Block Energy’s Haywood on his ambitious plans in Georgia following transformational West Rustavi results
Significant developments at the West Rustavi field in Georgia have prompted a significant rise in its owner Block Energy’s share price this year. Indeed, the business currently sits at 13.4p a share with a £42.7m market cap from 3.9p a share at the beginning of April
With gross oil reserves of 0.9MMbbls, gross contingent oil resources of 38MMbbls, and gross contingent gas resources of 608bcf, West Rustavi could continue to be a powerful force for Block moving forward. Here, chief executive Paul Haywood explains how the company plans to use the proceeds of its recent £12m fundraise to realise the field’s full potential.
Block’s first major step forward at West Rustavi came in February when the business announced that it had secured an agreement to take its working interest in the asset from 25pc to 100pc. The deal, signed with the field’s current owner Georgian Oil & Gas (GOG), replaced a former earn-in deal signed in 2017 that gave Block the option to acquire up to 75pc in the asset.
The agreement is structured in three stages. The first of these has already completed and increased Block’s position in West Rustavi to 71.5pc in exchange for a $250,000 cash payment to GOG and a further $500,000 payment within 30 days. GOG must use these proceeds to subscribe for Block shares.
The second stage of the deal will increase Block’s stake in West Rustavi to 90pc in exchange for a further $250,000 cash payment to GOG. Finally, stage three will give Block a 100pc position in the asset in exchange for a $500,000 cash payment to GOG. Once again, GOG must use this money to subscribe for shares in Block.
As well as eventually giving Block complete strategic control over West Rustavi, Haywood tells us that the amended deal also highlights GOG’s confidence in his company’s abilities.
‘[The deal] is heavily weighted towards equity in Block, testifying to the confidence of our major Georgian shareholder Georgia Oil and Gas (GOG) in our ability to develop the licence,’ he adds.
Block’s second significant milestone at West Rustavi came at the beginning of April when it announced that production testing at well 16aZ on the field had delivered an average test flow rate of 1,100bopd. This exceeded Block’s 325bopd target production rate by more than three times and led shares in the business to surge by more than 75pc in just one session.
‘The test indicated an initial performance better than any well drilled in Georgia in the last 50 years, including the horizontal sidetracks drilled by local operators in the late 1990s and early 2000s in the Ninotsminda field, near to and analogous with West Rustavi,’ Haywood tells us.
The company enjoyed yet another major boost later in April when it announced that 16aZ’s impressive production rates had continued. It added that it had also negotiated terms on additional storage facilities to accommodate the better-than-expected out, and was looking at new oil sales contracts with local and international purchasers.
Finally, the firm added that associated gas production from 16aZ will be sold to Bago – one Georgia’s largest private gas suppliers and purchasers. Bago will acquire the total amount of gas produced from West Rustavi and will fully finance all gas infrastructure the field requires.
Earlier this month, Block announced plans to accelerate its development strategy for West Rustavi in response to April’s progress. To support the completion of a new work programme at the asset, it raised around £12m by placing shares at 11p each, a discount of around 15.7pc to its closing price in the previous day’s trading. Haywood tells us that Block’s decision to carry out the placing came in response to a period of heightened interest in West Rustavi following 16aZ’s encouraging results.
‘Since we announced the test results at well 16aZ we have been contacted by oil companies throughout the region interested in discussing business in Georgia,’ he says. ‘We, therefore, acted decisively to accelerate our ambitions for West Rustavi, for Block Energy, and for our supporters, and have secured an injection of new funds to allow us to undertake a comprehensive survey of the extent of the field’s resources and implement a rigorous work programme.’
Aside from West Rustavi, Haywood adds that the cash will give Block the money required to explore new opportunities elsewhere in Georgia, and even in other jurisdictions:
‘We are a young, flexible and ambitious oil and gas producer keen to develop West Rustavi’s potential to allow us to grow and secure ever-increasing value for our supporters. We had high ambitions when we launched on AIM last June: the fundraise allows us to expand our horizons even more quickly than we had hoped.’
Returning to West Rustavi, Block’s work programme will see it drill horizontal sidetracks at three wells analogous to 16aZ to scale up oil production and fund future capital programmes. It will also expand production facilities to increase capacity to 4,000-5,000bopd and acquire 3D seismic to enrich its understanding of the field’s existing oil and gas discoveries and pinpoint new drilling locations.
Finally, the organisation will appraise two existing gas discoveries and drill one new well targeting gross contingent 2C resources of 608bcf. Haywood tells us that this work is expected to take 12 months and push Block’s production to around 1,500-2,000bopd.
‘A rate of 1500 bopd would generate up to US$1.7m of free cashflow a month at US$65/bbl Brent,’ he adds. ‘The programme’s longer-term aim is an oil production rate of 8,000 bopd and daily gas production rate of 15 MCF, which would open a combined free cashflow to the company of around US$25m.’
Finally, Haywood says that work will also continue at Block two other fields – Norio and Satskhenisi – as West Rustavi progresses.
‘We will continue our ongoing workover programme at Norio, and have scheduled the field’s well 60 for sidetracking later this year,’ he says. ‘Increased production rates across our Norio licence have moved the combined current production rate at Norio and Satskhenisi to approximately 40 bopd, up from an initial rate of approximately 10 bopd. The increased production rate testifies to the value of the specialist micro-drilling tool we handpicked as being particularly suitable for conditions in Georgia.’
CEO Paul Haywood recently spoke to Andrew Scott of proactive investors here
TMS Bonnie Hughes caught up with Pauly Haywood in February 2019 below