Block Energy Plc - Rig & Equipment Contract Signed for Multi-Well Programme in Georgia

Posted by OilVoice Press - OilVoice


Block Energy Plc, the exploration and production company focused on the Republic of Georgia, is pleased to announce that it has signed an agreement (‘the Agreement') with JSC Norio Oil Company (‘JSC NOC'), a Georgian drilling contractor, and Georgia Oil and Gas Ltd (‘GOG'), a British Virgin Islands company and owner of drilling equipment in the Republic of Georgia, for the supply of drilling and workover equipment for the Company's 2018/2019 work programmes across its Georgian licence base. 

Block holds a 100% working interest (‘WI') in the Norio licence, a 90% WI in the Satskhenisi licence and a 75% working interest in the West Rustavi permit after earn-ins described in the Company's admission document.  These, collectively, have been assigned net proven oil reserves of 1.5 million barrels plus 61 million barrels of oil and c.473 billion cubic feet ('bcf') of gas classified as net unrisked 2C contingent resources.  LLC Norio Operating Company (‘NOC LLC') is an approved operating company in the Republic of Georgia and operates the Norio, Satskhenisi and West Rustavi fields on behalf of Block and its subsidiaries.

The Agreement gives Block unlimited and exclusive access to two A50 workover rigs and a ZJ40 drilling rig owned by JSC NOC and GOG and also provides the Company with access to a significant inventory of other miscellaneous drilling and workover related equipment for a period of six months (‘Initial Term').  In addition, the Company has secured an option to extend the Initial Term by up to a further six months. The A50 service rigs have already been successfully inspected and will now be made immediately available to Block.

The first A50 rig will be mobilised within the next few days to commence the scheduled work programme.  This is focused on rapidly increasing production across Block's licence base to ~900bopd within 24 months.  In addition, a legacy gas discovery in the Lower Eocene on West Rustavi will be retested.  This specific play has been assigned net unrisked 2C contingent resources of 291 billion cubic feet ('bcf') of gas and 3.5 million bbls of condensate and lies on trend to the same play being targeted by oil and gas services giant, Schlumberger, in close proximity on neighbouring fields.

Paul Haywood, Director of Block Energy, said: “The signing of this Agreement represents the culmination of a considerable amount of work by the team since our AIM IPO in June.  Importantly, the work programmes across our three licences in Georgia can now get underway in the knowledge that we have secured access to the required rigs on favourable terms.  As well as generating significant cost savings for the Company and mitigating equipment availability risks, the Agreement provides us with full control over forthcoming operations as we look to embark on our low risk, low cost work programmes to scale up oil production to 900 bopd within 18 -24 months.

“A key part of our strategy is to deploy advanced technologies to enhance recovery rates and with this in mind, we are also in negotiations to secure a drilling technology that is unique to Georgia to recomplete up to eight wells at our Norio field.  I look forward to updating the market on when these negotiations have been completed and also on the commencement of operations in the field in what promises to be the start of a highly active period for the Company.”

Further Information

The A50 workover rigs will be used to undertake the well workover programme at the Satskhenisi and Norio licences where eight candidate wells have been selected for workover.  Block is aiming for the eight Norio wells to be completed and on production by Q1 2019.  In addition, the rig will be used to re-enter up to five wells in West Rustavi in preparation for drilling sidetracks and the re-testing of a legacy gas discovery in the Lower Eocene.

Furthermore, the ZJ40 rig will drill two high impact horizontal side-tracks in the West Rustavi permit during Q4 2018 / Q1 2019, targeting initial oil production of c. 600 barrels per day.  The two side-tracks will increase the Company's working interest in the West Rustavi licence to 75% from 50% leading the Company into its field development plan for which equipment has been fully secured for up to 12 months.

Terms of the Agreement

The key terms of the Agreement are as follows:

Initial Term

The Initial Term of the hire will include an inspection certification and permitting period (with a maximum duration of 200 days) for the ZJ40 drilling rig. Block will be liable for all costs up to US$100,000 to cover the repair and provisioning of the rig.  Any costs in excess of US$100,000 will be paid for equally (50%:50%) by either JSC NOC or GOG and Block.   Work permits are required to be granted by the Georgian State Oil and Gas Agency (SAOG) for the horizontal sidetrack drilling operations prior to commencement of operations.  Granting of these permits is not anticipated to cause any significant delays, but provision is made in the Agreement that Block/NOC LLC has up to 200 days to obtain these required permits.  Once the inspection period is complete and the required permits obtained, NOC LLC will be granted a six-month term during which it will be entitled to use the equipment to perform operations on behalf of Block.  Both the inspection & permitting period and the ensuing six-month term will be considered the ‘Initial Term'.

The A50 rigs, have been inspected and can be mobilised immediately.

Extension to the Initial Term

NOC LLC and Block will have the option prior to the end of the Initial Term, to extend the agreement for up to six months for a fee (set out below).

Hire fee

JSC NOC and GOG will lease the equipment to Block and NOC LLC for the Initial Term for a lump sum fee of US$500,000, to be paid in cash up front.  The six-month extension to the Initial Term can be exercised by NOC LLC on behalf of Block for a lump sum cash payment or six equal monthly instalments totalling US$250,000, paid on or before the termination date of the Initial Term.  Block/NOC LLC will be directly responsible for crew and associated products, such as mobilisation/demobilisation of the rig and crew to and from each location, insurance for the crew and equipment, consumables, fuel and any subsequent maintenance and repair to the hired equipment.

Related Party Transaction

JSC NOC is connected to GOG, which currently owns 32,762,415 shares in the Company representing 12.64% of Block's current issued share capital.  As such, both GOG and JSC NOC are regarded as related parties under the AIM Rules for Companies. The Directors, having consulted with its nominated adviser, consider that the terms of the Agreement are fair and reasonable insofar as its shareholders are concerned.

Roger McMechan, Technical Director, has reviewed the reserve, resource and production information contained in this announcement.  Mr McMechan is a BSc, 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.

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Block EnergyGeorgiaJSC Norio Oil CompanyNOCNorio Oil CompanyRigEquipmentContract

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