A minimum of 1,200 barrels of drilling fluid were lost to the Well during drilling and completion operations, a considerable amount indicative of the high productivity of the fractures system. Estimates of the volume of water produced and observations of polymer and other drilling fluid chemicals indicate that the Well continues to clean up lost drilling fluid and stabilise.

The Company is adopting a prudent approach, gradually increasing production to establish a sustainable flow rate as the Well cleans up. Produced oil is being transported to storage leased by Block at a facility owned by the Georgian Oil and Gas Corporation (‘GOGC’), the state-owned national oil company of Georgia, near the town of Sartichala, some 30km along the Khakheti motorway from West Rustavi. Block entered into an agreement with GOGC last month (RNS: https://bit.ly/323XWfy) allowing access to 90,000 bbls storage capacity.

Bringing well 16aZ onto production is a significant step in Block’s fully-funded £12m programme to realise West Rustavi’s potential (RNS: https://bit.ly/2WYyx8e), which was demonstrated by the exceptional test production rates of 1,100 bbl/d – more than three times pre-drill expectations – recorded at the Well on 1 April this year (RNS: https://bit.ly/2YfdI50). Preparations are well advanced for the horizontal side tracking this summer of well 38Z, analogous, adjacent and updip to well 16aZ, and targeting the same Middle Eocene formation. Well 38Z is one of four wells the Company plans to sidetrack across the Field – in which Block now holds a 100% Working Interest (‘WI’) – during its 2019/2020 back-to-back drilling campaign. The award of the contract for Block’s planned 3D seismic survey of the Field is also imminent. The processing and interpretation of this survey by the latest techniques will enable the Company to pinpoint optimal drilling locations.

In parallel with its operations at West Rustavi, Block continues to produce oil at its Norio (100% WI) and Satskhenisi (90% WI) licences, at a cumulative average production rate of 26 bopd.

Paul Haywood, Block Energy Chief Executive Officer, said: ‘We are pleased to resume production at well 16aZ and look forward to establishing with due caution a stable production rate for our best performing well to date. The Well produced exceptional test rates earlier this year and offers excellent netbacks of $35/bbl at $65/bbl Brent.

‘With the resumption of production at well 16aZ our fully-funded back-to-back multi-well drilling programme continues to gather momentum. We now keenly anticipate ramping up production with the sidetracking this summer of well 16aZ’s neighbouring well, 38Z. Three of West Rustavi’s other wells will also be sidetracked in the Middle Eocene structure, and two of them tested for their historic gas discoveries in the Lower Eocene. We also look forward to acquiring a 3D seismic survey that will identify optimal locations for new horizontal oil and gas wells across the Field and support an upgrade of the Company’s CPR, prepared back in January 2018.’

‘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.

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With immediate effect, Block will benefit from a 100% economic interest in the contractor’s share of oil revenue and have greater control over the development plan to realise West Rustavi’s full potential. Block is implementing a fully-funded back-to-back drilling programme (RNS: https://bit.ly/2WYyx8e) designed to ramp up oil production at the Field and test its historic gas discoveries. West Rustavi has an estimated 0.9 MMbbls 2P oil reserves, 38 MMbbls of gross unrisked 2C contingent resources of oil in the Middle, Upper and Lower Eocene and 608 BCF of legacy gross unrisked 2C contingent resources of gas in the Eocene and Cretaceous (Source: CPR Gustavson Associates: 1 January 2018).

In accordance with the Agreement, Block has paid US$250,000 in cash and issued 3,326,268 ordinary shares of 0.0025p as settlement of the US$500,000 due to GOG as total and final consideration of US$750,000 for the increase to 100%. The shares have been issued at a share price of 11.99 pence per share, being the 30 day volume weighted average price per share, in line with the Agreement. Block has also today issued 772,727 ordinary shares of 0.0025p at an issue price of 11p per share to settle liabilities amounting to £85,000 for professional services provided to the Company. Following these issues, GOG’s shareholding in the Company will amount to 30,285,070 shares equating to 7.70% of the enlarged issued share capital. Application has been made for the new ordinary shares to be admitted to trading on AIM and admission is expected to commence on or around 18 July 2019 (‘Admission’).

