Block Energy Plc – Acquisition and Suspension of Trading

25 September 2017

Block Energy plc

 ("Block Energy" or the "Company")

Acquisition and Suspension of Trading

• Attains 100% interest in producing Norio field in the Republic of Georgia and assumes operatorship of both Norio and neighbouring Satskhenisi field

• Enables Block Energy to embark on work programme to increase production to approximately 300bopd from 26bopd

• Triggers fundamental change in Block Energy’s business activities and status and is therefore treated as a reverse takeover – shares suspended from trading on NEX Exchange Growth Market prior to opening of business on Monday 25 September 2017 at 07.30 a.m.

• Process to dual-list on AIM underway – first ever CPR covering detailed analysis on the reserve potential across all three licences in Georgia being completed

• Re-admission to NEX Exchange Growth Market expected simultaneously with AIM admission, subject to shareholder approval

Block Energy, the exploration and production company focused on the Republic of Georgia, is pleased to announce that, in line with its strategy to become an operator of low cost / high impact oil and gas development assets, it has agreed to acquire the outstanding 31% working interest in, and to become operator of, the producing Norio Onshore Oil Field Production Sharing Contract (‘Norio’) via a cash payment of US$310,000 to Georgia Oil and Gas Ltd (‘GOG’) (‘the Acquisition’).  This follows the Company’s previous statement that it intended to fully exercise its right to move to a 100% working interest in Norio before dual listing the Company on AIM and commencing a defined field development programme to increase production at Norio to over 250bopd in the short term from approximately 20bopd (see announcement of 17 July 2017).  

In addition to becoming operator of Norio, the Acquisition will also see Block Energy assume operatorship of the neighbouring Satskhenisi field in which Block Energy holds a 90% working interest.  Current production at Satskhenisi stands at 6 bopd.  At this level of production and due to the extremely favourable oil sharing terms associated with the Norio and Satskhenisi Production Sharing Contracts (“PSC”), combining production enables Block Energy to operate both fields from one entity, benefiting from economies of scale and therefore ensuring operating costs are fully covered by existing production revenue.  

Norio and Satskhenisi: proven fields with multiple low cost, low risk development opportunities

Norio lies 40km from the city of Tbilisi.  To date 1.9 million barrels (“mbbl”) of light sweet crude oil have been produced largely from the Middle Miocene (Chokrak) with some production from the Lower Miocene (Maikopian) and Upper Miocene (Sarmatian).  Current production stands at approximately 20bopd from three wells drilled in the mid/late 1970s.  In all 55 vertical wells have been drilled on the field to depths of between 500-1500m with the best well recovering over 400,000 barrels. 

Due to its low operating costs, highly favourable oil sharing terms, and a net crude field sale price of Brent minus US$9, Norio is cash flow positive and generates sufficient revenue to cover its operational costs.   Schlumberger, operator of the neighbouring field, estimates Norio contains 118.7 million stock tank oil initially in place (‘STOIIP’). The Company intends to embark on a defined production enhancement programme, including eight recompletions/workovers of existing wells and one sidetrack, to increase production to over 250 bopd in the short-term.  

In parallel with this, Block Energy intends to undertake seven reactivations and recompletions at Satskhenisi to raise production to over 100bopd.  Satskhenisi has produced 310,000 barrels of oil to date mostly from the Maikop and shallow Sarmatian lithologies.  It shares a similar geological setting and formations to Norio and as a result learnings from one permit apply to the other. At US$45 per barrel, both fields break even at a total of 20 bopd. 

Suspension of trading on NEX and AIM Admission Process

Up until now, Block’s status in Norio and Satskhenisi has been as a non-operating joint venture partner.  The change to operator is a significant shift in Block’s existing business, and will involve Block assuming control of all operational activity at, and management of, both oil fields. In addition, the Company will receive 100% of all revenues from associated future oil sales.  The Acquisition therefore triggers a fundamental change in Block Energy’s business activities and status and as a result, it will be treated as a reverse takeover for the purposes of Rule 58 of the NEX Exchange Growth Market Rules for Issuers (‘the Rules’).  In accordance with Rule 78 of the Rules, the trading in the Company’s ordinary shares on the NEX Exchange Growth Market will be suspended pending publication of its AIM admission document in line with its intention to dual list on AIM, a market operated by the London Stock Exchange plc. 

Work regarding the AIM Admission is well advanced and as part of the process, the Company has commissioned Gustavson and Associates, located in Colorado, Denver to undertake a Competent Person’s report (‘CPR’) covering its existing asset base in the Republic of Georgia.  The Directors expect the CPR to highlight the significant asset backing behind Block Energy in the form of recoverable oil reserves and gas potential across its licence base which can be accessed via the implementation of low cost/low risk work programmes to rapidly scale up production and reserves.

The Company currently holds three licences in Georgia, all of which are proven fields that are either currently producing or have historically produced.  In addition to Norio and Satskhenisi, Block Energy retains a working interest in West Rustavi Block Xif, which has produced 500,000 barrels of oil to date and tested commercial quantities of sweet gas on trend with a significant gas target that is currently being evaluated as part of the commissioned CPR.  West Rustavi shares the same geology and play types as Schlumberger’s adjacent Block XIb permit, where 200 million barrels of oil have been recovered and is currently undergoing significant evaluation on its gas potential.

As part of a farm-in agreement to earn a 75% working interest in the West Rustavi PSC, Block Energy intends to re-enter 2-3 wells and side track 3-4 additional wells to increase production to over 1,000bopd of oil from the Middle Eocene. Furthermore, subject to the results of the CPR, Block Energy also plans to re-test gas production from previously discovered wells located within the permit.

Paul Haywood, Director of Block Energy, said, "Becoming operator of the Norio and Satskhenisi fields is a major milestone for the Company, as it sees Block Energy join the ranks of established operators in the Republic of Georgia, including our neighbour Schlumberger, the world’s largest oil and gas services engineer.  We have come a long way in a short space of time. This has seen us acquire an exciting portfolio of assets which, as well as offering multiple low risk development opportunities, has company-making appraisal potential, most notably in the form of gas in the West Rustavi permit.  The CPR will be a significant event for Block Energy, as we expect the findings to assist the Company in gaining further visibility around the underlying value potential of our asset base and underpin our future plans and areas of focus. 

“We intend to maintain the momentum behind the business whilst ensuring control over our stakeholders destiny. Assuming operatorship promises to do just that.  A dual listing on AIM will provide us with the platform with which to deliver on our near-term objective to build a highly cash generative producer before moving onto the huge appraisal targets we have identified.  I look forward to providing further updates on our progress, as we focus on transforming Block Energy into the largest independent oil and gas company in the Republic of Georgia, a proven but underdeveloped hydrocarbon region.”

The Directors of the Issuer accept responsibility for this announcement.

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