Block Energy plc, the exploration and production company focused on Georgia, is pleased to announce the interim results of Block Energy plc and its subsidiaries (the "Group") for the six months ended 30 June 2021.
- 170,000 operational man-hours worked, with no lost time incidents
- Two-well programme progressing, with WR-B1a well, spudded in June 2021, currently testing and preparations for the second well underway
- Total production during the period of 87.0 Mboe, comprising 55.5 Mbbls of oil and 31.5 Mboe of gas
- Oil and gas production resumed from wells WR-16aZ and WR-38Z during Q1
- Oil sales of 41.9 Mbbls, with revenue of $2.33 million (30 June 2020: $313,000), representing a weighted average price of $55.70 per barrel
- Gas sales of 103 MMcf, with revenue of $328,000 (30 June 2020: $nil), representing a weighted average price of $3.18/Mcf
- Memorandum of Understanding ( " MOU ") signed with Baker Hughes in support of current and future operational activities
- Integration of Block Rustaveli Limited ( " BRL ") successfully completed, with staff now in one facility, creating a more collaborative and productive working environment
- Cash position of $5.5 million as at 30 June 2021 (31 December 2020: $6.3 million)
Block Energy plc's Chief Executive Officer, Paul Haywood, said:
"The first half of the year demonstrates our ability to safely deliver, despite the impact of the Covid-19 pandemic on our operations. The two-well programme is progressing. and we expect to announce the results of testing the first well shortly. Preparations for the second well are underway and we are also looking forward to updating the market on that. With the focus on the two-well programme, it is easy to forget the considerable opportunities throughout the Company's wider portfolio. Block has a balanced strategy, based around three independent and material strands. The drilling programme in the West Rustavi Middle Eocene reservoir represents only one of those strands. We look forward to updating the market across all of the Company's opportunities as they progress."
Chief Executive Officer's Business Review
Block saw considerable progress during the first half of the year, with several milestones achieved, despite the continued impact of Covid-19, which disrupted operations and work patterns and placed considerable restrictions on travel.
Health, Safety and Environment
Health, safety and the environment are at the centre of Block's operations and the board set key performance indicators for 2021, which Block is currently on track to meet. During the period, over 170,000 operational man-hours were worked by staff and contractors, with no lost time incidents recorded. The Company is proud of its record on health, safety and the environment. We supported employees and contractors through the Covid-19 pandemic and we aim to maintain our record using industry-leading best practice.
Following the equity fundraising in December 2020, Block commenced the two-well drilling programme with the spudding of the WR-B1 well on 23 June 2021. This is the first well to be designed using the 3D-seismic data obtained in 2019 and the MOU signed with Baker Hughes in June 2021. Well placement and detailed engineering have been optimised to maximise recovery, while minimising drilling time and execution risk.
Drilling operations were completed in early September 2021 and well WR-B1a is currently being tested. A further update will be provided when testing has been completed. Preparations continue for drilling the second well in the programme.
The Company continued to execute its well maintenance, intervention and production enhancement programme, based on the well-by-well opportunity review conducted earlier in the year. This programme includes low-cost workovers on Block XIB, where additional production has been gained to counter the natural decline of the wells in that block.
Production and Sales
During Q1, oil and gas production resumed from wells WR-38Z and WR-16aZ. Oil and gas from both wells were processed in Block's newly installed Early Production Facility ( " EPF " ).
The Company produced a total of 87.0 Mboe of oil and gas during the period (30 June 2020: 15.2 Mboe). This comprised 55.5 Mbbls of oil and 31.5 Mboe of gas (30 June 2020: 15.2 Mbbls of oil and no gas).
Average production during Q1 was 493 boepd, which decreased to 468 boepd in Q2, resulting in average production during the six months of 481 boepd. The primary reason for the decrease in production from Q1 to Q2 was that well WR-16aZ produced oil and gas during February but was shut in for most of March and only produced intermittently during Q2. At the beginning of July 2021, a pump was installed in the well and this has improved flows from the well.
During the first six months of the year, Block sold 41.9 Mbbls of oil, achieving revenue of $2.33 million (30 June 2020: $313,000), representing a weighted average price during the period of $55.70 per barrel. The price achieved during Q2 was considerably higher than that in Q1, reflecting the increase in oil prices over the six months.
