12 December 2022

Block Energy plc

("Block" or the "Company")

Farmout Agreement

Block Energy plc, the exploration and production company focused on Georgia, is pleased to announce that binding documentation has been entered into with Georgia Oil and Gas Limited ("GOGL") with respect to a farm-out of part of the Company's XI^B licence.

Highlights:

·     Binding documentation entered for a 50% farmout of non-core areas of licence XI^B to Georgia Oil and Gas Limited ("GOGL")

·     Farmout terms amount to a work programme with an estimated value of USD 3.0 million comprising USD 2.5 million for a 2D seismic acquisition and USD 0.5 million for seismic reprocessing

·     Portions being farmed out are exploration areas that would have been subject to relinquishment in 2024,  and now form part of Block's new Project IV

·     None of the existing fields, current production and future development plans associated with Projects I, II and III within the XI^B licence are subject to the farm-out and the transaction will have no impact on Block's operator status across its existing production areas

·    Farmout will advance Block's exploration opportunities through a sizable work programme commitment from GOGL at no cost to Block

·     Future associated cash liability is capped at USD 50,000 per annum net to Block until further major capital works (3D seismic/drilling) are committed to by either GOGL or third-party farminee

·     GOGL is the largest exploration company in Georgia and holds acreage of over 13,200 km2 within various PSCs

Farm-Out

Block's XI^B licence covers a total area of 614 km² and includes the Patardzeuli, Samgori, Teleti and Rustavi fields which have produced more than 180 MMbbl of oil.

The portions of XI^B  that are subject to the farm-out are exploration-focused, form part of Block's newly established Project IV, and do not include any of the areas currently in production. They include a 103km² section in the north of the licence (bordering licences XIM & XIQ) and a 148km² area in the southeast of XI^B (bordering licences XIH and XIL). The northern section will now be known as the "Didi Lilo" area and the southeast section will now be known as the "South Samgori" area as shown in the map below:

None of the existing fields associated with Project I, II and III within the XI^B licence, are subject to the farm-out and the transaction will have no impact on Block's existing production base or operator status across all existing fields.  

Transaction Summary

Under the terms negotiated, Block and GOGL will each have a participating Interest of 50% in the respective areas. As consideration for the farm-out, GOGL is to complete a work programme, across Didi Lilo and South Samgori, which comprises:

-      The acquisition and processing of 210 km of 2D seismic data

-      The reprocessing of 1,000 km existing seismic data, within and around Didi Lilo, South Samgori and the remainder of XI^B

The cost of the work programme is estimated at USD 3.0 million, comprising USD 2.5 million for seismic acquisition and USD 0.5 million for seismic reprocessing.

Under the industry-standard Joint Operating Agreements ("JOAs") that have been negotiated, the annual gross budgets will not exceed USD 100,000 (USD 50,000 net to Block) per annum, until either GOGL or a third-party farminee elects to acquire a 3D seismic survey over the area and /or drill a well.

Block will retain the optionality to either benefit from a carry, fund its share of any future 3D survey/drilling or further farm-down its interest in the licence areas. Industry-standard sole-risk provisions are present in the JOA.

Rationale

The farm-out advance's exploration opportunities through a sizable work commitment from GOGL at no cost to Block. Future cash liability associated with Didi Lilo and South Samgori is capped at USD 50,000 per annum net to Block until further major capital works (3D seismic/drilling) are committed to by either GOGL or a third-party farminee.

GOGL is the largest exploration company in Georgia and holds acreage of over 13,200 km² within various PSCs.

In 2022, as part of Georgia's drive to achieve energy independence, GOGL received a cash equity investment from Georgia Oil and Gas Corporation ("GOGC"), the state-owned national oil company, to progress high-impact and strategic exploration activities within its portfolio, including the acquisition of 2D seismic, ahead of facilitating farm-in discussions with NOCs and IOCs across the region.

The focus of GOGL is on maturing large, strategically significant gas and oil exploration and appraisal targets within its portfolio, north and south of Block's Samgori oil field.

The contractor for the acquisition of the 210 km 2D seismic data over Didi Lilo and South Samgori is Geofizyka Torun S.A., a subsidiary of the Polish Oil & Gas Company PGNiG SA ("PGNiG"), which has recently merged with Orlen Group, a fully integrated oil company with a market capitalisation of c. USD 16.5 bn.  

