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It looks like Block Energy‘s (LON: BLOE) West Rustavi oil production efforts are going to be back online as the energy firm has signed a deal that will see it get access to 90,000 barrels of oil storage capacity in a location just 30 kilometres from its key production site in Georgia.

The shares are listed on the AIM market, and were admitted to the exchange only a year ago. Shares in the oil company spiked from 10.10 to 13.98 on the news, although they have since dropped away a little.

Block Energy plans further exploration

The deal is a big step for Block Energy as it means it can run its 16az well at full capacity and take advantage of oil prices in the mid-60s area. The 16az oil well has been demonstrated to be able to run at over 1100 barrels per day, but lack of storage had forced the firm to rein back on its pumping activity.

The company has other wells in the same field which it wishes to exploit further. Some of these still require further seismic testing while there is also scope for further gas finds in the same area.

Swiss bank Mirabaud has started covering Block Energy and has rated it a buy immediately. Mirabaud analysts said that Block Energy would be in for a “busy few months” as it starts pumping and looks to add to that capacity.

“We are preparing a detailed operations update which we look forward to sharing with the market shortly, setting out our busy schedule for the next 12-18 months,” said Paul Haywood, chief executive of Block Energy.

Mirabaud also said – promisingly – that it saw Block Energy shares still trading at a 70% discount to Mirabaud’s 35p/share target price.

Georgian oil: the Armchair view

Georgia remains in an excellent position for the export of its oil and gas products, with pipelines to the Black Sea ports and overland to the refining capacity in Azerbaijan. The Armchair Trader visited Georgia in 2015 and while the region’s energy industry would benefit from more investment, we agree that technology upgrades will directly benefit the productivity of energy companies active in the region.

Block Energy shares certainly seem to be gaining momentum following the latest announcement. The shares were up 3% on 4 July alone.

Looking out to the longer term, the business also has exploration rights in the Norio and Satskhenisi fields in Georgia, which it estimates have considerable 2P oil reserves.

Note: Sunrise Resources cashed in over 450,000 Block Energy shares last month. This was around 0.1% of the company. It was probably the wrong time to exit the stock. Sunrise defended the move, saying it was part of its strategy to liquidate ‘non core’ assets in order to fund other projects. Sunrise Energy is a US mining company with a focus on mining activity in the western United States.

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Stuart Fieldhouse

Stuart Fieldhouse has spent over 20 years in journalism and financial communications, including six years as a wealth management correspondent for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong.

Stuart has worked as head of content at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Stuart continues to work with hedge funds, private banks, stock exchanges and other financial institutions on their communications, data and marketing requirements.

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