TIDMBLOE
RNS Number : 0293J
Block Energy PLC
07 April 2020
7 April 2020
Block Energy Plc
("Block Energy" or the "Company")
Operations Update
Block Energy Plc, the exploration and production company focused
on Georgia, announces an Operations Update including actions taken
following the Covid-19 outbreak.
Highlights
-- Implementation of major cost-cutting measures targetted at 40% of cash expenditure.
-- At 6 April 2020, cash balance of US$3.4 million and net crude
oil inventory valued at US$470,000.
-- Early production facility, including a gas processing unit, currently in transit to Georgia.
-- Shut-in of the West Rustavi field's production at wells
WR-16aZ and WR-38Z to conserve valuable gas resources until the gas
sales pipeline is complete later this year.
-- Prior to shut-in, West Rustavi field production remained
stable at a choked-back rate of 325 boepd (155 bopd and 1MMCF/d
gas).
-- Early results from fully-migrated 3D seismic processing are
beginning to provide insight into the full potential of the West
Rustavi XI(F) licence area.
-- Abandonment of WR-51Z due to the poor condition of the original well.
Block Energy reduces its operating and administration cost
base
The safety and health of the workforce at Block Energy is a
priority and the Company has put significant thought into ensuring
the business continues to be run both safely and sustainably. Given
the low oil price and the restrictions imposed in the UK and
Georgia in response to Covid-19, the Company has postponed all new
capital expenditure and has reduced the monthly cash burn in
Georgia by 40% from US$107,000 to US$64,000 through a combination
of cost-cutting and deferral of operating and administration
expenses. Deferred salaries will be paid on receipt of proceeds
from oil sales at or above US$40 per barrel Brent price.
In the UK, directors and employees have agreed a scheme in
which, with effect from 1 April 2020, 40% of their salaries will be
paid in nil-cost options to acquire ordinary shares in the Company,
reducing monthly cash salary costs from GBP43,000 to GBP26,000.
Options will be priced at a VWAP over the monthly salary period and
the first options are expected to be based on the VWAP for the
month of April and issued in early May 2020. As at 6 April 2020,
the Company's cash balance was US$3.4 million.
West Rustavi Early Production Facility
The Company has purchased, from a supplier in Canada, an early
production facility ("EPF") which has a total capacity of
approximately 3MMCF/d, providing for the addition of future Middle
and Lower Eocene gas production.
The EPF comprises an inlet manifold for six wells, separators,
and a gas dehydration and measuring unit. Gas sales are now
forecast to commence H2 2020, once the EPF is installed, the two
wells are tied into the inlet manifold and Bago completes its gas
sales pipeline. In the contract between the Company and Bago, the
price for gas sales is US$5.24/MCF. At current flow rates, this
will provide net revenue from gas sales of US$120,000 per
month.
The EPF project represents our first step in converting
contingent gas resources to reserves and reserves to production,
monetising up to 600 BCF of 2C gross contingent gas resources, as
identified in our independent Competent Persons Report. It will
also give the Company valuable experience in marketing gas in
Georgia, which it can apply to the 169 BCF of gross 2P gas reserves
in the XI(B) licence.
Production update
Whilst crude oil prices remain low, the Company will suspend
production from WR-38Z and WR-16aZ, which have proved to have high
gas-to-oil ratios. This will conserve valuable gas resources until
gas sales commence. The two wells have been flowing at a stable
combined rate of 325 boepd (155 bopd and 1MMCF/d gas), breaking
even at a Brent price of US$24/bbl on oil sales alone.
Depending on the oil price, the Company will continue to produce
and, if necessary, store oil from its Norio and Satskhenisi
licences, as the quantity of gas produced from these fields is
small.
Prior to Covid-19, the Company had achieved regular oil sales,
and remains in regular dialogue with additional buyers, including
oil majors. These buyers remain supportive of the Company's
enhanced development plans. Currently, Block Energy's net crude oil
inventory is 18,000 bbls, which is valued at US$470,000 at a Brent
price of US$35/bbl, and ready for sale when the Brent price
improves.
