Block Energy P. Regulatory News (BLOE)

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

10 September 2018

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

MOU Agreed for Hire of Drilling and Workover Rigs

Block Energy Plc, the exploration and production company focused on the Republic of Georgia, is pleased to announce execution of a non-binding Memorandum of Understanding ('MOU') with Georgia-based drilling contractor, JSC Norio Oil Company ('NOC'), for the provision of a drilling and a workover rig. Subject to a final agreement, these will be utilised on the 2018/2019 work programmes across Block's three licence areas: Norio (100% working interest), Satskhenisi (90% working interest) and West Rustavi (75% working interest after earn-ins described below) which collectively have net proven oil reserves of 1.5 million barrels plus 61 million barrels of oil and c.473 billion cubic feet ('bcf') of gas classified as net unrisked 2C contingent resources. 

Workover Rig

Subject to a final binding agreement, NOC will provide an A50 workover rig that will be used to undertake a short three well workover programme at Satskhenisi before being moved to the nearby Norio licence where eight candidate wells have been selected for workover. Block is aiming for the eight Norio wells to be completed and on production by Q1 2019. It is anticipated that the rig will also be used at West Rustavi, where two wells will be prepared for side tracks and the re-testing of a legacy gas discovery in the Lower Eocene, a play being targeted on neighbouring licences by Schlumberger, the leading oil and gas services provider and operator. Under an existing agreement, the preparation of the two wells at West Rustavi will trigger an increase in the Company's working interest in the West Rustavi licence to 50% from 25%.

Drilling Rig

In addition, it is planned that NOC's ZJ40 drilling rig will drill two high impact horizontal side tracks in the West Rustavi permit during Q4 2018 / Q1 2019. Targeting initial oil production of c. 600 barrels per day. The two side tracks will increase the Company's working interest in the West Rustavi licence to 75% from 50%.

Related Party Transaction

NOC is connected to Georgia Oil and Gas Limited ("GOG"), which currently owns 32,762,415 shares in the Company representing 12.64% of Block's current issued share capital. As such, GOG and NOC are regarded as related parties under the AIM Rules for Companies. Completion of the final agreement relating to matters envisaged by the MOU will be a related party transaction, and subject to the usual Rule 13 requirements of the AIM Rules. It is expected that a final agreement will be announced shortly.

Paul Haywood, Director of Block Energy, said: "The MOU signals the start of exciting times for Block during which shareholders can expect high-impact news flow on work programmes commencing across our three licence areas in Georgia. Following a comprehensive tendering process, the principles for favourable terms for rig contracts have been negotiated which we expect, once finalised, will secure considerable cost savings.

"The Company is fully funded to complete the first of a three phase work programme focused on scaling up production to a gross 900 barrels of oil per day within 24 months and on testing legacy gas discoveries at West Rustavi, which have been assigned 600 bcf of gross, unrisked contingent resources. The MOU secures two suitable rigs for the Company for a period of 12 months, giving us the flexibility and security to execute and complete our first phase of work before immediately moving into phase two with the same rig and crew. Furthermore, the terms of the agreement reduce the risks related to rig availability and cost overruns associated with hiring on a daily rate basis. We look forward to providing further details of the final contracts along with updates as operations get underway."

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.

**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 60 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 Q3. 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.