Block Energy P. Regulatory News (BLOE)

25 September 2019

Block Energy Plc

("Block" or the "Company")

Operations Update

Block Energy Plc, the exploration and production company focused on the Republic of Georgia, is pleased to provide a detailed update on operations at its flagship West Rustavi field ("the Field").

The Company is pursuing a fully-funded multi-well drilling programme through 2019/20, designed to rapidly increase oil and gas production across the Field, in which Block has a 100% working interest ("WI"). West Rustavi has an estimated 0.9 MMbbls gross 2P oil reserves, 38 MMbbls of gross unrisked 2C contingent resources of oil and 608 BCF of legacy gross unrisked 2C contingent resources of gas (Source: CPR Gustavson Associates: 1 January 2018).

Highlights

·; Sidetracking operations have commenced at well WR-38Z, targeting the Middle and Upper Eocene formations. The well is being drilled on-trend with and updip of WR-16aZ, with the benefit of valuable new information.

·; Since testing commenced oil and water production from WR-16aZ has varied significantly due to the failure of certain downhole equipment during the attempted cementing of the well in the course of drilling. WR-16aZ continues to flow strongly, producing a combination of oil, water and gas. From 17 to 23 September production averaged a choked-back rate of 230 bbls/d of liquid at an average water cut of 78%. The well has flowed gas at rates significantly higher than the Company anticipated.

·; The 3D seismic survey of the Field has begun with the mobilisation of the acquisition contractor.

Commencement of horizontal sidetracking at well WR-38Z

Following the mobilisation of a ZJ40 drilling rig to the wellsite, sidetracking and coring operations have commenced in WR-38Z, targeting the Upper and Middle Eocene formations, West Rustavi's primary oil-bearing zones.

WR-38Z is on-trend with and updip of WR-16aZ, with good 2D seismic control and a design informed by the valuable information collected from the drilling of the appraisal well WR-16aZ. WR-38Z's completion design minimises the risk of water incursion from formations outside the Middle Eocene, with the zones to be isolated by cost effective and reliable techniques, including the deployment of specially engineered packers that swell upon contact with water. The Company has engaged leading engineering consultants NRG Well Management to further optimise the programme with planning and execution assistance.

Well WR-38Z is being drilled horizontally through the primary oil-bearing Middle Eocene reservoir, the operations beginning with the drilling of a vertical pilot hole to be cored and logged for petrophysical and lithological evaluation of the Upper and Middle Eocene formations.

Operations update on appraisal well WR-16aZ

The horizontal sidetracking of WR-16aZ into the Middle Eocene has proved the formation's commercial productivity. Since testing began, the well has produced more than 9,000 bbls of light, sweet crude oil, which at US$65/bbl Brent provides an anticipated US$300,000 net to the Company, a quarter of the original drilling cost.

Well WR-16aZ was the first horizontal sidetrack the Company drilled in the Field. WR-38Z and three other wells will be sidetracked in the course of Block's drilling programme.

Extensive testing of WR-16aZ indicates that it is producing oil, water and gas from formations in addition to the targeted Middle Eocene. When the well was first tested earlier this year it produced a mixture of oil and drilling fluid. The relative mix of oil, water and lost drilling fluid produced since production resumed in July has varied significantly, delaying the establishment of a stable production rate and Block's ability to announce associated market updates.

The Company's analysis of drilling and production data performed on offset wells prior to the drilling of WR-16aZ indicated the Upper Eocene was non-productive. Although desirable, segregation of the Upper from the Middle Eocene was not considered essential. When certain downhole equipment failed prior to cementing operations of the seven inch liner, a well-considered decision was made to continue with WR-16aZ operations without cementing the liner. At the time, the downhole condition of the wellbore was deteriorating and becoming unstable (as is common for geological formations with high clay and shale content such as the Upper Eocene). The option of an operation to attempt to retrieve the liner, recondition the open hole and re-run the liner was considered. It was rejected due to the high risk of losing the new sidetrack. The current downhole configuration is therefore open to flow from both the Upper and Middle Eocene formations.

WR-16aZ's vigorous productivity is demonstrated by the consistent strength of its fluid production and reaction to varied choke sizes. The wellhead flowing pressure is high for a Georgian well of this depth.

The well has flowed gas at rates significantly higher than the Company anticipated, occasionally reaching 500 mcf/d (or 80 boepd), well above rates that would be expected if the gas was only associated with the oil.

