With next steps of development agreed, oil and gas production to restart and gas sales to be delivered is it time to back Block Energy?
“…we feel #BLOE is undervalued at the moment, especially with this transformational SRCL acquisition in place…”
Here, TMS welcomes back guest blogger and financial commentator @EliasJones01 to the platform where he shares great insight from his latest interview with Block Energy (LON:BLOE) an AIM listed exploration and production company focused on the Republic of Georgia.
Block Energy (LON: BLOE) is an AIM listed exploration and production company focused on the Republic of Georgia. The company joined AIM in June 2018 raising £5m at 4p during IPO for their stage one programme. This first stage programme focused on Norio and West Rustavi, the company subsequently raised £12m at 11p, mainly to progress its West Rustavi asset.
It’s fair to say the first two and a half years on AIM has been a rollercoaster for the company and its shareholders. The geology is certainly complex and this period sure has been a steep learning curve for the company. As we currently stand the objectives and prospects seem much more focused and within reach, with some key company developments even within this difficult year for all due to the covid pandemic…
As we enter a crucial period for the company, Elias was pleased to get the opportunity to put the following questions to the Block Energy Chief Executive Officer Paul Haywood:
Q1. In June Block Energy announced the appointment of EPI an independent geoscience and geophysical consultancy, what role will EPI play going forward, and have they been able to get started on any workstreams so far?
The current environment has led to a wealth of world-class expertise becoming available in the market. This has provided Block the opportunity to expand its technical team and significantly enhance its capability. The timing is excellent, given the data-rich assets being acquired from Schlumberger. This activity has dovetailed into the in-house team also defining new development activities in West Rustavi, driven of course, by the recently acquired 3D seismic. Our plan aims to utilise the spare well and gas production capacity at the recently commissioned Early Production Facility (“EPF”).
Additionally, Block has capitalised on the time created by Covid to analyse Block XIb’s extensive database in further detail and integrate studies by Roxar, EPI and Schlumberger to generate a more complete picture of the asset’s future potential. The team has since delivered clear strategies to access the large remaining upside in Block XIb.
Q2. A significant recent development has been the installation of the early production facility at the WR-16aZ well site and the gathering line to WR-38Z. The next key development is obviously connecting the EPF to the Bago facilities, could you explain a bit more about the actual construction work involved in the connection process?
Block has completed the installation of the EPF and construction of its gathering line, on time and on budget. We now await Bago to compete construction of its sales line. On completion, Block will immediately resume oil and gas production at West Rustavi. This is, of course, is a significant and highly anticipated milestone for the Company.
For further information, Bago’s sales pipeline is a low-pressure plastic pipeline, which will be attached to a steel flange connection located in Block’s EPF. All this means that connecting the sales pipeline to the EPF will be a relatively simple process.
Q3. How significant an event is getting the gas connection online for Block Energy and the agreement in place with Bago in terms of cashflow forecasting on a reliable source of regular income?
The connection of the gas with the Bago pipeline is extremely significant as it marks a milestone achievement for the Company, against significant headwinds throughout 2020. The gas price in Georgia is less volatile than the oil price and, therefore, we expect gas sales to provide a reliable, stable and diversified source of income for Block as we press forward with building our Company. Also, it will be better for the environment to sell the natural gas than to flare it.
Q4. Do you envisage the West Rustavi oil production also recommencing as the gas goes online?
Yes. The wells will produce a mixture of oil and gas and will not flow only oil or only gas.
Q5. How robust is the domestic market in terms of demand for the gas and oil produced in Country?
Georgia is extremely reliant on imports for its energy needs and currently imports over 95% of its current energy requirements, the majority of which is oil & gas. Block, as one of the only E&P’s operating in Georgia, is in a prime position to supply some of the country’s vast demand, with the domestic oil and gas industry having been extremely underfunded for many decades, meaning any supply has a captive market.
Q6. Back in March Block Energy announced a potential major corporate development by entering into a sale and purchase agreement to acquire Schlumberger Rustaveli Company and its key PSC’s, namely the producing Block XIB and exploration Block IX. Could you please remind us of the terms, highlights, and potential significance of this transaction for Block Energy?
In March 2020, Block entered into an agreement with Schlumberger to acquire its subsidiary SRCL, including its licence blocks XIb and IX. It represents a major milestone towards Block’s objective of becoming the leading independent oil & gas company in Georgia. Block XIb is Georgia’s most productive block, with over 180 million bbls of oil produced from the Middle Eocene, peaking at 67,000 bopd. The transaction boosts Block’s 2P oil and gas reserves by 64 million boe and initial production by approximately 200 boed. Schlumberger recently performed drilling of an appraisal well, which revealed approximately 600 BCF of initial-gas-in-place in the Lower Eocene and Upper Cretaceous. A critical component of this transaction is that it will be completed with no cash consideration. At completion, Schlumberger will hold approximately 20% of the shares in Block Energy (on a fully diluted basis), which in our view underlines their confidence in the assets and management’s ability to build value. The acquisition increases Block’s acreage by more than 40 times, a total licence area of 2,633km2. Block IX also provides significant exploration upside, and has 38 legacy wells, allowing Block to evaluate and farm out some high-risk/high-reward drilling, offering scale for potential farm-in partners.
Q7. What are the steps left to complete the Schlumberger Rustaveli Company transaction and when do you expect this process to be completed?
Some conditions necessary for completion have been fulfilled, such as the receipt of approval from the State Agency of Oil and Gas, but, owing to COVID-19 travel restrictions, an agreed shadowing period has not yet been possible. We look forward to updating the market in due course. In the meantime, our technical team continues to define, risk and rank development opportunities that will be presented to the market following the completion of the acquisition.
Q8. Block Energy has certainly been on a roller coaster since listing on AIM and I am sure the learning curve for the company has been significant in relation to its Georgian assets. As we now stand on the verge of getting the gas online and hopefully completing the Schlumberger Rustaveli Company acquisition with Block XIB and Block IX, and with the potential combined production and resource figures do you feel the current £13m market capitalisation fairly reflects the company? What aspirations does the BOD have for the company going forward?
Absolutely not, we feel the company is undervalued at the moment, especially with this transformational SRCL acquisition in place, which demonstrates management’s ability to identify, compete for and secure the right deals for its shareholders in an environment posing unprecedented challenges for the industry. Obviously, it’s a very hard time for the energy industry at the moment, and there are plenty of companies listed on AIM who would consider themselves as undervalued. We’re very excited about the next year, as we expect to have fully integrated the Schlumberger assets, agreed our next steps of development, restarted oil and gas production and delivered gas sales.
Q9. Finally, Paul, thanks for your time in answering the questions, before we finish, investors really appreciate the twitter updates Block Energy has been putting out with operations and site photos and industry links, can we please have more of these going forward and especially to visualise the new developments?
Of course, we really value the use of social media as a way of communicating with our investors and will be taking advantage of it to showcase Block XIb and Block IX when we can.
Thanks, Paul for taking the time to discuss the various business aspects and for sharing your thoughts.
Time to start building a stake in Block? “…With a share price that has stabilised at levels around 2.5p Block is still one to consider for investors interested in gaining exposure to the growing energy markets of the Caucasus region…”
Listen to Chief Executive Paul Haywood tell Sarah Lowther how two critical milestones will be achieved by the end of this year, the relationship between the UK company and Georgia’s ruling party and Block’s outstanding cash management.
The contributor did not get remunerated for this article but may hold shares in the above named company
