Block Energy P. Regulatory News (BLOE)

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

23 August 2018

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

Operations Update

Block Energy Plc, the exploration and production company focused on the Republic of Georgia, is pleased to announce an operations update from its Norio licence (100% working interest), Satskhenisi licence (90% working interest) and the West Rustavi permit (25% working interest) which collectively have net proven oil reserves of 1.5 million barrels plus 60 million barrels of oil and c.600 billion cubic feet ('bcf') of gas classified as 2C contingent resources. 

Highlights

· On track for near-term commencement of phase one of three phase work programme focussed on scaling up production to 900 barrels of oil per day ('bopd') within 18-24 months via a fully funded, low-cost / low-risk workover and sidetrack programme of existing wells across licence base

· Access to further 20km of existing high quality 2-D seismic data across West Rustavi Licence

o Provides improved understanding of the structural faulting in licence area

o Validation of preferred well locations and horizontal pathway

· Bolstered technical team on the ground in Georgia as work programme intensifies

o Appointed four geologists/geophysicists and one logistical and HSE manager with significant Georgian and multi-national experience

· Service rig inspections complete with final negotiations for contracts underway ahead of mobilisation to three locations

o First rig to mobilise to Satskhenisi to complete a short three well workover programme during Q3 2018

o On completion at Satskhenisi, rig to move to Norio where eight candidate wells have been selected

o One workover rig and one drilling rig to be mobilised to West Rustavi targeting 300 bopd from first high-impact horizontal side-track well

· Enhanced perforating system identified with potential to increase production rates by two or threefold over conventional perforating technology - finalisation of service contract imminent

Paul Haywood, Director of Block Energy, said: "We have been highly active on the ground since our IPO in June, preparing for an incredibly busy end to the year as we prepare to mobilise rigs to locations across our portfolio. Thanks to our access and review of additional existing seismic data, we have increased our confidence and understanding of our West Rustavi permit. Having recently increased our working interest to 25%, we look forward to commencing drilling at the first of several high-impact locations as per our work programme which will earn our eventual 75% working interest in the permit.

"In line with our strategy to increase production and generate significant value we have been evaluating an enhanced perforating system and look forward to applying this exciting technology once we have finalised contracts. As activities have increased on the ground we have made a number of new high calibre appointments to our technical team - we welcome them on board. Their experience and expertise will prove invaluable during this exciting time for Block. I look forward to providing further updates with regards to the various work streams as we look to mobilise drill rigs in the near-term and embark on our programme to ramp up production to 900 bopd within 18 -24 months."

FURTHER INFORMATION

2-D Seismic Programme

A further 20km of existing high quality 2D seismic data has been obtained across the West Rustavi permit, providing an improved understanding of the structural faulting throughout the licence area and validating the Company's preferred well locations. The lines provide excellent quality and pass key wells, 16a, 30, 38 and 51. Line L4037 includes discoveries and horizontal side track candidates 38 and 51. The Company plans to drill two horizontal side track wells in a potentially undrained fault block containing the Middle Eocene ('ME') formation. Based on nearby vertical well performance, the Company anticipates that the ME formation will be naturally fractured and hence, very productive. 

Technical Team Appointments

A number of highly experienced geologists and geophysicists have been hired by the Company as work programmes are ramped up on the ground in Georgia. A full time HSE manager has also been hired in Georgia to start implementing the Company's policies and procedures related to the safety of its operations and the protection of the local environment in Georgia. These appointments include:

Peter Chown

A geologist with over nine years' experience in the oil and gas industry including four years' experience focusing on the FSU for Tethys Petroleum with a particular focus on Georgia. Peter has detailed understanding of the structural geology and the reservoirs across Block Energy's area of interest.

Artem Sanishvili

A geophysicist with over 40 years' experience, most of which has been in Georgia. Artem's past experience has been with majors such as Schlumberger, CNPC and BHP.

Alexander Janiashvili

A geologist with over 12 years' experience. Alexander is highly experienced in Geological and Petrophysical Modelling.

Irakli Tavdumadze

A geologist with over 40 years' experience in Georgia bringing in-depth experience of the original drilling in West Rustavi and Ninotsminda fields. Irakli is experienced in preparing statutory reports and applications to the Georgian State Agency.

Sergo Durglishvili

Sergo has been appointed as HSE Manager. He has a Petroleum Engineering background with a wealth of experience in field operations within multinational oil companies.

Enhanced Perforating Technology

The Company has been evaluating the application of an enhanced perforating system. This new system utilises a miniaturised horizontal drilling system that bores multiple small holes out from the wellbore, bypassing wellbore damage and contacting virgin reservoir.

A contract with this specialised service provider is currently being finalised and the Company will provide further details in the coming weeks. Block estimates that this new technology has the potential to provide a 2-3 multiple of production rates vs conventional perforating. 

Preparation for Rig Mobilisation

Ahead of mobilisation, two rig inspections have now been completed with no mechanical issues encountered. Final rig contract negotiations are now underway and expected to be concluded shortly.

Once contracts have been agreed, the crew will mobilise the rig to Satskhenisi to complete a short three well workover programme prior to mobilising the same rig to the Norio licence where the first four existing wells will be prepared for the enhanced perforating system currently expected to arrive in Georgia before the end of October. This workover rig will then move to West Rustavi, where two wells will be prepared for side tracks and the re-testing of a historical gas discovery in the Lower Eocene, a play being targeted by neighbour Schlumberger. Following this preparation work, the Company will mobilise the service rig back to Norio to utilise the enhanced perforating system and install the production equipment. The Company is targeting the second tranche of four Norio wells to be prepared, completed and on production by Q1 2019. At Norio, a total of eight candidate wells have been selected and the required equipment and services are currently being sourced. 

The Company is targeting to commence drilling the first high impact horizontal side-track in the West Rustavi permit during Q4 2018 and to be completed and on production by the end of this year. Block is forecasting initial production from this well to be approximately 300bbls/d and has identified four other existing wells in the permit that can be re-entered and side-tracked in a similar manner. Once drilling has commenced at West Rustavi, the Company's working interest will increase from 25% to 50%.

**ENDS**

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

Notes:

Block Energy (BLOE.L) is an AIM traded 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 in the Licence. Block's three licences lie in the heart of the Schlumberger's 100% owned strategic position in the prolific 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 net proven oil reserves of 1.5 million barrels plus 60 million barrels of oil and c.600 billion cubic feet ('bcf') of gas classified as 2C contingent resources. The West Rustavi permit, in which Block has just increased its stake in, has proven reserves and gross, unrisked contingent resources ('2C') of 608 BCF gas and 37.9MMBbls of oil. Multiple gas discoveries have already been made in the Lower Eocence and Upper Cretaceous within the Licence, which lie on trend to 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). 

West Rustavi's development is being conducted contemporaneously with the development of the producing Norio (100% WI) and Satskhenisi licences (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 of existing wells, and then utilise cashflow to drill horizontal wells and sidetracks to rapidly raise production to c.2,000. 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.