GOGL & Geofizika Torun S.A interpret the Norio Deep prospect/play to extend to within the Dido Lilo Area. This is a Middle/Upper Eocene prospect/play. GOGL also interpret the Nakarala prospect/play to extend into the South Samgori Area.

The Dido Lilo and South Samgori Areas have been assigned a risked (P50) Resource of over 400MMboe by GOGL and its technical partners. 

GOGL is involved in advanced detailed farm-out discussions with national and major oil companies around a farm-in to the Dido Lilo and South Samgori Areas.

Commenting, Paul Haywood, Block Energy CEO said:

"This farm-out enables Block to combine and progress advanced exploration opportunities (800 MMBOE) with a capable and well-qualified operator, at de minimis cost, whilst allowing it to continue to focus on its core production and appraisal-led three Project strategy. This high-impact exploration opportunity also compliments the existing portfolio with very substantial upside which continues to attract the attention of major oil companies across the region.

GOGL have committed to a significant work programme that supports this exploration opportunity. The commitment to acquire and reprocess existing seismic on XI^B will also complement our work within Projects I, II and Project III. The Company looks forward to working with GOGL, in the Didi Lilo and South Samgori Areas, as well as on a larger farm-out strategy led by GOGL."

Stephen James BSc, MBA, PhD (Block's Subsurface Manager) has reviewed the reserve, resource and production information contained in this announcement. Dr James is a geoscientist with over 40 years' of experience in field development and reservoir management.

**ENDS**

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE UK VERSION OF THE MARKET ABUSE REGULATION NO 596/2014 WHICH IS PART OF ENGLISH LAW BY VIRTUE OF THE EUROPEAN (WITHDRAWAL) ACT 2018, AS AMENDED.  ON PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO BE IN THE PUBLIC DOMAIN.

For further information please visit http://www.blockenergy.co.uk/ or contact:

Notes to editors

Block Energy plc is an AIM-listed independent oil and gas company focused on production and development in Georgia, applying innovative technology to realise the full potential of previously discovered fields.

Block has a 100% working interest in Georgian onshore licence blocks IX and XI^B. Licence block XI^B is Georgia's most productive block. During the mid-1980s, production peaked at 67,000 bopd and cumulative production reached 100 MMbbls and 80 MMbbls of oil from the Patardzeuli and Samgori fields, respectively. The remaining 2P reserves across block XI^B are 64 MMboe, comprising 2P oil reserves of 36 MMbbls and 2P gas reserves of 28 MMboe. (Source: CPR Bayphase Limited: 1 July 2015). Additionally, following an internal technical study designed to evaluate and quantify the undrained oil potential of the Middle Eocene within the Patardzeuli field, the Company has estimated gross unrisked 2C contingent resources of 200 MMbbls of oil.

The Company has a 100% working interest in licence block XI^F containing the West Rustavi onshore oil and gas field. Multiple wells have tested oil and gas from a range of geological horizons. The field has so far produced over 75 Mbbls of light sweet crude and has 0.9 MMbbls of gross 2P oil reserves in the Middle Eocene. It also has 38 MMbbls of gross unrisked 2C contingent resources of oil and 608 Bcf of gross unrisked 2C contingent resources of gas in the Middle, Upper and Lower Eocene formations (Source: CPR Gustavson Associates: 1 January 2018).

Block also holds 100% and 90% working interests respectively in the onshore oil producing Norio and Satskhenisi fields.

The Company offers a clear entry point for investors to gain exposure to Georgia's growing economy and the strong regional demand for oil and gas.

Glossary

·    bbls: barrels. A barrel is 35 imperial gallons.

·    Bcf: billion cubic feet.

·    boe: barrels of oil equivalent.

·    boepd: barrels of oil equivalent per day.

·    bopd: barrels of oil per day.

·    Mbbls: thousand barrels.

·    Mboe: thousand barrels of oil equivalent.

·    Mcf: thousand cubic feet.

·    MMbbls: million barrels.

·    MMboe: million barrels of oil equivalent.

·    MMcf: million cubic feet.