Block Energy (LSE:BLOE) — Investor Webinar

0:01 Good afternoon, ladies and gentlemen, and welcome to the BLOCK ENERGY PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time using the Q and A tab just situated on the right hand corner of your screen. Just simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during today's meeting. However, the company can review all questions submitted and we'll publish any responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure the company would be most grateful for your participation. I'd now like to hand over to Paul Hayward, CEO. Good afternoon. Thank you. Once again, welcome all to the BLOCK ENERGY investor meet company presentation. The flow of this presentation, will provide a simple overview on the company for those that, aren't aware of the company's current activity, and then we'll get into a q and a session. The presentation should take no longer than around fifteen minutes, and then we'll open up for some questions.

1:06 So a simple summary on the company as is. So we're an independent oil and gas company focused on The Republic Of Georgia. Flagship resources consist of 2C gross resource of two fifty five million barrels of oil and 2.7Tcf contingent gas resource associated with our 11b and 11f permits. As you can see, as illustrated in the map to the left, the core area, core focus for the company relates to the 11b and 11f area, which sits South of Tbilisi. BLOCK ENERGY is an established operator in The Republic Of Georgia. We've been operating in country from around 2017 and officially set up our own operatorship in 2018.

1:59 Since 2020, we've achieved safe, cumulative operational man hours of around 1,300,000. We've drilled in excess of eight wells. We've installed an early stage production facility across our 11f permit that allows us to monetise, hydrocarbons that are currently being produced by the company. And we've completed a three d seismic survey across 11F permits. The team itself has significant experience both above ground and below ground in Georgia, and we are well served by export infrastructure consisting of the BTC and SCP pipelines, both of which are majority owned and operated by BP. The BTC line transports around 1,000,000 barrels a day Azerbaijan

2:51 through Georgia, down into Turkey and off into European markets. The SEP line again transports gas primarily from the Khashadines field, which is offshore Azerbaijan, again through Azerbaijan, through Georgia, down into Turkey, and off into European markets. Georgia is a pro business operating environment. We operate under a simple PSC structure country, which is somewhat industry standard, And the government remain extremely supportive on stimulating growth throughout the hydrocarbon industry.

3:31 So, as lightly touched on the previous slide, again, we've got an established presence in Georgia, of course. We are now the largest independent oil and gas producer in country, and consequently a party to seven production sharing contracts. We have defined a four project strategy, which aims to unlock the full potential of our resources across our wider portfolio. The opportunity as it stands to date is as communicated to our shareholders and our followers earlier this year. The focus remains on the advancement and farm out of our Project three, a multi TCF gas resource, which has been declared a strategic asset by the Georgian State. Those endeavours are supported by revenues generated from hydrocarbon production from Project one.

4:22 Additional upside can be had or is being advanced through the development of our Project two strategy and further farm out of our interests associated with Project four. The current status relating to the high impact activity associated with Project three is that, again, as announced recently, the company has recently engaged with a third party adviser to run a competitive process on securing a farming partner to assist us with our endeavours associated with developing that significant gas resource. Whilst in parallel to that that activity, we continue to advance plans associated with, working up and developing a work program associated with securing and advancing all plans associated with developing the 250 odd, million two seat contingent resource associated with both project one and project two.

5:20 An important point to note is that our production sharing contracts of, minimum work programs associated with our project production sharing contracts have been fully fulfilled, and, therefore, we are in charge of our own destiny and can make our own decisions when allocating capital.

5:39 Slide six here just summarises, briefly what I've touched on on previous slides. Essentially, the the focus over the past two years or so has been on developing interests associated with our low risk and relatively low impact Project One strategy, which has essentially been focused around advancing overall group production, which essentially ensures that we're able to cover our costs and have sufficient revenue to develop our high impact strategies associated with project three being the primary focus right now, project two, and indirectly project four. Now I'm just gonna get into a little bit more detail, on the relevant projects, and I'll take you through these slides. The projects will be discussed in the order of, priority as opposed to numerical order.

