TIDMBLOE
RNS Number : 6827H
Block Energy PLC
26 March 2020
26 March 2020
Block Energy Plc
("Block" or the "Company")
MAJOR ACQUISITION OF TWO ADJACENT BLOCKS FROM SCHLUMBERGER
Block Energy Plc, the exploration and production company focused
on Georgia, is pleased to announce that it has entered into a sale
and purchase agreement ("SPA") with Schlumberger B.V.
("Schlumberger") to acquire its subsidiary Schlumberger Rustaveli
Company Limited ("SRCL")("the Acquisition"). Of the three
production sharing contracts ("PSCs") currently held by SRCL in
Georgia, the Company will acquire producing Block XI(B) and
exploration Block IX. It is agreed that Schlumberger will apply to
relinquish Block X.
The Acquisition significantly increases Block's access to
production, reserves and resources. It represents a major milestone
towards the Company's objective of becoming the leading independent
oil and gas producer in Georgia. Completion of the Acquisition is
conditional upon regulatory approvals in Georgia and the United
Kingdom.
Highlights
-- No cash consideration. Instead, options over Block's share
capital for the Acquisition conserves the Company's cash
reserves.
-- Acquisition of producing Block XI(B) (615 km(2) ) and
exploration Block IX (1,925 km(2) ). Block XI(B) is Georgia's most
productive block, with over 180 million bbls of oil produced from
the Middle Eocene, peaking in the mid-1980s at 67,000 bopd.
-- Boosts 2P reserves of oil and gas by 64 million boe and initial production by 245 bopd.
-- Offers approximately 600 BCF of initial-gas-in-place in the
Lower Eocene and Upper Cretaceous, following Schlumberger's recent
appraisal drilling.
-- Increases 2C contingent resources by 29 million boe and
offers significant upside potential of 245 million boe of
prospective resources.
-- SRCL has a cost recovery pool of around US$133 million on Block XI(B) .
-- Includes oilfield materials inventory of US$1.5 million in value, estimated by Block.
-- Includes central production facility with storage for 36,000
barrels of oil, a workshop, a laboratory, and a compound with an
office and warehouse.
-- The new permits share synergies with Block's existing operations.
-- Minimum work programme fully fulfilled on Block XI(B) and Block IX.
-- A term of 14 years remaining on both permits with possible extensions of five years.
Block Energy Chief Executive Officer Paul Haywood said:
"We are extremely pleased to announce the acquisition of the
PSCs for Block IX and Block XI(B) in Georgia from Schlumberger. The
Acquisition is transformational for Block Energy, providing the
Company scale and increased production, reserves and resources. A
critical component of this transaction is that it will be completed
with no cash consideration, using options on our own share capital.
The Acquisition 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. We
have posted a short presentation on our website
www.blockenergy.co.uk and look forward to completing the deal and
updating the market further with a work programme for the enhanced
integrated portfolio."
Rationale for the Acquisition
The Acquisition from Schlumberger represents a significant step
in scale for Block Energy, increasing its acreage by over 30 times.
Once completed, the Acquisition will immediately boost production
by 245 bopd, 2P reserves of oil and gas by 64 million boe, 2C
contingent resources by 29 million boe and add significant upside
potential of 245 million boe of prospective resources. Block will
have total licence area of 2,622 km(2) , giving it a material
position in Georgia's oil and gas fairway.
Block XI(B) has a cost recovery pool of US$103 million, which
has been approved by the state, plus an additional US$30 million
expenditure during 2019 subject to state audit. Block XI(B) is
producing from the Middle Eocene, the same geological horizon as
targeted in West Rustavi. However, with its greater reservoir
thickness and area it offers far larger potential.
The Company has prepared an exploitation plan for the new assets
and when integrated with Block's existing operations, the acquired
assets will bestow significant operational synergies that will
enhance the Company's operational ability and efficiency.
Block XI(B) PSC
Block XI(B) covers 615 km(2) and is the largest ever-producing
asset in Georgia with over 180 million bbls of oil produced. It is
located in the Kura Basin and is charged by a well-proven petroleum
system. Production to date has been predominantly from the Middle
Eocene. Only four wells have been drilled since 2009, three drilled
pre-2017 by a former licensee and one, PAT-E1, in 2018/2019 by
Schlumberger. Schlumberger's focus was appraisal of the natural gas
in the Lower Eocene and Upper Cretaceous.
