Block Energy, the exploration and production company focused on the Republic of Georgia, has announced that well 16aZ at its West Rustavi field continues to produce, as the limits of crude oil storage allow, at rates consistent with the average test flow rate of 1,100 bbl/d ('barrels per day') announced on 1 April 2019.
The rate of 1,100 bbl/d produced through an 1/4 inch choke significantly exceeded the Company's target rate of 325 bbl/d, triggering an immediate requirement to upgrade production infrastructure. While the Company addresses production capacity and offtake requirements, the diameter of the choke has been reduced as of 13 April 2019 from 1/4 inches (~6 millimetres) to 1/8 inch (at just over 3 millimetres, the smallest size possible), scaling back production from 1,100 bbl/d to a rate of around 700 bbl/d.
The analysis of bottom hole pressures measured during the production flow test and subsequent build-up shows that both the formation matrix and natural fractures are contributing to the well's production. The well's productivity index is measured as 8 bbl/d/psi.
Subject to contract, Block has now negotiated terms on additional storage facilities, and is also negotiating new oil sales contracts with local and international purchasers, which are showing strong interest in supporting Block's future development plans.
The Company also confirms that associated gas production from the well will be sold to Bago Ltd, one of the largest private gas suppliers and purchasers in Georgia. Block signed a Memorandum of Understanding ('MOU') last year for the offtake of West Rustavi's gas. Under the terms of the MOU, Bago will acquire the total amount of gas produced from West Rustavi, subject to a minimum of 1,000 m3 of gas per day, and will fully finance all gas infrastructure the field requires, including pipeline tie backs to local infrastructure and gas processing plant solutions.
Bago is sampling the associated gas being produced from the Middle Eocene this week and, subject to the contract, will immediately begin the process of acquiring the necessary permits to develop the site's gas export facilities. The agreement opens up an additional annualised revenue stream of around US$1.0m to the Company through the sale of the well's 14,000 m3/d of associated gas. Bago is expected to start purchasing the gas within eight weeks of signing of contracts.
Chief Executive Officer Paul Haywood said:
'We are very happy to confirm the exceptional test results announced at the beginning of the month. 16aZ continues to flow strongly, going from strength to strength with a steady increase in pressure as the well cleans up. With an average production rate of 700 bbl/d, the well is expected to deliver gross monthly free cash to the Company of US$1m at the current price of US$70/bbl for Brent crude oil (with an approximate two month well cost payout).
'We are also delighted that, with associated gas flowing from the well, the gas offtake agreement we entered into with Bago last year will now come into effect, offering the Company the ability to switch from flaring to swiftly commercialising its gas at little to no cost, potentially adding around US$1.0m of additional annual free cash to Company's cash receipts. We look forward to working closely and expanding our relationship with Bago, as we seek to unlock the field's contingent gas and oil resources.
'Finally, the Company's management is currently working on a detailed operational market update that will cover its planned oil and gas development. The update will include the scheduled spud date for the sidetracking of West Rustavi's well 38, a neighbour and analogue to well 16aZ, plans for the appraisal of the field's existing gas discoveries, the acquisition of a 3D seismic survey and, a revision of the CPR consequent to the performance of 16aZ.
'2019 promises to be an exciting time for Block Energy, and we look forward to updating the market as we continue to work hard to realise the great potential of our assets.'