6:33 And kicking off with project three. Project three is a luriecing and upper Cretaceous gas play, a proven gas play, which has been proven by legacy penetrations that occurred back in the Soviet times as well as more recently, a deep vertical well that was drilled by the previous asset owner and operator. And that well was drilled into the Patazuri Sanguri structure that, as you can see in the illustration on this particular slide, is the structure that sits up in the northeast corner of of the map shown. Additional fields noted are Teleti and Rastavi. And as our followers will be familiar with the fact that we've recently completed an independent auditor resource auditor report on the Patazuli Sanguri field.

7:25 That process completed in q four last year and assigned a contingent resource of just over a TCF of two c gas resources. Furthermore, when taking, in parallel to that activity, and on lead up to that activity, the team inside BLOCK ENERGY had basically worked up an internal resource report associate associated with both the Talehti and Mustafi fields. Once that audit of Patazuli Sangori had been completed, the assumptions and properties defined in that reports were then applied to the internal resource reports. The BLOCK had worked up internally, and consequently, we have landed a total contingent resource report resource estimation of 2.7 TCF.

8:15 That project is of is of strategic importance to the country of Georgia and has been defined of strategic importance by the government of Georgia and has consequently shifted to be the primary focus for the company now as we embark on our farm out strategy.

8:34 Taking a slightly deeper dive on project three, slide eight simply illustrates the field development plan that we have had, again, audited by third party specialists. Both the costs associated with the phased development plan have been audited by drilling specialists, as well as the facilities associated with monetising the gas produced as we move through our stage production development programme have again been QC ed by third parties. So essentially, the project three development plan is broken up into three significant phases, two of which see us moving through an aggressive development plan. But first and foremost, the appraisal plan consists of retests of legacy gas producers throughout the field, whilst also sidetracking the Patti one well that was drilled down into the Upper Cretaceous, and also drilling one further new well in the Northeastern side of the structure to then basically derisk and provide data points, which ensure that the phase development plan is tailored and designed, in the lowest risk and most efficient way.

9:55 So, essentially, we've we've defined three key milestones associated with our farm out progress, and and the first two have now been completed, of course. And the first and foremost, its first step was to prove the gas resource and essentially that was done for us historically and by legacy asset owners and operators. Over the past eighteen months, we've been working through packaging up the opportunity to get it to a farm out ready stage, which included, of course, the third party audit completed in Q4 twenty twenty three. And now we embark on seeking out partners to assist us on the journey of developing what we believe to be a significant opportunity, onshore in The Republic Of Georgia.

10:43 The next opportunity within the portfolio, which is an opportunity of which BLOCK is not the operator, but is is a JV with a local oil and gas company in Georgia, is project four. That project has been communicated the advancements on that project have been communicated to the market in mid late twenty twenty three. Consequently, the operator of that project has completed yet another independent resource report with De Goy and McNaughton, who have defined an internal gross perspective resource of two thirty nine million barrels. That project is also subject to farm out now. That process is ongoing. It's important to note also that the government of Georgia are 22% stakeholder in project four, and they too are very much incentivized, to see that project move ahead.

11:36 So Georgian oil and gas continue to run their process. They're in discussions with third parties who are currently in their data room reviewing the proposed work program, and we look forward to updating the market in due course and further progress ahead on that opportunity. Moving down the priority list now, not too far down the priority list, we've got project two. Now project two is essentially a redevelopment opportunity of an of a proven producing and somewhat prolific on a relative basis field, just established in Georgia back in the early seventies. And the Sanguri Patazuli field had tuned over a 180,000,000 barrels, across a seven to eight year period. The reservoir that was responsible for that production was the Middle Eocene, and the Middle Eocene is a 650 odd meter thick reservoir of which a 180,000,000 barrels were produced from the top 50 to a 100 meters. So essentially, this project here is, is a project that focuses on exploiting, the deeper opportunity throughout the Middle Eocene.

12:43 Back in 2022, the company drilled, a deep well to oh, sorry, deepened an existing well into the base of the middle Eocene, to prove, the remaining oil potential, throughout the deeper horizons. And, consequently, the company has moved into a study phase whereby it and associates third party associates are assisting the company with defining a redevelopment plan focused on recovering a portion of the two c contingent resources being assigned to that project, which is currently at 235,000,000 barrels. And here we have a summary on project one. And, essentially, the focus for the company over the past, three three and a half years actually has been on defining and developing the opportunities that sit within project one. I think what we've learned from the development of project one is obviously, a hell of a lot about the reservoir and about how to map, place our wells, and have worked endlessly on getting our cost down to drill, these horizontal wells.

