Block Energy Announces Q1 Operational Update

  • Apr 07, 2021
  • Gulf Oil & Gas

Block Energy plc, the development and production company focused on Georgia, is pleased to announce an operational update and to provide its 2021 objectives and drilling programme. Block is currently producing at a production rate across all the Company's licences (excluding WR-16aZ well, which is undergoing intervention) of 555 boepd (30-day average).

Highlights

- 2021 objectives set, including drilling two wells, each targeting 600 boepd

- The first well at the WR-BA well site is expected to spud in May/June 2021. The second well's location and timing will be finalised based on the learnings from the WR-BA well

- ZJ-40 drilling rig hired and rig inspection completed confirming rig readiness

- Company-wide well intervention programme initiated, including WR-16aZ and various Block XIB wells

- Produced a combined total of 44,394 boe of oil and gas during 1Q 2021

- Sold 26.3 Mbbls of oil during 1Q 2021 for $1.37m, resulting in a weighted average price of $52/bbl

- Commenced gas sales on 15 February 2021 and sold 38.4 MMcf of gas during 1Q 2021 for $125k, resulting in a weighted average price of $3.26/Mcf

- Integration of Block Rustaveli Limited ("BRL") is substantially completed with all 120 employees of the enlarged Company in Georgia located at the newly renovated Lilo base

- Intervention campaign on wells in BRL's Block XIB is bearing positive initial results

- The Company has a strong liquidity position with $6.8 million cash at bank

2021 Objectives

Following the fund raise in December 2020, the expanded Board set the key objectives for 2021 in relation to Block's operations. First and foremost, a key focus for the Company is to continue to operate safely with no major incidents (manhours of operations currently stand at 92,056 for 2021 to date). By the end of the year, Block aims to drill two wells, each targeting initial production of 600 boepd, and spud a third well, whilst continuing to apply strict capital discipline and drive efficiencies, both corporately and operationally.

Drilling Programme

As part of building its in-house operational capability, Block recently welcomed Andrew Moncur as its new Drilling Manager. After starting in the North Sea with a variety of operators, Andrew has spent the last 22 years managing drilling operations in the Middle East, Caspian and the former FSU. Andrew's specific experience lies in Enhanced Oil Recovery and re-entry drilling campaigns. He supervised Georgia's first horizontal wells in the Ninotsminda field, which resulted in a significant increase in oil and gas production. The Ninotsminda field remains an important analogue for the Company's drilling plans going forward.

Andrew has built a strong, experienced team, drawing on expertise from around the region, including Georgia, and focusing it on wellbore construction success and quality. Block's new team of selected in-house specialists can deliver operations with technical expertise in a range of disciplines, including well design, construction, intervention, integrity, life extension and will look to execute effectively focussing on HSE and service quality.

After substantial analysis and research of the opportunities now available to the Company, Block will commence its 2021 drilling programme with a new horizontal well in West Rustavi, at WR-BA location. This will be the first horizontal well to be designed using the recent 3D-seismic survey. The well will target the top of the Middle Eocene reservoir and the horizontal section will be completed with an uncemented slotted liner. The well location is close to the Early Production Facility, installed by the Company in West Rustavi, meaning its tie-in will be low cost and fast. If successful, Block has identified a number of options for the second well in its work programme but will await results from the well at WR-BA before making a final decision. In the success case with the well at WR-BA, Block Energy will progress with the drilling of a well at WR-BB location, which would access a further volume of oil and gas in the West Rustavi Middle Eocene core area. Additional locations for further drilling in this area have also been worked up.

Before securing a third lease contract for the ZJ-40 drilling rig, Block had it inspected to the American Petroleum Institute Recommended Practice 4G Category IV standard, confirming its readiness to drill. Furthermore, owing to the increased scale of operations, the Company has enhanced its procurement process for goods and services, enabling Block to assess service quality, technical qualifications and commercial bids, thus ensuring a robust supply chain and competitive pricing across the planned drilling programme.

Workover Programme

The Company's first appraisal well, WR-16aZ, is suspended and is currently undergoing an intervention. Once the intervention has been completed, the results will be announced.

Elsewhere, the Company continues to execute a low-cost workover programme in its newly acquired Block XIB oil fields. So far, extra production has been gained, more than offsetting the natural decline of the production in Block XIB.

Oil & Gas Production

Wells WR-38Z and WR-16aZ were returned to production on 28 January 2021 and 3 February 2021 respectively. During 1Q 2021, the Company produced total of 29.8 Mbbls of oil and 14.6 Mboe of gas, resulting in a combined total of 44.4 Mboe of oil and gas. The average production rate for February and March 2021, after WR-38Z had commenced production but excluding WR-16aZ (as the well is currently suspended), was 573 boepd. This rate of production generates sufficient revenue, at current oil and gas prices, to cover over 95% of operating and administration costs and therefore preserve almost all of the Company's existing cash for new wells and facilities.

Oil Sales

During 1Q 2021, the Company sold 26.3 Mbbls of oil for $1.37m, resulting in a weighted average price of approximately $52 per barrel. The oil sales include sales of some of the inventory from the Block Rustaveli Limited acquisition. Since the acquisition on 23 November 2020, Block has sold 30,603 bbls of processed Block XIB crude oil, netting $1.54 million, effectively reducing the cost to the Company of acquiring Blocks XIB and IX by a significant amount and providing a cash injection to the Company's balance sheet.

Gas Sales

During 1Q 2021, the Company achieved its first gas sales. For the period from 15 February 2021 to 31 March 2021, it sold 38.4 MMcf of gas for $125k, resulting in a weighted average price of $3.26/Mcf. The price of the gas sold is at a fixed discount to the price of the last tender completed by the Georgian Oil and Gas Corporation ("GOGC")9 for the sale of its gas, as provided in a revised Gas Sales Agreement signed with the buyer of the gas, Bago LLC, in May 2020.

Cash Position

As of 31 March 2021, the Company had $6.8m cash at bank.

Block Rustaveli Limited Integration

Following the acquisition of BRL in November 2020, 55% of the staff were retained and their successful integration into the Block workforce has been completed. Block has renovated the base at Lilo, which is located in the middle of Block XIB, and has moved the original Block staff from its office in Tbilisi to the Lilo base, resulting in all 120 of Block's employees being based together in a single location. This co-location of staff is facilitating a more collaborative and productive working environment and is more cost-effective for the Company.

Block Energy plc's Chief Executive Officer, Paul Haywood, said:

"I am very pleased to be able to announce a definitive set of objectives that Block has set itself for the year, along with detail of the drilling plans formulated to achieve these objectives. The strengthening of Block's drilling team and the objectives set by the Board has taken the Company's potential to the next level and I look forward to kicking off our 2021 drilling programme in May. We have several options to pursue in the West Rustavi licence, each targeting approximately 600 boepd, and have significant remaining reserves to access in Block XIB.

We enter the drilling campaign with a healthy balance sheet, as our cash and ongoing oil and gas sales means we can plan a sustainable growth strategy for the Company. 2021 will be a busy year for the Company and Block is better positioned than ever to meet shareholders' high expectations."