Shares in Block Energy (LSE:BLOE) soared 83pc to a record 7.3p on Monday morning after the firm revealed ‘extraordinary’ test flow rates at a critical well in Georgia. The business said initial production rates at well 16a on its West Rustavi field have come in at an average of 1,100bopd, far exceeding its 325bopd targeted production rate.
According to Block, this test rate indicates a better initial well performance than any well drilled in Georgia over the last 50 years. This includes the successful horizontal sidetracks drilled in the Ninotsminda field near and analogous to West Rustavi.
Block has previously said that 325bopd of production from 16a would take it well above its corporate production breakeven rate, generating total free cash flow across its portfolio of $4.5m a year. With indicated production far exceeding this estimate, investors are understandably delighted with the resultant, positive implications this will have on the firm’s balance sheet.
Well 16a has been completed in a 522m-long horizontal section in the Middle Eocene formation with a 4.5-inch slotted liner. It was opened last week and began flowing naturally, producing a combination of oil and returned drilling fluid at average rates of 1,500bopd through a 0.25-inch choke. Following this, Block began a formal testing programme, which saw the well’s flow stabilise quickly to a rate of 1,100bopd with a well head flowing pressure of 590psig.
In Monday’s update, Block said the well is now shut in for a 72-hour period. Once the current build-up phase has completed, the business said the well will be placed on production using West Rustavi’s existing test facilities. The oil produced will be trucked to a nearby oil storage facility, where it will be stored until sale.
Block currently owns a 71.5pc stake in West Rustavi. However, the company secured an agreement with its current partner Georgian Oil & Gas to take over the entire development of the field last month. The asset contains an estimated 38MMbbls of 2C oil, which the company now hopes to mature to 2P reserves. In addition, the field holds legacy gas discoveries supporting a gross contingent resource of 608bcf.
In a success case at 16a, Block has previously said that it would begin preparations for sidetracking a neighbouring well called 38. Meanwhile, the company is awaiting the results of work being carried out on a nearby field by Schlumberger. The oil services major is using its vast financial resources to target the same high impact gas play as West Rustavi, potentially de-risking the field further.
Speaking to ValueTheMarkets, Block’s chief executive Paul Haywood said Monday’s news offers ‘the clearest indication yet of West Rustavi’s tremendous value’.
‘The test flow rate for West Rustavi 16aZ of 1,100 bbl/d promises a production rate substantially above the 325 bbl/d forecast for the well, and far beyond our corporate breakeven rate of approximately 100 bopd at US $60 Brent,’ he added.
‘Importantly, the agreement we entered into in February, to move to a 100% working interest in the field, gives us complete strategic control as to how we advance West Rustavi’s estimated 38 MMbbls of gross contingent oil resources (‘2C’), and the legacy gas discoveries that support a gross contingent gas resource (‘2C’) of 608 BCF (which lie on the same play being targeted by Schlumberger on a neighbouring field).’
Haywood added that the firm is now looking forward to developing its strategy for the field, where it is planning to scale production and convert resources into reserves.
‘We have made major progress since listing in June 2018: thanks to our first mover advantage, excellent team, rising production at our Norio field, and now this exceptional test rate at the first well we have sidetracked at West Rustavi,’ he added. ‘We believe there is plenty of scope for growth from our current valuation, and that we are firmly on course to realise our ambition of becoming AIM’s newest mid-tier oil and gas company.’