One to Watch: Block Energy

Sunday, Feb 17 2019 by
3

Block Energy (LON:BLOE) is an AIM listed exploration and production company focused on the Republic of Georgia.

Block Energy joined AIM in June 2018 raising £5m at 4p during IPO for their stage one programme which is currently underway, comprising of multi-well workover and sidetrack programme at their Norio field targeting an increase in production to 250 bopd by H1 2019. In tandem with the Norio operations Block Energy have a potentially high impact programme at West Rustavi, where they are aiming to produce 650 bopd through the drilling of two sidetrack wells in Q1 2019, and to re-test a historic gas discovery (1).

As it stands now 9 months since IPO the company and CEO are clearly focused and determined and so far doing what they said they will, the next 4 months to end of H1 will tell us a lot whether this company will be a hit or a miss. The next few updates from Norio and West Rustavi will give us a good indication as to how realistic the H1 900bopd target is (2). As it is now pre-results and at IPO level, as early stage investors we take the risk. To counter this risk the work programme is clearly not targeting 'wild cat' wells and we can take confidence from previous field history and tests to date, also taking confidence from seeing ExxonMobil recently entering the country and ongoing operations across Schlumberger's 100% owned position next to Block Energy licences. 

Let’s see in 4 months’ time what the share price will be, if Block Energy do hit the target production of 900 bopd on this fully funded programme in H1 then it will be considerably higher than today’s current £10m Market Cap at the IPO level.

I recently put the following questions to the Block Energy Chief Executive Officer Mr Paul Haywood:

Q1. Briefly, could you provide the background to Block Energy and why the focus on Georgia?

Before establishing Block Energy the executive team had accumulated significant experience working in Georgia: I had worked as a consultant for Georgian Oil and Gas (GOG) since 2011.

In 2016/17 GOG was in financial difficulty and was seeking cash for assets to remedy corporate debt. Our relationship with GOG helped facilitate a timely acquisition facilitated by a unique situation.

Block Energy 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.

Q2. Could you briefly explain the Satskhenisi project and your plans for it?

The Satskhenesi project will be implemented depending on the success of the Norio work programme. Essentially, Satskhenesi is inbuilt upside to Norio and available for farmout. The intrinsic value will increase exponentially depending on success at Norio.

Q3. What’s the current situation from the Norio field?

Initial results from Norio have been encouraging as per our recent press release (3), though the real test will be how the wells perform once on pump.

This will allow the company a firmer understanding of the productivity of the relevant wells. The pumps are currently being set in Norio wells 44 and 39. Subject to results the company will press ahead with its workover plan.

Q4. Can you explain a bit about the West Rustavi licence, and what activity can be expected?

West Rustavi is immediately south of the largest producing field in Georgia (Block XIb) owned 100% by Schlumberger, who are currently drilling and testing a structure in the permit that is on trend with Block appraisal targets in West Rustavi.

In December more than 200 barrels of oil were recovered from the legacy vertical well 16a at West Rustavi permit during a 10 hour flow period. An additional 300 barrels of light oil flowed to a temporary wellsite production facility over the following days. The results of the test confirm the well lies in an active hydrocarbon system and that the previously producing Middle Eocene reservoir still contains reserves and remains pressurised (4).

Block’s immediate plans for West Rustavi is to re-enter well 16a which was previously producing and perform a 100 metre sidetrack in the Middle Eocene, expecting to spud very soon.

Following the results in West Rustavi 16a, the Company plans to move its rig across to 38 and perform another side track. After this work, the plan is re-test a significant gas discovery at well number 30.

West Rustavi is the Company’s flagship licence and offers significant vertical opportunity for both oil and gas. Oil is in the shallower zones above 2500 metres and gas deeper down below 2500 metres.

Q5. Can you explain a bit about the legacy gas discovery in the Lower Eocene and your plans for this?

In tandem with the sidetrack programme at West Rustavi, the Company is planning to workover two of the field's other wells in order to test the potential of the Lower Eocene gas zones, which hold an estimated 606 BCF of gross 2C contingent gas resources. Previous well tests achieved rates of up to 0.9 MMCF/d from the Lower Eocene and 1.6 MMCF/d from the Upper Cretaceous. Subject to the results of the tests, the Company plans to swiftly finalise a field development plan and gas sales contracts, and to install gas production infrastructure.

