LONDON -- Block Energy, an exploration and production company focused on the Republic of Georgia, has announced that it has agreed to acquire the outstanding 31% working interest in, and to become operator of the country's Norio field via a cash payment of $310,000 to Georgia Oil and Gas Ltd.  This follows the company’s previous statement that it intended to fully exercise its right to move to a 100% working interest in Norio before dual listing the company on AIM and commencing a defined field development program to increase production at Norio to over 250 bopd in the short term from approximately 20 bopd.  

In addition to becoming operator of Norio, the acquisition will also see Block Energy assume operator-ship of neighboring Satskhenisi field in which Block Energy holds a 90% working interest.  Current production at Satskhenisi stands at 6 bopd.  At this level of production and due to the extremely favourable oil sharing terms associated with the Norio and Satskhenisi Production Sharing Contracts (“PSC”), combining production enables Block Energy to operate both fields from one entity, benefiting from economies of scale and therefore ensuring operating costs are fully covered by existing production revenue.  

Norio and Satskhenisi: proven fields with multiple low cost, low-risk development opportunities

Norio lies 40 km from the city of Tbilisi. To date, 1.9 MMbbl of light sweet crude oil have been produced, largely from the Middle Miocene (Chokrak), with some production from the Lower Miocene (Maikopian) and Upper Miocene (Sarmatian). Current production stands at approximately 20 bopd from three wells drilled in the mid/late 1970s. In all, 55 vertical wells have been drilled on the field, to depths of between 500 to 1500 m, with the best well recovering more than 400,000 bbl of oil. 

Due to its low operating costs, oil sharing terms, and a net crude field sale price of Brent minus $9, Norio is cash-flow positive and generates sufficient revenue to cover its operational costs, according to the company. Schlumberger, operator of the neighboring field, estimates Norio contains 118.7 million stock tank oil initially in place (STOIIP). Block intends to embark on a defined production enhancement program, including eight recompletions/workovers of existing wells and one sidetrack, to increase production to over 250 bopd in the short-term.  

In parallel with this, Block Energy intends to undertake seven reactivations and recompletions at Satskhenisi to raise production to more than 100 bopd. Satskhenisi has produced 310,000 bbl of oil to date, mostly from the Maikop and shallow Sarmatian lithologies.  It shares a similar geological setting and formations to Norio and, as a result, learnings from one permit apply to the other. At $45/bbl, both fields break even at a total of 20 bopd. 

Suspension of trading on NEX and AIM Admission Process

Up until now, Block’s status in Norio and Satskhenisi has been as a non-operating joint venture partner.  The change to operator is a significant shift in Block’s existing business, and will involve Block assuming control of all operational activity at, and management of, both oil fields. In addition, the company will receive 100% of all revenues from associated future oil sales. The acquisition therefore triggers a fundamental change in Block Energy’s business activities and status and as a result, it will be treated as a reverse takeover for the purposes of Rule 58 of the NEX Exchange Growth Market Rules for Issuers.  In accordance with Rule 78, the trading in the company’s ordinary shares on the NEX Exchange Growth Market will be suspended pending publication of its AIM admission document in line with its intention to dual list on AIM, a market operated by the London Stock Exchange plc. 

Work regarding the AIM Admission is well advanced and as part of the process, the company has commissioned Gustavson and Associates, located in Colorado, Denver to undertake a Competent Person’s report (‘CPR’) covering its existing asset base in the Republic of Georgia. The directors expect the CPR to highlight the significant asset backing behind Block Energy in the form of recoverable oil reserves and gas potential across its license base, which can be accessed via the implementation of low cost/low risk work programs to rapidly scale up production and reserves.

The company holds three licenses in Georgia, all of which are proven fields that are either currently producing or have historically produced. In addition to Norio and Satskhenisi, Block Energy retains a working interest in West Rustavi Block Xif, which has produced 500,000 bbl oil to date and tested commercial quantities of sweet gas on trend with a significant gas target that is currently being evaluated as part of the commissioned CPR. West Rustavi shares the same geology and play types as Schlumberger’s adjacent Block XIb permit, where 200 MMbbl of oil have been recovered and is currently undergoing significant evaluation on its gas potential.

As part of a farm-in agreement to earn a 75% working interest in the West Rustavi PSC, Block Energy intends to re-enter 2-3 wells and side-track 3 to 4 additional wells to increase production to over 1,000 bopd of oil from the Middle Eocene. Furthermore, subject to the results of the CPR, Block Energy also plans to re-test gas production from previously discovered wells located within the permit.