Block Energy PLC Operations Update - replacement (0703B)

TIDMBLOE

RNS Number : 0703B

Block Energy PLC

27 January 2020

27 January 2020

Block Energy Plc

("Block" or the "Company")

Operations Update

This announcement replaces RNS No 9317A which was released at 700 a.m. on Monday 27 January 2020. The heading in the seventh column of the table of test results has been amended to read "Average Total (Oil+Gas) Rate (boepd)" instead of "Average Gas Rate (boepd)". All other details remain unchanged. The full amended text is shown below:

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

Highlights

-- Multi-rate production testing is underway at well WR-38Z ("WR-38Z") following a clean-up period to stabilise the well and recover fluids lost during drilling. Peak production rates have exceeded 300 bopd and 1.5 MMCF/d of gas (equivalent to a total of more than 550 boepd).

-- With the WR-38Z test confirming West Rustavi's rich gas potential, Block is accelerating the monetisation of its gas reserves by installing a central gas processing facility for the Field and by applying for permits required to get the gas onstream during Q2 2020.

-- Drilling operations have begun at well WR-51Z ("WR-51Z"), the third of West Rustavi's wells to be horizontally sidetracked.

-- Operations at the West Rustavi appraisal well WR-16aZ ("WR-16aZ"), which was shut-in during December for the installation of improved surface test facilities, are scheduled to re-start in early February with a well intervention programme designed to add a further 100-200 boepd to the Field's production.

-- The Company is encouraged by the quality of data indicated by a preliminary review of the recently acquired 3D seismic survey of West Rustavi.

Initial results of the multi-rate production test at WR-38Z

The well has been flowing naturally since 30 November 2019, aside from a brief shut-in period between 27 December 2019 and 1 January 2020, when pressure recorders were installed in the well for the production test. The formal multi-rate test began on 3 January 2020, recording high well productivity and higher gas production rates than expected.

The production test has produced the following range of results as of 26 January 2020:

 
 Flow Time   Choke            Average     Peak Oil       Average      Average     Average         Average 
  (hours)     Size (inches)    Oil Rate    Rate (bopd)    Water-cut    Gas Rate    Total           Tubing 
                               (bopd)                     (%)          (MCF/d)     (Oil+Gas)       Pressure 
                                                                                   Rate (boepd)    (psi) 
 334         9/32"            115         202            77%          949         279             1142 
            ---------------  ----------  -------------  -----------  ----------  --------------  ---------- 
 118         10/32"           152         296            76%          1036        331             1135 
            ---------------  ----------  -------------  -----------  ----------  --------------  ---------- 
 48          11/32"           174         225            75%          1324        402             1155 
            ---------------  ----------  -------------  -----------  ----------  --------------  ---------- 
 31          12/32"           231         300            70%          1606        508             1120 
            ---------------  ----------  -------------  -----------  ----------  --------------  ---------- 
 

Wellhead flowing pressures have remained high, indicating the well's long-term flow potential. Although significant, the water cut has been stable since testing began. Analogous wells close to West Rustavi have produced for long periods: For example a vertical well located two kilometres to the north has produced for 20 years with a similar water cut. The Company expects WR-38Z, a horizontal well which has already produced more than 5500 barrels of oil, to be significantly more productive than a vertical well.

To reduce the amount of gas flared, the choke size has been reduced to a diameter of 9/32" for the remainder of the test, which is expected to continue until 31 January 2020. The well will then be shut-in to measure the pressure build-up and determine technical reservoir qualities, then put back on production at a choked-back rate of 200 boepd to conserve gas and reduce flaring while gas facilities are being installed. Once the facilities have been installed, the Company intends to flow the well at an oil production rate of approximately 150 bopd and a gas production rate of more than 1 MMCF/d (giving a combined total oil and gas rate of 322 boepd). Such rates will pay back the well cost in less than a year and so meet one of the Company's primary investment critieria for capital expenditure.

Produced water is being trucked at low cost with the oil to a nearby storage facility owned by the Georgian Oil and Gas Corporation ("GOGC") . The storage leasing agreement with GOGC provides for the disposal of the water into a state-approved injection well. No treatment is necessary prior to disposal. The Company continues to make regular oil sales to a local refinery.

Sidetracking due to begin at WR-51Z

Following the completion of workover operations, and a preliminary assessment of the the recently acquired 3D seismic survey, the contracted ZJ-40 rig has been mobilised to the WR-51 wellsite to begin sidetracking operations at a third West Rustavi well. Drilling is expected to start shortly with the milling of a window in the existing wellbore. The forecast production rate for the sidetracked well, which will be referred to as WR-51Z, is 300 boepd which, if achieved, would generate a further US$3m of revenue during the first year of production (at US$60 Brent).

Expected resumption of production at WR-16aZ

Well WR-16aZ, which was shut-in for a facilities upgrade and a workover to determine fluid entry points in the wellbore, is expected to be back on production in early February. Previously, WR-16aZ produced oil and gas at rates of 30 bopd and 150 MCF/d (equivalent to a combined oil and gas rate of 55 boepd). The Company expects to improve the well's oil production by eliminating at least some of the water production.