Abandonment of drilling operations at WR-51Z
The Company has aborted drilling operations at the WR-51Z site
owing to the discovery of poor existing well conditions. Legacy
wellbore integrity issues are an inherent risk with re-entry
operations and the occasional abandonment is to be expected. The
Company is currently ranking and risking two additional re-entry
candidates in West Rustavi and potentially a further 14 in Block
XI(B) .
Update on West Rustavi 3D seismic
Processing of the 3D seismic data, which was acquired over the
entire West Rustavi XI(F) permit, is nearly complete. Preliminary
results exhibit good subsurface imaging of the main producing and
prospective formations in the permit.
The West Rustavi 3D seismic data extends over the existing 3D
data set of 400 km(2) within the Rustavi XI(B) permit. The overlap
will aid in integrating the interpretation of the 3D datasets for
both permits, resulting in a better 3D image of the subsurface
structures across the region and the ability to identify and
high-grade the optimal placing for new horizontal completions. The
Company looks forward to updating the market on this
initiative.
Acquisition of Blocks XI(B) and IX
Subsequent to the recently-announced acquisition of Blocks XI(B)
and IX, as mentioned above, the Company is evaluating re-entry
opportunities in Block XI(B) oil wells. We are also considering the
potential of re-entering the recent deep Pat E-1 gas well in order
to side track and complete a horizontal section in one of the Lower
Eocene gas zones appraised and tested during 2018/2019.
Gas price and demand remain strong in Georgia. Based on the well
results at Pat E-1, the estimated initial-gas-in-place is
approximately 600 BCF for the structures penetrated by this well.
Drilling a horizontal hole in the best zone has the potential of
changing these resources into reserves, ready for production.
The shallower Middle and Upper Eocene formations, from which 91
BCF of gas was flared in Soviet times, offer further upside to gas
development throughout Block XI(B) .
Block Energy Chief Executive Officer Paul Haywood said:
"These are unprecedented times for the global economy, in
general, and the oil and gas sector, in particular. We have to
navigate our business through a new environment of low oil prices,
a slowing wider economy and countrywide lock-downs.
With the implementation of the measures announced today, we have
made our business significantly more sustainable, as well as
conserving our hydrocarbon assets for the future. While the
abandonment of WR-51Z is clearly a disappointment, the decision
taken by management is the right one. There are inherent risks when
re-entering old well bores which demand a disciplined approach to
cash management.
Safety of our staff remains paramount in the current situation.
I'd like to thank all stakeholders for their continued support. We
look forward to providing further updates as we progress our
acqusisition of Blocks XI(B) and IX and approach gas sales.
In conclusion, your Company continues to work tirelessly on
completing the purchase from Schlumberger. With a determination to
achieve first gas sales and the preparation of a comprehensive
exploitation plan, leaving it well positioned as the Covid-19
crisis subsides and oil prices recover".
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.
The Company has a 100% working interest in the highly
prospective West Rustavi onshore oil and gas field with multiple
wells that have tested oil and gas from a range of geological
horizons. The Field has so far produced 50 Mbbls of light sweet
crude, and has 0.9 MMbbls of gross 2P oil reserves in the Middle
Eocene. It also has 38 MMbbls of gross 2C contingent resources of
oil and 608 BCF of gross unrisked 2C contingent resources of gas in
the Middle, Upper and Lower Eocene formations (Source: CPR
Gustavson Associates: 1 January 2018).
Block Energy also holds 100% and 90% working interests in the
onshore oil producing Norio and Satskhenisi fields. It has recently
entered into a Sale and Purchase Agreement for Georgian onshore
Blocks XI(B) and IX.
The Company offers a clear entry point for investors to gain
exposure to Georgia's growing economy and the strong regional
demand for oil and gas.
Glossary
1. Block Energy is using the suffix 'Z' in a well number to indicate a horizontal sidetrack.
2. bbls and bbl/d: barrels and barrels per day. A barrel is 35 imperial gallons.
3. bopd: barrels of oil per day.
4. boepd: barrels of oil equivalent per day.
5. Mbbls: thousand barrels.
6. MMbbls: million barrels.
7. MCF: thousand cubic feet.
8. MCF/d: thousand cubic feet per day.
9. MMCF: million cubic feet.
10. MMCF/d: million cubic feet per day.
11. BCF: billion cubic feet.
12. VWAP: Volume Weighted Average Price.
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END
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