13:57 And we've proven that, in terms of in terms of locating, well placement, and the increased productivity that can be achieved through, horizontal drilling has been somewhat significant. However, project one has has always been a project that the company had focused on developing as part of its ensuring that it was cash flow breakeven, cash flow positive, and able to pay its bills without returning back to the market, to continuously dilute shareholders and advance its projects. Consequently, the project project one has somewhat achieved its objectives in that so the company is now cash flow positive. So our costs are fully covered, and the profits from current hydrocarbons being produced are being recycled back into high impact opportunities that provide the platform for the company to achieve a quantum leap from its current base.

14:58 And last but certainly not least, yet another project that's being defined, has been communicated, to the market the back end of last year and is we see it as being hugely complementary to, our specific focus right now with the farm out of project three, and that's a carbon capture and storage project. Essentially, we've had, independent consultants come in and provide technical analysis on the carbon capture and storage, potential throughout the Middle East horizon, which has today been a prolific producer throughout the block 11 b and 11 s permits that sit on the edge of a major industrial city located within Georgia. Now essentially, we've got we believe there to be up to 150,000,000 tonnes of storage.

15:48 There are commercial options that are being evaluated, by the team internally, and externally, as we speak. And this project is is somewhat, I wouldn't say unique, but it's a it's a rare project in that the mineralogy of the, of the rocks in which we would see ourselves injecting carbon into are such a way that allows us to or causes injected carbon to somewhat mineralize within a twelve month period, which is which is, you know, a significant a significant positive for the project when considering the amount of penetrations that we've got across the 11 b license into the middle ear sync and what could quite possibly be injected into those horizons should we move this project forward. The next steps relating to this project, is, a detailed pilot study to be drafted and presented, to the executive team.

16:56 And on approval, we will move forward with advancing all plans associated with proving up, certainly, the, the rapid c o two fixation, element of this, what could be a very strategic project.

17:16 And last but not least, I think as as touched on earlier in the presentation, I think, what we've proven to date since operating in Georgia, that Georgia remains a stable business friendly operating environment, that is very much pro development of the hydrocarbon industry. I'd like to thank you all for your time. I'd like to now move across to the Q and A. Paul, that's great. Thank you very much indeed for updating investors. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. I just want to take Paul takes a couple of moments just to review your questions submitted already. I'd just like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investment company dashboard. Paul as you can see you've had a a number of questions from investor both ahead of today's event and during today's call. So thank you to everybody for your engagement.

18:04 Paul, if I may just hand back to you, if I could ask you just to read out the questions and then give response where it's appropriate to do so, and I'll pick up from you at the end. Sure. Thank you. Okay. Please, can you provide an update on the progress made to date regarding project four? Progress made to date, I think most notable would be the CPR completed by De Goy and McNaughton, I guess somewhat reaffirming the views that the company had on the prospectivity of the project, assigning a two thirty million barrel prospective resource to the project, consequently continues to underpin and strengthen the Government's interest in maintaining its position and meeting relevant cash calls to advance the project and b, supporting third party discussions on the potential farm out of that particular project.

19:12 Project two farm out progress. I think with relate with respect to project two, that project is is in, if you like, is internal development phase. I think what's important is that there is a significant resource, available to us there, and there's, an intense amount of work ongoing, by the team to determine exactly how we can efficiently go about extrapolating, those resources. So further updates on project two will be provided, in parallel to an update on project three farm out in due course. How many companies are interested in the project three farm out process? How long should it take?

20:02 Good question. We've got a broad list of targets, both based in and around the region and further afar. There are also potential candidates that have shown interest in country that operates businesses which require significant volumes of gas. Conversations are ongoing. The farm out process has kicked off, as announced, and we look forward to providing a further update on progress as we move through the various stages, which essentially can be summarised as providing management presentations to those companies which enter into CAs, which then lead into deeper dives, into the day in the data room and detailed discussions with our teams.

21:02 And from that point onwards, we'll be in a better informed position to communicate interest from relevant parties with our followers and those interested.