Gas sales commenced in February 2021, following the tie-in of the Bago LLC gas pipeline into the main pipeline owned by the Georgian Oil and Gas Corporation. The commencement of gas sales represents the culmination of a considerable work programme undertaken by Block, which included the construction and commissioning of the EPF and gas gathering line.
Gas sales totalled 103 MMcf, driving revenue of $328,000 during the period (30 June 2020: $nil), representing a weighted average price of approximately $3.18/Mcf.
The start of gas sales also represented a step-change in Block becoming a sustainable energy producer in Georgia, potentially replacing more carbon-intensive forms of hydrocarbons being imported and used in-country. This includes fuel for motor vehicles, with the Company's low-cost gas production distributed to independent gas stations.
Corporate & ESG
In June 2021, Block announced it had signed an MOU with Baker Hughes to support the deployment of energy-efficient technology for oil and gas production and to evaluate the geothermal opportunities across its asset portfolio. As noted above, the first project to benefit from this agreement has been the drilling of the WR-B1a well, which commenced in June and is currently testing. The Company is looking forward to building this relationship, which provides for a broad partnership to develop the significant opportunities throughout Block's portfolio.
The integration of Block Rustaveli Limited was successfully completed during the period. This brought together the Company's staff under one roof in the newly renovated base at Lilo, located in the middle of Block XIB. The result is a more collaborative and productive working environment, whilst also more cost-effective. We should note that the fair values included in the accounts related to the acquisition of BRL are considered provisional and will be finalised within the allowed period of twelve months from the acquisition date (see note 2 to the interim financial information).
During the period, Block was pleased to have been accepted into the UN Global Compact Network, which is a global platform promoting and allowing engagement regarding human rights, labour, environmental and anti-corruption standards. Being accepted into this network is in line with the Company's continued focus on the green energy opportunities across its portfolio, including the geothermal energy potential, which it is exploring under the MOU with Baker Hughes.
Board of Directors
Following the period end, the Block board saw considerable change. Three independent non-executive directors resigned and two independent non-executive directors, with significant technical and corporate E&P experience, have been appointed. The Board is again up to strength and well aligned with the Company's commitment to the corporate governance requirements of the QCA Corporate Governance Code.
The current focus is on the two-well drilling programme that is currently underway. Well WR-B1a is being tested and we anticipate seeing the result of that in the near term. If successful, the well will be tied back to the Company's EPF.
Beyond the current two-well programme, Block's wider asset base holds considerable additional potential, which we are in the process of unlocking, now that the EPF and associated infrastructure are in place to support early monetisation.
The first half of the year demonstrated our ability to deliver regardless of the impact of the Covid-19 pandemic, and the Company is in a good position looking ahead, with a portfolio of assets that offers multiple exciting opportunities. We look forward to providing further updates to shareholders as the year unfolds.
Chief Executive Officer
Chief Financial Officer's Financial Review
For the six months ended 30 June 2021, Block reported a gross profit of $128,000 (30 June 2020: gross loss of $828,000) and net loss of $2,051,000 (30 June 2020: $2,668,000). The reasons for the gross profit in the current period, compared to a gross loss for the comparative period, are that the Group has produced more oil and gas, enabling it to generate more revenue to cover the partly fixed costs of sales, and also that revenue included sales of the crude oil inventory acquired with BRL in November 2020. The net loss included no impairment of the capitalised costs (30 June 2020: $208,000 impairment in respect of the Satskhenisi licence).
During the six months ended 30 June 2021, Block incurred a net operating cash outflow of $1,442,000 (30 June 2020: $2,498,000).
The significant increase in oil production during the period, compared to the six months ended 31 December 2020, is the reason that the expense for the depletion of Development & Production Assets increased to $1,083,000 from $218,000 in the previous six-month period (see note 5 to the interim financial information).
As at 30 June 2021, Block had cash of $5.5 million (31 December 2020: $6.3 million). This decrease is primarily due to incurring costs of drilling well WR-B1a.
As at the period end, Block had oil inventory of 18.8 Mbbls valued at $1.19 million (31 December 2020: 28.9 Mbbls valued at $1.22 million). During the six months ended 30 June 2021, Block sold 41.9 Mbbls of oil, including the prior year closing oil inventory, generating revenue of $2.33 million (30 June 2020: $313,000).
Chief Financial Officer