Block Energy Plc, the exploration and production company focused on the Republic of Georgia, is pleased to announce it has secured an agreement ('the Agreement') with Georgian Oil and Gas Limited ('GOG') to increase its working interest ('WI') in the West Rustavi licence ('West Rustavi' or 'the Licence') to 100% from the current 25%. Block's interest in the Licence is held via its 100% owned subsidiary Georgia New Ventures, Inc ('GNV') which is also party to the Agreement.
The Agreement replaces the original earn-in deal, signed on 21 June 2017 (and as set out in paragraph 13 (viii) of Part V of Block's Admission Document dated 4 June 2018), which provided that Block would increase its WI to 75% upon completion of the Company's ongoing West Rustavi workover and sidetracking programme.
On completion of the transaction Block will take full strategic control of future operations in the field, which holds an estimated 38 MMbbls of gross contingent resources ('2C') of oil (Source: CPR completed by Gustavson Associates, 1 January 2018), and a legacy gas discovery. According to the well passport the Company received on acquiring its interest in the 36.5 sq km Licence, one of West Rustavi's discovery wells flowed at rates up to 29,000 m3/d when originally tested in 1988.
The Terms of the Agreement
The acquisition of the remaining 75% WI in the West Rustavi Production Sharing Contract ('West Rustavi PSC') from GOG is to be settled in three stages:
· Stage 1 increases Block's WI to 71.5%, payable on completion of the Agreement of US$250,000 cash. Additionally, within 30 days therefrom Block will pay a further US$500,000 in cash which shall by applied by GOG to subscribe for new ordinary shares in Block priced at the 30 day Volume Weighted Average Price ('VWAP')
calculated as at the day preceding the day of issue, subject to a minimum issue price of 4p per new ordinary share.
· Stage 2 increases the WI to 90%, through the payment of US$250,000 in cash, payable on the earlier of the date of commencement of new additional operations in the West Rustavi PSC and August 31 2019.
· Stage 3 increases the WI to 100%, through the payment of US$500,000 in cash, which shall be applied by GOG to subscribe for new ordinary shares in Block, priced at the 30 day VWAP calculated as at the day preceding the day of issue, subject to a minimum issue price of 4p per new ordinary share.
This payment shall be made on the earliest date on which one of the following occurs : (i) the farmout of any participating interest in either the West Rustavi PSC or any other production sharing agreement in which the Company or any of its subsidiaries is interested, (ii) the date falling 3 days after the date on which Block notifies GOG of its intention to make such payment, (iii) the completion of a placing of the Company's shares by Block pursuant to a fundraise; and (iv) the 90th day following the payment relating to Stage 2 above.
The Company currently has sufficient cash resources to meet its obligations under each of the stages above.
The Agreement eliminates the production and reserves based bonuses specified in the original deal, which could have reached US$500,000 per well depending on the level of production from West Rustavi.
By completing the Agreement, Block is no longer obligated to undertake specified workovers or preparation of wells for sidetracks, or to undertake specified sidetracks within determined time periods within the West Rustavi PSC Licence area, which would have required an aggregate expenditure of at least US$4,000,000. Additionally Block is no longer required to purchase production facilities up to a maximum amount of US$1,000,000 for use in connection with the West Rustavi PSC. Current production facilities located in the Licence are fit for purpose. Block has to date spent around US$1,500,000 in relation to preparing wells 16a and 38 for side tracks. The Company's first high impact side track at 16a, is currently ongoing.
The increase in WI to 100% compared to the original earn-in of 75% represents a 152Bcf (25MMBbl BOE) increase in the net 2C gas resources and 9.5MMBbl net 2C oil resources attributable to Block (Source: CPR completed by Gustavson Associates, 1 January 2018).
With immediate effect, Block will assume operatorship, which the Company will retain subject to the completion of all stages of the acquisition.
Should Block fail to settle its consideration obligations under any stage, GOG will re-assume operatorship and Block's interest in the PSC will be reduced to 49%.