Block Energy today announced that binding documentation has been entered into with Georgia Oil and Gas with respect to a farm-out of part of the Company's XIB licence.

Highlights:

• Binding documentation entered for a 50% farmout of non-core areas of licence XIB 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 XIB 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 XIB 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 XIB  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 XIB (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 XIB 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 XIB

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 XIB 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."

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