Block XI(B) benefits from 3D and 2D seismic coverage. The 3D
seismic was recently reprocessed by WesternGeco and will be merged
with that acquired by Block over West Rustavi in 2019. The
Company's interpretation and understanding of the merged set will
use production data and vintage and modern well logging information
gained from the 233 wells on the block. The PSC has no remaining
capital expenditure obligations and a remaining term of 14 years
extendable by five years. The approved cost recovery pool at 31
December 2018 was US$103 million with a further US$30 million of
expenditure incurred during 2019 to be added, subject to audit by
the state. The PSC has attractive fiscal terms especially in the
current cost recovery phase. We are inheriting an appraisal and
development plan targeting gas initially-in-place of approximately
600 BCF, following the drilling and testing of a deep appraisal
well completed by Schlumberger in 2019.
A state-owned underground gas storage project is located within
the boundaries of Block XI(B) and is in close proximity to the 600
BCF structure recently appraised by Schlumberger. The
Baku-Tbilisi-Ceyhan pipeline ("BTC") and South Caucasus Pipeline
("SCP") pass through Block XI(B) .
Block IX PSC
Exploration Block IX has an area of 1,925 km(2) and is covered
with 454 km of 2D seismic acquired in 2010 and 960 km of vintage 2D
seismic. Block IX has 38 legacy wells, with two wells drilled in
2013 having oil and gas shows. There are several oil seeps in the
block and numerous prospects and leads with hydrocarbon indicators
identified on 2D. The addition of Block IX creates a balanced
portfolio of significant exploration upside. Block IX allows the
Company the option to evaluate and farm out some
high-risk/high-reward drilling, offering scale for potential
farm-in partners.
Terms of the Acquisition
Consideration for the Acquisition will be satisfied by the issue
of share options ("Options") that will give Schlumberger the right
to acquire 120 million 0.25p ordinary shares, representing 23.3% of
Block's enlarged ordinary share capital, at a nil exercise price
("Base Options"). SRCL is being acquired on a debt-free, cash-free
basis. If it is determined that SRCL has net working capital assets
following completion, Block will issue up to 10 million additional
Options to Schlumberger. For this purpose, it is agreed that the
Options are valued at US$0.05 each. This imputes a value to the
Base Options of US$6 million. The agreed value of the Options
represents a premium of 92% to the closing price of Block shares on
25 March 2020 of 2.2 pence. The Options are exercisable between 12
and 24 months from completion of the transaction, unless there is a
change of control or general offer in respect of the Company, in
which case they are exercisable immediately.
Completion of the Acquisition is subject to the fulfilment of
the following conditions precedent within six months from the date
Georgia's borders are reopened:
-- Regulatory approvals being obtained in Georgia and the United Kingdom;
-- No catastrophic event occurring prior to completion in
relation to the assets that would constitute a material adverse
change; and
-- Completion of the audit of SRCL's accounts for the year ended 31 December 2019.
Prior to completion occurring, Block will coordinate with
Schlumberger in order to ensure the smooth operation of the assets
in the interim period and to exercise operational oversight. A
further announcement will be made upon completion.
Financial Results of Schlumberger Rustaveli Company Limited
SRCL's unaudited accounts for the year ended 31 December 2019
showed net assets of US$4.1 million and a net loss of US$16.6
million. There was no revenue in 2019, because produced oil was
delivered to the state to fulfil legacy contractual obligations.
Prior to completion of the Acquisition, it is agreed in the SPA
that the accounts will additionally include an impairment to assets
reflecting a minimal book value.
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: +44 (0)20 3980 6250
(Chief Executive Officer)
Neil Baldwin Spark Advisory Partners Limited Tel: +44 (0)20 3368 3554
(Nominated Adviser)
Peter Krens Mirabaud Securities Limited Tel: +44 (0)20 3167 7221
(Corporate Broker)
Billy Clegg / Owen Roberts / Violet Wilson Camarco Tel: +44 (0)20 3757 4980
(Financial PR)
Notes to editors
Block Energy is an AIM-listed independent oil and gas company
focused on production and development in Georgia, applying
innovative technology to realise the full potential of previously
discovered fields.
Glossary
1. bbls: barrels. A barrel is 35 imperial gallons.
2. boe: barrels of oil equivalent
3. bopd: barrels of oil per day.
4. BCF: billion cubic feet.
5. Cost recovery: the method by which the costs and the expenses
suffered by the contractor for oil and gas operations, including
exploration costs, appraisal costs, development costs, operations
costs, financial costs, and which are eligible to be recovered
through are recovered in accordance with the terms of the
production sharing contract.
6. Production sharing contract: a common type of contract signed
between a government and an oil and gas extraction company
concerning how much of the oil and gas extracted from the country
each party will receive.
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of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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