Paul Haywood, a Block Energy director, believes the potential is 'outstanding' and West Rustavi will be the driver of the business’s development and value going forward.
West Rustavi is not Block’s only play in Georgia, it has stakes in two other licences, but it is the potential headline grabber says Haywood.
Discoveries have already been made on the Lower Eocence and Upper Cretaceous levels with a 608 BCF 2C gross unrisked contingent gas resource in addition to 37.9MMBbls of oil.
Block has an option to increase its stake to 75% and has already started work to shift some of those resources into reserves.
Watching the neighbours
West Rustavi, though, is 15km from X1b, a block being explored by oil services giant Schlumberger and how its programme progresses is likely to frame Block’s work.
Haywood says Schlumberger is undertaking four to five months of drilling to target a huge 1,000m play.
West Rustavi has the same geology and is on trend from that block and Haywood said he intends to learn what he can from Schlumberger’s programme.
“Once Schlumberger has drilled we can learn from its experience.”
Block has put its own development at West Rustavi at the back end of the current work schedule so it can incorporate any insights from Schlumberger’s exploration.
Before then, the plan is to carry out workover and sidetracks on of the most promising wells at Block's two other licences - Norio (100%) and Satskhenisi (90%).
That plan should boost production from 20 barrels per day currently to 900 barrels.
Longer term Block aims to increase output to 2,000 barrels per day, which will give Block the financial firepower to bring gas from West Rustavi on stream.
Block raised £5mln when it joined AIM in May, which will be sufficient for this development work, which is scheduled to take 18-24 months.
Fund managers Amati Global, which has specialist knowledge of the region, and small cap investor Miton, backed the cash raise and both liked the emphasis on production first says Haywood.
We are small e [exploration] and big P [production],” he said.
“This focus on production and to be self-sustaining out of cashflow is rare among Aim juniors and is how we are going to differentiate ourselves.”
Georgia is critically short of gas he adds and heavily dependent on neighbour Azerbaijan for its supplies, a situation it is keen to change and that has made for favourable terms for companies that operate there.
Block estimates the cost of gas development and production at West Rustavi is US$2.00/Mcf, which on a 75% working interest basis it sees equates to operating netbacks of c.US$2.6/Mcf.
Georgia currently purchases its gas for about US$5.5 /Mcf and on those numbers, Block believes West Rustavi alone can be worth US$600m to the company, though it paid US$500,000 for its latest 20% interest.
Haywood added: " Our fully funded work programme, following our recent £5mln raise, which is targeting a ramp-up in oil production to 900bopd, is also commencing in July.
“As with the gas at West Rustavi, oil production on our fields offers excellent netbacks, with the current cost of production of c.US$25 per barrel providing netbacks of c. US$30-35 per barrel.
“If we operate at half our 900 bopd initial production target, our annual revenue potential would be approximately US$6mln, a level equivalent to a significant proportion of our existing enterprise value.
At 3.35p, the company is valued at £8.7mln.