Produced water is being trucked with the oil to the nearby storage facility at Sartichala, which is owned by the Georgian Oil and Gas Corporation (GOGC), the Georgian national oil company. The storage leasing agreement Block has with GOGC provides for the disposal of the produced water into a State approved injection well.

WR-16aZ production

The well continues to flow strongly, producing a combination of oil, water and gas. From 17 to 23 September production averaged 230 bbls/d of fluid at a choked-back rate comprising an average watercut of 78% (51 bopd) and a gas rate of 130 mcf/d (22 boepd).

WR-16aZ planned evaluation and intervention work

Block is implementing an evaluation and intervention programme designed to isolate and reduce the water the well is producing, and to increase net oil production. In keeping with the Company's philosophy of sourcing the best contemporary technologies for the task at hand, Block has selected downhole production logging equipment to identify the respective origins of the oil, water and gas the well is flowing.

Award of contract for 3D seismic survey

The 3D seismic survey of the Field has started with the mobilisation of the chosen contractor, following a tender in which several international providers participated. The award was made to Geofizyka Toruń S.A., a services company with more than 50 years experience of worldwide seismic acquisition.

The survey is designed to illuminate the faults and fracture network within West Rustavi's Middle Eocene reservoir and to image the contingent gas resources in the Lower Eocene and Cretaceous formations, allowing Block to identify optimal locations for new oil and gas development wells across the Field.

Acquisition of the data will take two months to complete. The data will be processed with the latest techniques and interpreted to give a detailed understanding of the characteristics of the Field's faults and fractures, facilitating identification of the Middle Eocene's most productive zones. Block will be one of the first oil and gas operators in Georgia to acquire 3D seismic data and use it for the drilling of horizontal wells.

Norio and Satskhenisi

In parallel with its operations at West Rustavi, Block continues to produce oil at its Norio (100% WI) and Satskhenisi (90% WI) licences, at a combined average production rate of 27 bopd.

Video and presentation

A video and presention featuring illustrations designed to complement this update are available: the video can be viewed at https://bit.ly/2l6e7Ze and the presentation downloaded from the Company's website at http://www.blockenergy.co.uk/media/presentations/.

Paul Haywood, CEO of Block Energy said: 

"Encouragingly, the WR-16aZ appraisal well has proved the productivity of the Middle Eocene naturally fractured oil reservoir. It has also confirmed unassociated gas flows above our expectations. The flow test results have varied over time due to lost drilling fluid and a mechanical failure when drilling the well. In the course of drilling WR-16aZ we have strengthened our understanding of the drilling techniques applicable to Georgia which will be invaluable as we begin drilling well WR-38Z, the second of five wells we plan to horizontally sidetrack in our fully-funded campaign. I look forward to updating you on our progress at WR-38Z."

Roger McMechan, Technical Director, has reviewed the reserve, resource and production information contained in this announcement. Mr McMechan has a BSc in 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.

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

Notes to editors

Block Energy is an AIM-listed independent oil and gas company focused on production and development in the Republic of Georgia, applying innovative technology to realise the full potential of previously discovered fields. The company is pursuing a fully-funded multi-well programme through 2019/20 designed to convert contingent resources to reserves.

The Company has a 100% WI in the highly prospective West Rustavi onshore oil and gas field with multiple wells that have tested oil and gas from a range of geological horizons. The Field has so far produced 50 Mbbls of light sweet crude, and has 0.9 MMbbls of gross 2P oil reserves in the Middle Eocene. It also has 38 MMBbls of gross 2C contingent resources of oil and 608 BCF of legacy gross unrisked 2C contingent resources of gas in the Middle, Upper and Lower Eocene formations (Source: CPR Gustavson Associates: 1 January 2018).

Block also holds 100% and 90% WIs in the onshore oil producing Norio and Satskhenisi fields.

The Company offers a clear entry point for investors to gain exposure to Georgia's growing economy and the strong regional demand for oil and gas.

Glossary

1. Block is using the suffix 'Z' in a well number to indicate a horizontal sidetrack.

2. Wells have been referred to as '16aZ' and '38Z' in previous updates. The Company is now prefixing well numbers with the initials of the field in which they are located. '16aZ' at West Rustavi, for example, is now referred to as 'WR-16aZ'.

3. bbls and bbl/d: barrels and barrels per day. A barrel is 35 imperial gallons.

4. bopd: barrels of oil per day.

5. boepd: barrels of oil equivalent per day.

6. updip: located up the slope of a dipping plane or surface.