Block Energy (LSE:BLOE) advanced 4.5pc to 4.1p on Tuesday morning after announcing an agreement to take over 100pc of the highly prospective West Rustavi oilfield in Georgia. The business, which has soared from 2.9p since the beginning of the year, has secured the deal with its major shareholder Georgian Oil and Gas (GOG).
The agreement replaces a previous earn-in deal signed in 2017 that provided Block with a 75pc stake in West Rustavi once it had completed a workover and sidetracking programme at the field. Block will now be able to increase its interest from 25pc to 100pc through in three stages. It will also take over ownership of the asset.
West Rustavi contains an estimated 38MMbbls of 2C oil resources and a legacy gas discovery. Meanwhile, one of its discovery wells flowed at rates up to 29,000 m3/d when initially tested in 1988. On Tuesday, Block said the new deal represents a 52Bcf increase in its attributable net 2C gas resources a 9.5MMBbl rise in net 2C oil resources.
Stage one of the deal will increase Block’s stake to 71.5pc, and will see it pay GOG $250k in cash. Additionally, Block will pay GOG a further $500k in cash, which GOG will use to subscribe for Block shares at a minimum of 4p each.
Stage two will see Block’s stake increase to 90pc through the payment of $250k in cash. This will be payable on the earlier of the date of commencement of new additional operations in the West Rustavi PSC and August 31 2019.
Finally, stage three will see Block take on 100pc of the asset through the payment of $500k in cash to GOG. Once again, GOG will use this to apply for Block shares. This payment shall be made on the earliest date on which one of the following occurs:
-The farmout of any participating interest in either the West Rustavi PSC or any other production sharing agreement in which Block or any of its subsidiaries is interested,
-The date falling three days after the date on which Block notifies GOG of its intention to make such payment,
-The completion of a placing of Block’s shares pursuant to a fundraise, and
-The 90th day following the payment relating to stage two.
Block said it currently has enough cash to meet its obligations under all three stages. It added that the agreement also means it is no longer obligated to undertake specified workovers or preparation of wells for sidetracks or to undertake specified sidetracks within determined periods at West Rustavi. This would have required an aggregate expenditure of at least $4m.
Block has so far spent around $1.5m on preparing wells 16a and 38 for side tracks at West Rustavi. The business’s first high impact side track at 16a is currently ongoing after beginning last month.
Block’s CEO Paul Haywood said: ‘We are delighted to enter into this new Agreement with our Georgian partners. It gives the Company a clear path to a 100% WI in West Rustavi, complementing our respective 100% and 90% interests in the Norio and Satskhenisi fields. A 100% WI in West Rustavi will give the Company complete discretion over the realisation of the field’s potential.
The economic impact of this transaction is also significant, whereby in our single well base case production scenario (325 bopd) well netbacks increase by over 40pc on completion of the transaction, to around US$41 per bbl at US$60 Brent. Moreover, we welcome further strengthening of the relationship between Block and our major shareholder GOG. The deal structure, which is heavily weighted towards equity in the Company, is a strong testament of GOG’s confidence in the Company’s current value and potential upside. West Rustavi is an analogue to the nearby Ninotsminda field where the founders of GOG performed horizontal sidetracks increasing initial production from 50 bopd to over 1,900 bopd.
‘This is an extremely busy time for the Company and I’d like to thank all stakeholders, Directors and management for their continued support. We look forward to updating our shareholders on our current operations at West Rustavi, where we are carrying out a horizontal sidetrack at well 16a, and workovers at Norio.’