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Block Energy to Acquire 2 Adjacent Blocks in Georgia from Schlumberger
Monday 30 March 2020

UK-based, Georgia-focussed exploration and production company Block Energy plc (LSE: BLOE) has entered into a sale and purchase agreement with oilfield services and equipment company Schlumberger (NYSE: SLB) to acquire its subsidiary Schlumberger Rustaveli Company Ltd, the company said.

Of the three production sharing contracts currently held by SRCL in Georgia, the company will acquire producing Block XIB and exploration Block IX.

It is agreed that Schlumberger will apply to relinquish Block X.

The acquisition significantly increases Block's access to production, reserves and resources.

It represents a major milestone towards the company's objective of becoming the leading independent oil and gas producer in Georgia.

Completion of the acquisition is conditional upon regulatory approvals in Georgia and the United Kingdom.

There will be no cash consideration. Instead, options over Block's share capital for the acquisition conserves the company's cash reserves.

The acquisition of producing Block XIB (615 km2) and exploration Block IX (1,925 km2). Block XIB is Georgia's most productive block, with over 180 m bbls of oil produced from the Middle Eocene, peaking in the mid-1980s at 67,000 bopd.

The acquisition from Schlumberger represents a significant step in scale for Block Energy, increasing its acreage by over 30 times.

Once completed, the acquisition will immediately boost production by 245 bopd, 2P reserves of oil and gas by 64 m boe, 2C contingent resources by 29m boe and add significant upside potential of 245 m boe of prospective resources. Block will have total licence area of 2,622 km2, giving it a material position in Georgia's oil and gas fairway.

Block XIB has a cost recovery pool of USD 103m, which has been approved by the state, plus an additional USD 30m expenditure during 2019 subject to state audit. Block XIB is producing from the Middle Eocene, the same geological horizon as targeted in West Rustavi.

However, with its greater reservoir thickness and area it offers far larger potential.

The company has prepared an exploitation plan for the new assets and when integrated with Block's existing operations, the acquired assets will bestow significant operational synergies that will enhance the company's operational ability and efficiency.

Block XIB covers 615 km2 and is the largest ever-producing asset in Georgia with over 180 m bbls of oil produced. It is located in the Kura Basin and is charged by a well-proven petroleum system. Production to date has been predominantly from the Middle Eocene.

Only four wells have been drilled since 2009, three drilled pre-2017 by a former licensee and one, PAT-E1, in 2018/2019 by Schlumberger. Schlumberger's focus was appraisal of the natural gas in the Lower Eocene and Upper Cretaceous.

Exploration Block IX has an area of 1,925 km2 and is covered with 454 km of 2D seismic acquired in 2010 and 960 km of vintage 2D seismic. Block IX has 38 legacy wells, with two wells drilled in 2013 having oil and gas shows.

There are several oil seeps in the block and numerous prospects and leads with hydrocarbon indicators identified on 2D.

The addition of Block IX creates a balanced portfolio of significant exploration upside. Block IX allows the company the option to evaluate and farm out some high-risk/high-reward drilling, offering scale for potential farm-in partners.

Consideration for the acquisition will be satisfied by the issue of share options that will give Schlumberger the right to acquire 120 m 0.25p ordinary shares, representing 23.3% of Block's enlarged ordinary share capital, at a nil exercise price.

SRCL is being acquired on a debt-free, cash-free basis. If it is determined that SRCL has net working capital assets following completion, Block will issue up to 10m additional options to Schlumberger.

For this purpose, it is agreed that the Options are valued at USD 0.05 each. This imputes a value to the Base Options of USD6 m. The agreed value of the options represents a premium of 92% to the closing price of Block shares on 25 March 2020 of 2.2 pence.

The options are exercisable between 12 and 24 months from completion of the transaction, unless there is a change of control or general offer in respect of the company, in which case they are exercisable immediately.

Completion of the acquisition is subject to the fulfilment of the following conditions precedent within six months from the date Georgia's borders are reopened.

Prior to completion occurring, Block will coordinate with Schlumberger in order to ensure the smooth operation of the assets in the interim period and to exercise operational oversight.
Date Published: 30/03/2020