21:20 CCS opportunity. What commercial benefit is this opportunity going to bring? That's a very good question. And I think anybody that's done a small amount of reading on CCS would realize that, typically, coming up with a commercial strategy to commercialize these opportunities is the challenging component. I think what's unique about the opportunity that we've defined in Georgia outside of the mineralogy of the rocks and the added benefit of being able to mineralise carbon within a twelve month period or thereabouts. I think a project that has proven commerciality that would be seen somewhat as an analogue or be on a smaller scale to that that we've defined in Georgia across our license areas would be that sort of carb fix in Iceland.

22:12 They they have done an excellent job in proving a commercial commerciality of carbon capture storage projects of similar natures to ours. Essentially, I think, you know, what's important critical questions, of course, is where do you source the carbon from? If you have to capture and transport carbon long distances, then, of course, that drives up your cost and reduces your potential netbacks. Carbon is, you know, is available to us in close proximity in the industrial hub that sits on the outline of the block 11 f, our block 11 f license. There are large producing fertilizer plants that sit sit not too far from us. There is a major steel plant that sits not too far from us. And I think, you know, both of those operations will be actively looking at how they can reduce their carbon emissions as part of accessing cheaper international capital whilst also meeting their sustainability goals.

23:21 Why did you appoint Lab Energy as an adviser and not do it yourself? The simple answer to that is, you know, we define project three as being a significant project. I I think the the overall resource size and the project economics somewhat speak for themselves there. I mean, we've got a, you know, 2.7 or TCF gas project with an NPV of around $1,600,000,000 What was an absolute priority for us was to ensure ran a competitive process for our shareholders therefore we are able to on success, able to achieve the very best deal for shareholders. It is no secret that the company has been having we have communicated this to our shareholders in the past. We have been in discussions with parties on a direct basis, but we felt it was prudent to bring Lab Energy in for those very reasons.

24:31 Given the current market cap, what are your thoughts on funding the various opportunities? That's a very good question. I think clearly there is a significant disconnect between company market cap and our net asset value, which is not uncommon for companies in our space right now, as I sure all of our listeners are aware of. I think most importantly, the way in which we see ourselves progressing, the project three opportunity will be at the asset level. We do not envisage a corporate transaction or transaction at the PLC level, particularly not at these market caps that that we're currently aware of. So, you know, the ideal the deal structure we'll be seeking as part of this process will be a farming at the asset level, which will then lead, of course, to discussions around operatorship and how the company is compensated for past costs associated with block 11 b, which currently sits in excess of a $140,000,000.

25:38 We've got there are numerous case studies out there that are somewhat analogous to the sort of deal structure we'll be looking for, We've seen these deals structured by companies that have been in similar situations to us, and we don't envisage our market cap being a massive hindrance to ensuring that we're able to secure the right deal for shareholders at the asset level. When do you anticipate a quantum leap commencing and returning an increasing share price? I'd like to think that if we're successful with our farm out endeavors in project three, we would see, you know, the initial step of the appraisal program requiring in excess of, somewhere between a range of different scenarios where we're working through here, but, somewhere in excess to of $20,000,000, will get us through the initial appraisal programme, and that would see us, performing a long reach horizontal and a patti one well, as we explained earlier, drilling new well, and testing another part of the Sam Goury Patti Zuli structure, whilst also retesting multiple gas wells.

26:49 I'd expect a carrier across such a work program with some recognition for back costs to ignite the market's interest in BLOCK's ability to derisk and advance the 2.7 TCF. And, therefore, that should be reflected in the share price. On the farm out sale or process, would you expect the net amount to be returned to shareholders of the company? That's a very good question. Details on on that, question will be released to the market as we as we advance. And, all being well, reach a binding commitment with our preferred third party.

28:11 Do we intend to resume drilling of the horizontals p project one anytime soon?

28:19 Yes, it is something we are looking at, but I think we have reached a process where clearly success being had in Project One was having minimal, if not zero, impact on the company's overall share price performance and market cap. Of course, each and every time we put a new hole in the ground, we are risking, are deterring resources away from delivering on a high impact strategy, and we are risking our ability to deliver on that strategy. Given the current position of the company, being in a cash flow positive position, and the immediate ability need to not drill further wells and increase production. Certainly, that may risk us achieving a high impact strategy.