In conformance with the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules, Block notifies the market that, following the Admission, the Company’s issued share capital consists of 393,538,662 ordinary shares which may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change in their interest in, the share capital of the Company under the Disclosure Guidance and Transparency Rules. The Company does not hold any shares in treasury.

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation which came into effect on 3 July 2016. The definitions used in this announcement are the same as referred to in the 26 February 2019 announcement (RNS: https://bit.ly/2JATexA).

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A whipstock sidetrack drilling device has been lowered in the Well by the  ZJ40 drilling rig.  The next operation will be to orient the tool in the right direction and then cut a hole or window in the side of the casing from which the drilling assembly can exit the existing wellbore and drill the build and 1,600 foot horizontal section into the reservoir.  Production testing is forecast to start immediately after drilling operations are complete and the drilling rig has been moved off the wellsite. The target reservoir is at a depth of approximately 2,100m which the Company estimates to have had an original oil column up to 600 feet thick.

The sidetrack drilling of 16a follows a successful oil test in December 2018 which confirmed the Well lies in an active hydrocarbon system and that the previously producing Middle Eocene reservoir still contains reserves and remains pressurised.  During the test, more than 200 barrels of oil were recovered from 16a during a 10 hour flow period and an additional 300 barrels of light oil flowed to a temporary wellsite production facility over the following days (see Block’s announcement of 14 December 2018 for further details).

Block currently holds a 25% working interest in West Rustavi, which has an estimated 38 MMbbls of gross contingent resources (‘2C’) of oil (Source: CPR completed by Gustavson Associates, 1 January 2018 (“CPR”)).  As part of an agreed earn-in, upon completion of the two-well sidetrack programme, Block’s interest in West Rustavi increases to 75%.  Four other wells have been identified at West Rustavi offering similar opportunities for re-entry and sidetracking.

West Rustavi also holds gas discoveries which lie on trend with the same play being targeted by Schlumberger in neighbouring fields.  The Company plans to re-test the gas potential of the West Rustavi licence in 2019 by re-entering up to two wells that previously flowed gas. According to the well passport the Company received on acquiring its interest in the field, one of the discovery wells flowed at rates up to 29,000 m3/d when originally tested in 1988.  West Rustavi is one of three licences Block holds in Georgia, the others being a 100% interest in the producing Norio field, which has gross proven (‘2P’) oil reserves of 1.631 million barrels (Source : CPR), and where a workover and sidetrack programme is underway targeting 250 bopd by H1 2019; and a 90% interest in the Satskhenisi field, which has estimated 28 MMbbls of gross 2C contingent resources. (Source : CPR)

Chief Executive Officer Paul Haywood said: “The first of an initial two-well sidetrack programme targeting an overall 650 bopd (325 bopd per well) at West Rustavi, 16a is a high impact well for Block and we are therefore delighted that drilling operations have commenced at the site on schedule.  This is testament to the excellent work and meticulous planning carried out by the operations team on the ground in Georgia, including the successful flowback test at the Well in December which confirmed the targeted Middle Eocene reservoir still contains reserves and remains pressurised.  With gross contingent resources of 38 MMbbls of oil, a total of six historic wells identified as suitable candidates for sidetracking, and a legacy gas discovery, the potential for West Rustavi to generate significant cash flow and value for Block is clear.

“With back-to-back drilling planned at West Rustavi and multi-well workovers underway at Norio, we expect the strong momentum behind the Company to continue as we focus on hitting our H1 2019 target of 900 bopd.  At 900 bopd, and with current oil prices, our production will generate significant cash flow which, in line with our strategy will be reinvested in high impact activity across our existing licences and also new projects offering similar low cost, high potential production opportunities.  We believe the disconnect between our £8.7 million market cap and the US$39.3 million NPV10 assigned to our 2.5 MMbbl 2P gross oil reserves alone is unwarranted, particularly as this does not take into account the 2C gross contingent resources of 72.9 MMbbls of oil and 626 BCF of gas across all three of our licences.  We are confident this valuation anomaly will soon be closed as results come in and with this in mind I look forward to providing further updates on progress.”

Board Change

The Company also announces that, after significant contribution to the successful IPO of the Company last year, and production of the Annual Report, Serina Bierer will be stepping down from the Board of Block Energy Plc with immediate effect.  At this stage of her career, Serina has decided to concentrate on her other work interests.

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

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