It is the first of an initial two well programme at West Rustavi as the company aims to increase production up to 650 barrels of oil per day by the end of the first half.
The drilling follows a successful oil test in December which confirmed it is in an active hydrocarbon system, and, the previously producing reservoir retains reserves and is still pressurised.
Over 200 barrels of crude were retrieved from the well during the December test, over 10 hours, and, another 300 barrels flowed in the subsequent days.
Chief executive Paul Haywood described the sidetrack as a “high impact well” for Block Energy.
“We are therefore delighted that drilling operations have commenced at the site on schedule,” Haywood said.
“With gross contingent resources of 38 MMbbls of oil, a total of six historic wells identified as suitable candidates for sidetracking, and a legacy gas discovery, the potential for West Rustavi to generate significant cash flow and value for Block is clear.”
He added: “With back-to-back drilling planned at West Rustavi and multi-well workovers underway at Norio, we expect the strong momentum behind the company to continue as we focus on hitting our H1 2019 target of 900 bopd.
“At 900 bopd, and with current oil prices, our production will generate significant cash flow which, in line with our strategy will be reinvested in high impact activity across our existing licences and also new projects offering similar low cost, high potential production opportunities.
Market value examined
Haywood also examined Block Energy’s market value in light of the catalyst rich current schedule.
“We believe the disconnect between our £8.7 million market cap and the US$39.3 million NPV10 assigned to our 2.5 MMbbl 2P gross oil reserves alone is unwarranted, particularly as this does not take into account the 2C gross contingent resources of 72.9 MMbbls of oil and 626 BCF of gas across all three of our licences,” he said.
“We are confident this valuation anomaly will soon be closed as results come in and, with this in mind, I look forward to providing further updates on progress."
In a note to clients, analysts at SPAngel commented: “The continued progress that the Company is making underlines the difference that the application of engineering science and a well thought out programme can bring to an appraisal programme.
“While the outcome of the programme will not be known until the flow tests have been completed and analysed, we have growing confidence in the Company’s management to be able to deliver a coherent programme.”
In early afternoon trading, Block Energy shares were 6% higher at 3.55p.
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