29:07 Currently, project one is on hold. Our engineering team are looking at some innovative ways in which that we can drill further project on wells in due course if required on a lower cost basis whilst utilizing the technology and equipment that we've upgraded over the past eighteen months to basically drive down the overall CapEx associated with those wells. But the short answer to that question now is drilling is currently on hold whilst we pursue while we seek to deliver on our project three strategy. But, you know, as this year plays out, we may well revert back to possibly drilling one further well this year under project one to ensure we stay well above our, our breakeven price, production level.

30:07 Is there any reason why the market is not fully realizing the potential of these assets? That's a very good question. I think, you know, it's you know, from what we've seen, certainly, when analyzing our peer group, which we do on a regular basis, depressed valuations are not unusual for the micro caps and small caps on the end market right now. I think, you know, by and large, domestic and foreign inflows into small cap AIM stocks have been has been disastrously low. And, consequently, we see that flowing into, of course, overall values relative to NAV. So, you know, as it stands, I think companies such as us are having to work far harder to draw attention and to ensure that the market and investors that are putting money to work clear and understand the value proposition that is offered by BLOCK ENERGY. And because we do feel on a relative basis, when we look at our peer group, both on a revenue basis and contingent resource basis, the value associated with the BLOCK ENERGY portfolio stands out significantly, which is why, yet again, you know, this decision to shift on past strategy of Drill Baby Drill under Project One, delivering what have is deemed to be understood to be relatively low impact wells, albeit, you know, keeping us above our

31:37 breakeven rate, was made. I think, you know, the the one of one of the primary drivers behind the shift into focusing the market, and certainly our limited internal resources on delivering project three is very much, you know, tailored around ensuring that investors sit up and pay attention, and they keep a close eye on the progress we make. When will GLG drill mark copy terrace? They're currently in the market looking at rig options. They're having strategic discussions with the state of Georgia, and they're advancing conversations with third party farming candidates as once a date has been determined.

32:34 There's a firm commitment for a spud date that will, of course, be communicated to our shareholders. Farm out of project two. Is the only interest in country, or did I misunderstand what you said earlier? Are majors sniffing around? No. I think the company has been in direct conversations with parties actively drilling and seeking further opportunities in country, albeit the farm out process has essentially widened the focus on who we who we market the opportunity to and who we discuss the proposition with in in further detail.

33:20 So there are candidates in country that are focused. There are regional players that are in focus. There are also companies further or far in focus. Would BLOCK ENERGY look ever look at any assets outside of Georgia? I think for now, we've got more than enough on our plates. You know, when we look at we have we are constantly screening additional opportunities, a, to benchmark what we have in Georgia and understand, you know, are we allocating our capital and chasing the right opportunities relative to what else might be out there? And I think, you know, the short answer there is, yeah, on a when looking more broadly around the region, we can't think of any place that we'd rather be operating right now than in The Republic Of Georgia.

34:14 We think our portfolio is first class. We think, you know, the size of the opportunity relative to the capital that's required to be risked to prove up yet opportunity is significant. And certainly for the time being, our focus will remain on delivering on our core objectives for 2024. Paul, that's absolutely brilliant. You've taken an awful lot of questions. You presented on your own. Loads of questions are coming in. I don't know there are a number of the same theme. So if there's anything, any other questions that come in, of course, we'll make those available to you and we can add any additional responsive if it's appropriate to do so. So Paul, thank you very much indeed for your time and thank you to everybody for your engagement. Paul, I know investor feedback will be particularly important to you and I'll shortly redirect everybody on the call to give you their thoughts and expectations.

34:59 But before doing so, I wondered if I may just come back to you for a few closing comments. As I say, after which I'll redirect investors for their feedback. Thank you. I'd just like to thank everybody for taking the time out at the end of their days to listen to the presentation. Thank you very much for your questions. And please stay tuned. It's a very exciting period for the company. And we're all working tirelessly to deliver on our key objectives. So thank you. That's great, Paul. Thank you once again for updating investors. Could I please ask investors not to close this session as when I automatically redirect you for the opportunity to provide your feedback in order the company can better understand your views and expectations. This only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of BLOCK ENERGY PLC, we'd like to thank you for attending today's presentation. I wish you all a very pleasant afternoon.

35:46 Thank you.