Block Energy P. Regulatory News (BLOE)

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

Block Energy Plc ('the Company' or 'Block' ): West Rustavi 16aZ* well production at a stable rate consistent with 1,100 bbl/d test

17 April 2019

· Production from well 16aZ continues to validate test results

· Upgrade of production infrastructure to support exceptional production rates

· MOU for sales of associated gas with major Georgian private gas supplier

Block Energy Plc, the exploration and production company focused on the Republic of Georgia, is pleased to announce that well 16aZ ('the well' or '16aZ') at its West Rustavi field ('West Rustavi') continues to produce, as the limits of crude oil storage allow, at rates consistent with the average test flow rate of 1,100 bbl/d ('barrels per day') announced on 1 April 2019 (RNS: https://bit.ly/2YOpggq).

The rate of 1,100 bbl/d produced through an 1/4 inch choke significantly exceeded the Company's target rate of 325 bbl/d, triggering an immediate requirement to upgrade production infrastructure. While the Company addresses production capacity and offtake requirements, the diameter of the choke has been reduced as of 13 April 2019 from 1/4 inches (~6 millimetres) to 1/8 inch (at just over 3 millimetres, the smallest size possible), scaling back production from 1,100 bbl/d to a rate of around 700 bbl/d.

The analysis of bottom hole pressures measured during the production flow test and subsequent build-up shows that both the formation matrix and natural fractures are contributing to the well's production. The well's productivity index is measured as 8 bbl/d/psi.

Subject to contract, Block has now negotiated terms on additional storage facilities, and is also negotiating new oil sales contracts with local and international purchasers, which are showing strong interest in supporting Block's future development plans.

The Company also confirms that associated gas production from the well will be sold to Bago Ltd, one of the largest private gas suppliers and purchasers in Georgia. Block signed a Memorandum of Understanding ('MOU') last year for the offtake of West Rustavi's gas (RNS: https://bit.ly/2Y4Pj2n). Under the terms of the MOU, Bago will acquire the total amount of gas produced from West Rustavi, subject to a minimum of 1,000 m3 of gas per day, and will fully finance all gas infrastructure the field requires, including pipeline tie backs to local infrastructure and gas processing plant solutions.

Bago is sampling the associated gas being produced from the Middle Eocene this week and, subject to the contract, will immediately begin the process of acquiring the necessary permits to develop the site's gas export facilities. The agreement opens up an additional annualised revenue stream of around US$1.0m to the Company through the sale of the well's 14,000 m3/d of associated gas. Bago is expected to start purchasing the gas within eight weeks of signing of contracts.

Chief Executive Officer Paul Haywood said: 'We are very happy to confirm the exceptional test results announced at the beginning of the month. 16aZ continues to flow strongly, going from strength to strength with a steady increase in pressure as the well cleans up. With an average production rate of 700 bbl/d, the well is expected to deliver gross monthly free cash to the Company of US$1m at the current price of US$70/bbl for Brent crude oil (with an approximate two month well cost payout).

'We are also delighted that, with associated gas flowing from the well, the gas offtake agreement we entered into with Bago last year will now come into effect, offering the Company the ability to switch from flaring to swiftly commercialising its gas at little to no cost, potentially adding around US$1.0m of additional annual free cash to Company's cash receipts. We look forward to working closely and expanding our relationship with Bago, as we seek to unlock the field's contingent gas and oil resources.

'Finally, the Company's management is currently working on a detailed operational market update that will cover its planned oil and gas development. The update will include the scheduled spud date for the sidetracking of West Rustavi's well 38, a neighbour and analogue to well 16aZ, plans for the appraisal of the field's existing gas discoveries, the acquisition of a 3D seismic survey and, a revision of the CPR consequent to the performance of 16aZ.

'2019 promises to be an exciting time for Block Energy, and we look forward to updating the market as we continue to work hard to realise the great potential of our assets.'

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.

**ENDS**

Further information

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

Glossary

1. *Well 16aZ has been referred to as well 16a in previous updates. Please note that the Company is now referring to the well as 16aZ to reflect the addition of the horizontal sidetrack to the vertical well.

2. Block currently has a 71.5% working interest ('WI') in West Rustavi, having secured an agreement in February to acquire a 100% WI that will give the Company full strategic control over the field's development (RNS: 26 February 2019: https://bit.ly/2H1Eqt5).

3. The licence contains an estimated 38 MMbbls of gross contingent resources ('2C') of oil in the Upper and Middle Eocene and 608 bcf of legacy contingent resources ('2C') of gas in the Cretaceous (Source: CPR dated 1 January 2018, Gustavson Associates).

4. bbl/d. Barrels per day. A barrel is 35 Imperial gallons.

5. m3. Cubic metre = 35.3 cubic feet.

6. Choke. A choke is a device used to control the rate fluid flow from a well. It can be adjusted to suit the circumstances. In the case of well16aZ it is being used to restrict the pressure being exposed to the production test separator currently being used to produce the well.

7. Productivity index. The oil production rate that can be produced by lowering the bottom hole flowing pressure by 1 psi below reservoir pressure (the drawdown).