Acceleration of gas exploitation

The Company has engaged the services of North American oil and gas engineering consultants for the construction of an early production facility ("EPF"), which will include gas processing capability for West Rustavi. The EPF will initially collect gas from wells WR-38Z, WR-16aZ and WR-51Z, and will serve future wells drilled across the Field.

Gas sales are expected to begin in Q2 2020 in accordance with a gas sales agreement with Bago LLC ("Bago"), as announced on 30 October 2019. Under the terms of the agreement, which runs until 31 December 2022, Bago will purchase West Rustavi gas at a fixed price of US$5.24 per MCF ($185/1,000m3). Bago has also started on the installation of the pipeline infrastructure, which it is funding, necessary to connect the EPF to Georgia's gas distribution network.

The particular conditions of the Georgian energy market underline the value of gas production. The domestic gas price in Georgia is well supported due to gas being the primary source for Georgia's energy, accounting for 40% of the country's total energy use. Georgia has achieved strong economic growth over the past decade, growing at an average annual rate of 5%, and is highly dependent on gas imports from neighbouring countries. Local gas production currently accounts for less than 0.5% of annual consumption.

Interpretation of 3D seismic survey data

The Company is encouraged by the quality of the field data received from the 3D seismic survey of West Rustavi completed in December 2019. It is already informing the design of WR-51Z. The field data is currently being processed and interpreted to illuminate West Rustavi's subsurface and identify optimal locations for future drilling.

Oil and gas Black Sea exploration tender

Block welcomes the open international tender announced on 15 January 2020 by the Georgian State Agency of Oil and Gas for a license to conduct a search for oil and gas on the country's Black Sea shelf [https://bit.ly/30KcsZF]. The tender opens further opportunities for the international oil and gas sector to exploit Georgia's hydrocarbon potential and the country's stable political and economic environment. ExxonMobil and Schlumberger have already shown significant interest in the country [https://bit.ly/2TLgfVc]. Block continues to maintain excellent relationships with its Georgian partners, including Bago, GOGC and Georgia Oil and Gas Ltd ("GOG"), whose activities complement Block's. GOG is focused on advancing its deep frontier exploration plays while Block pursues shallower oil and gas development and production opportunities. GOG's principal target formations lie below Block's producing Miocene reservoir in the Norio field: the Company continues to benefit from GOG's seismic work and planning of exploration wells.

Block Energy Chief Executive Officer Paul Haywood said:

"We are glad to announce that our development programme is moving full-speed ahead on multiple fronts.

"Our extended production test of WR-38Z has allowed us to thoroughly evaluate the well's performance, and define what we consider to be stable production parameters. WR-38Z promises to be a pivotal well for Block. It has proven our capacity to produce oil and gas at a stable rate from the targeted Middle Eocene formation, and demonstrated the presence of commercial gas at West Rustavi, which our current CPR estimates has some 608 BCF of gross unrisked 2C contingent resources in a number of reservoirs including the Middle Eocene (Gustavson Associates: 1 January 2018). We are working with our Georgian partners to expedite the offtake and sale of gas from the Field. Our gas sales will help meet Georgia's strong demand for energy, to which we are already contributing through regular oil sales.

"We are also excited to announce commencement of operations on well WR-51Z, our third horizontal sidetrack within the past 12 months. We look forward to refining our strategy and programme in light of production at these three wells and the data gathered through our 3D seismic survey.

"Block is hitting the ground running as we enter 2020, implementing an ambitious programme made possible by the team's hard work and the excellent relationships we have developed with our Georgian partners at the local and national levels. Furthermore, we welcome the opportunity the Black Sea exploration tender offers for the further development of Georgia's oil and gas industry. We keenly anticipate updating our shareholders on our progress."

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:

 
 Paul Haywood                                 Block Energy Plc                  Tel: [phone] 
  (Chief Executive Officer) 
 Neil Baldwin                                 Spark Advisory Partners Limited   Tel: [phone] 
  (Nominated Adviser) 
 Peter Krens                                  Mirabaud Securities Limited       Tel: [phone] 
  (Corporate Broker) 
 Billy Clegg / Owen Roberts / Violet Wilson   Camarco                           Tel: [phone] 
  (Financial PR) 
 

Notes to editors

Block Energy is an AIM-quoted 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 designed to convert contingent resources to reserves, and reserves to revenue.

Block has a 100% working interest 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 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% working interests 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. For example when sidetracked WR-51 becomes WR-51Z.

   2.   bbls and bbl/d: barrels and barrels per day. A barrel is 35 imperial gallons. 
   3.   bopd: barrels of oil per day. 
   4.   boepd: barrels of oil equivalent per day. 
   5.   Mbbls: thousand barrels. 
   6.   MMbbls: million barrels. 
   7.   MCF and MCF/d: thousand cubic feet, thousand cubic feet per day. 
   8.   MMCF: million cubic feet. 
   9.   BCF: billion cubic feet. 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

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January 27, 2020 12:48 ET (17:48 GMT)