Q6. With regards to the activity at Norio and West Rustavi, roughly what process do you need to follow and how soon can any potential finds be converted into cash flow?

We are currently producing circa 20 bopd at Norio, and the infrastructure necessary to service production increase from Norio and West Rustavi is in place. Any production increase will immediately feed into current infrastructure for selling. Substantial work has been done to bring the production facility to industry standard.

We currently sell our crude at Brent minus US $10 to a domestic refinery which has capacity to acquire up to 2,500 bopd from Block. Should we exceed these levels the Company will seek to tie back into the BP line, which is also available to us at 2,500 bopd - and much more. This line is close to both West Rustavi and Norio.

Q7. Having raised £5m at the IPO in June at 4p, what do you make of the market sentiment relating to Block Energy and do you feel the current share price of around 3p is a fair reflection of where the company is at?

We believe we are significantly undervalued relative to our peers. This is primarily for two reasons: the value for oil companies through 2018 has been soft for many reasons; and the market’s perception of Georgia has been distorted due to the poor corporate governance and performance of some companies in the past.

Confidence in Block is now starting to rise, indicated by the increase in our trading activity and the number of investor meetings being requested.

Q. What can Block Energy shareholders look forward to over the next 12 months?

Lots of activity in the field. We expect good results to bolster confidence that will unlock value for our shareholders.


Thanks Paul for taking the time to discuss the various business aspects and for sharing your thoughts.


Ticker code: BLOE, Shares in issue: 259.05m, Current SP: 4.05p, Market Cap: £10.49m, 52 Wk Low: 2.55p, 52 Wk High: 4.30p


The interviewer holds shares in Block Energy (LON:BLOE)



References

(1) AGM Statement
https://www.londonstockexchang...

(2) Block Energy – CEO Interview 11 February Total Market Solutions
https://total-market-solutions...

(3) Excellent initial production results from Norio field
https://www.londonstockexchang...

(4) Positive Flow and Pressure Test Results at West Rustavi field, Georgia, and Board and Other Management Changes
https://www.londonstockexchang...



O&G Risk
As always, when looking at oil and gas exploration activity the risk element is high, and a dry or non-commercial well almost certainly results in a severe share price drop. Oil and gas exploration activity is also very costly business, hence the future economic outlook and the ability of companies to raise future funds also needs serious consideration, alongside factors such as oil/gas price risk, political risk etc.


Disclaimer:  

This content has been created for information purposes only, and is NOT, in any way, a recommendation to invest.  This communication is a snapshot of a certain aspect of a discussed business at a moment in time, and is merely a basic starting point for research.  The article/thread has been created with honesty and integrity in mind and is based on publically available information sourced in relation to the title, such as from, RNS announcements, published reports, management comments, analyst reports, media coverage etc.  To this extent the author who has written the piece in good faith accepts no liability for the accuracy of the information and urges all readers to verify the content independently.  Please note that the value of investments may fall or rise and you may not get back the amount originally invested, or in some cases your investment may be wiped off altogether.  When investing, bear in mind that past performance is not a guide to future performance and that qualified independent financial advice should be sought before buying or selling shares.  The Author of this article may hold shares in the companies discussed.


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Block Energy plc, formerly Goldcrest Resources plc, is an oil and gas company. The Company’s projects include norio onshore oil field, east kavtiskhevi (block VIII), akoko asheba gold project and Mauritania copper. Norio project is 35 kilometres from the centre of Tbilisi, requiring low capex recompletions of existing wells and new horizontal wells, to existing production. East kavtiskhevi (block VIII), which consist 36.9 MMbbl risked resources in Cretaceous, 4,700 kilometers area and multiple prospective horizons. Asheba project is located at the southern end of the Ashanti belt 15km east of Endeavour Mining's Nzema mine and 30 kilometers south of the world class Tarkwa mine. At Asheba, mineralisation is centered on the old Cheriamen and Atinasi mining sites within multiple parallel steep dipping zones associated with intense silicification, disseminated pyrite and a stockwork of quart veinlets. Mauritania project is an exploration concept. more »

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