final legal agreement, Bago will acquire the total amount of gas produced from West Rustavi, subject to a minimum of 1,000 Cubic Metres of gas per day. In addition, Bago is considering financing wholly, or in part, required gas infrastructure at West Rustavi, including pipeline tie backs to local infrastructure and gas processing plant solutions. A final offtake agreement will be subject to final price negotiation that is expected to be at a similar level to those agreements already in place with neighbouring contractors (which are in line with the Company's internal forecasts). The final agreement will also be subject to successful gas appraisal work on existing discoveries located within West Rustavi and all relevant government permissions being obtained.

In addition to West Rustavi, Block's holds a 100% WI in the Norio licence and a 90% WI in the Satskhenisi licence. A low cost, multi well workover programme is due to commence shortly at Norio and Satskhenisi, as part of the Company's strategy to increase net production of oil to 900 bopd within 18-24 months.

Paul Haywood, Director of Block Energy, said: "I am highly encouraged by progress we have made towards securing a final offtake agreement with Bago, one of Georgia's largest domestic private gas traders with extensive infrastructure capable of handling large volumes of gas. West Rustavi offers huge value potential for Block and with rig contracts now in place, we are all set to commence work programmes to unlock this potential and upgrade resources to proven reserves. With multiple gas discoveries having already been made within the Licence which lie on trend to the same play currently being targeted by Schlumberger on a neighbouring licence, Block XIb, I look forward to commencing our imminent work programme with optimism as well as to updating the market when a final offtake agreement has been put in place."

Roger McMechan, Technical Director, has reviewed the reserve, resource and production information contained in this announcement. Mr McMechan is a BSc, Engineering from the University of Waterloo, Canada and is a Professional Engineer registered in Alberta.

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation which came into effect on 3 July 2016.

**ENDS**

For further information visit www.blockenergy.co.uk or contact:

Notes:

Block Energy (BLOE.L) is an AIM quoted oil and gas company with a growing portfolio of production, development and exploration assets in the Republic of Georgia. Block holds a 100% Working Interest ('WI') in the producing Norio licence, a 90% WI in the producing Satskhenisi licence and a 25% WI in the West Rustavi licence with the right to farm-in to up to a 75% WI. Block's three licences lie in the heart of the Schlumberger's 100% held position in the Kura basin, which at its peak produced ~70,000 barrels of oil per day ('bopd') in Georgia and is estimated to hold over 7 billion barrels of proven reserves in Azerbaijan and North Caucasus (Russia).

The licences currently hold estimated net proven oil reserves of 1.5 million barrels plus 61 million barrels unrisked contingent oil resources ('2C'). Furthermore, the West Rustavi permit has estimated gross unrisked contingent gas resources (2C) of 608 BCF. Multiple gas discoveries have already been made in the Lower Eocence and Upper Cretaceous within the Licence and lie on trend with the same play currently being targeted by Schlumberger on neighbouring licence, Block XIb. The estimated cost of gas development and production at West Rustavi is c.US$2.00/Mcf which equates to operating netbacks of c.US$2.6/Mcf (assuming a 75% working interest) - Georgia currently purchases its gas for c.US$5.5 /Mcf (c.US$600m project value to the Company). 

Appraisal of West Rustavi is being conducted contemporaneously with the rehabilitation of the producing Norio (100% WI) and Satskhenisi fields (90% WI) which provide immediate production uplift on commencement of field operations in Q4. The near-term target is to raise production to 900 bopd from 15 bopd within 18 months via a low cost, low risk workover and sidetrack programme, and then to utilise the cash flow to drill horizontal wells and sidetracks to raise production to c.2,000 bopd. Oil production on the fields offers excellent netbacks, with the current cost of production of c.US$25 per barrel providing netbacks of c. US$30-35 per barrel.