Block Energy counts on Georgian growth
Block Energy is looking forward to a year of drilling in Georgia, following the transaction with oilfield services company Schlumberger in November 2020, the AIM-listed company's CEO Paul Haywood tells NGW in an interview. The explorer’s share price has met stubborn resistance at £0.03 since March, but with a fully-funded drilling campaign ahead of it and with stronger commodity prices, this year could see a turnaround in its fortunes.
The "transformational deal" with Schlumberger boosted Block's reserves of oil and gas by some 64mn barrels of oil equivalent (boe), and initial production by around 200 b/d.
Schlumberger’s Block XIb is the most productive in Georgia, while its Block IX is prospective. Block acquired them both in an all-share-option deal which equates to about 17% of Block, or 120mn shares, and it was followed by a fund-raising operation in December which brought in £5.28mn so the company is ready to drill two wells and spud a third, Haywood told NGW.
“Drilling and production costs are not expensive, relatively speaking. The company’s investment criteria is simple: we aim to return $2 for every $1 spent, within 12-18 months, when evaluating any investment decision,” he said.
Block IX and XIb had been developed and brought into production by Soviet geologists but they were using 1970s’ technology, Haywood said, and so they left a lot of the oil and gas in the ground. But they had already produced 200mn barrels and at their peak the fields had flowed 70,000 boe/d.
“We can drill horizontally now and we are bringing technology that is new to Georgia. And there are more resources to be developed,” he said. “We are fully funded and about to go into drilling and yet our share price has been rangebound since March. We are focusing on the plan and delivering significant value for shareholders. We have many wells in operation, 120 people on the ground and a very supportive government in Tbilisi."
Now the company's priority is to get on with developing the assets and delivering on its strategy.
Although Block is still a small producer in the overall scheme of things, it is the largest in the former Soviet republic which otherwise imports nearly all its gas from Azerbaijan, with a trickle coming in from Russia. Block’s production averaged about 550 boe/d in the last 30-day period for which figures are available. Of that, about two thirds are oil.
The government has repaired the country's formerly poor relations with its much larger neighbour to the north, Russia, which makes business more predictable, and has good relations also with Baku and Ankara.
Being on the transit route for Shah Deniz gas, there is no uncertainty about gas as a long-term energy source. But having more domestic production would help perceptions of security of supply. And Austrian OMV’s entry into the offshore – it has operations on Georgia's Black Sea coast too – might also be an encouraging sign where the geology is concerned.
“In June we are drilling a well in West Rustaveli, well 38, following 3D seismic recently acquired. That will be to a vertical depth of 2.5 km; and then we will drill 500 metres horizontally into the Middle Eocene where we will produce oil and associated gas.” The oil will go to a local refinery priced at Brent crude, less a marketing discount – it is light and sweet, around 36 degrees, he said.
“We do have a local partner which offtakes our gas and pays us quarterly at a price fixed by government tenders, and the main market is homes, heating the local community and the light vehicle market: the buyer also compresses the gas for sale in cylinders. There is some industrial demand in Georgia including two end users that are near Block’s licence areas XIF and XIB. Georgia is very supportive of Block's domestic gas development plans." he said. “Next year we are looking at Middle and Lower Eocene gas development."
There are further growth prospects too: the government is keen to develop storage capacity to manage winter-summer gas demand swings. “The planned South Dome underground gas storage project is located within our licence where we have over 600bn ft³ contingent gas resources. The government plans to invest $300mn in the underground gas storage project,” he said. It could hold about a sixth of the country’s annual demand, according to reports, stocked with Azeri gas.
He said politics were stable: "Georgia has managed relations with Russia very well, and it is also friendly with its other neighbours, Turkey and Azerbaijan, where we also see some excellent opportunities. Our team is always looking at new ventures but it has enough on its plate for now."