Block Energy Plc (BLOE): Investment review 

Block Energy Plc (BLOE) is an AIM listed oil and gas company with a portfolio of production and development assets, all of which are previously discovered fields, located in the Republic of Georgia.

The company plans to develop and exploit these assets through the application of innovative technology and the implementation of efficient work programmes. 

Block Energy was admitted to AIM in June 2018 when it raised £5 million in equity by issuing 125 million new ordinary shares at a price of 4 pence per share. The implied market value of the company at that date was £10.3 million. 

Overview of the assets owned by the company

The portfolio of assets held by Block Energy is primarily comprised: 

1. 100% working interest in the West Rustavi licence, an onshore oil and gas field.  
2. 100% and 90% working interests in the Norio and Satskhenisi licences respectively (both onshore fields). 
3. Two Production Sharing Contracts in Georgian onshore Blocks XIB (producing) and IX (exploration)

According to the latest CPR for West Rustavi, the field is believed to contain 0.9 MMbbls of gross 2P oil reserves; 38 MMbbls of gross 2C contingent resources of oil and 608 BCF of gross unrisked 2C contingent resources of gas. 

 

Where’s the money gone?

*The audited cashflow statements have been re-worked to show where the money has gone over the past 2.5 years: 

				Jun-18 $’000	Dec-19 $’000**
Cash held at the start of the year				280	5,278
CASH INFLOWS
Investing income				1	37
Sale of subsidiary				611	–
Proceeds from issue of equity shares				7,061	16,087
Proceeds from issue of convertible loan notes				484	–
				8,157	16,124
CASH OUTFLOWS
Operating activities deficit				534	5,718
Expenditure on intangible assets				796	264
Expenditure on property, plant & equipment (PPE)				709	8,050
Costs of issuing equity shares				1,024	891
Interest paid				48	4
				3,111	14,927
Effect of exchange rate changes on cash balances				(48)	19
Cash held at the end of the year				5,278	6,494
* Figures extracted from audited financial statements
** 18 month period

The standout figures during the 18 months to 2019 are the equity injection of US$ 16.1 million which in  effect was used to fund  operating losses of US$ 5.7 million and investment in PPE of US$ 8.1 million.

Latest cash position

The cash balance reported in the annual report and accounts as at the 31st December 2019  was US$ 6.5 million and the last operations update from the company, on 7th April 2020, advised a cash balance of US$ 3.4 million. 

Summary

• The Block Energy share price and market cap at the time of writing were 2.15p and £8 million (US$ 10 million) respectively.
• Obviously, Covid-19 and the consequent decline in crude oil prices has had an impact on value. To put the company’s existing market cap into context, over US$ 30.6 million in equity has been invested to date in Block Energy. That represents quite a significant reduction in shareholder value.
• While the company currently has no external debt, it is burning through cash and has utilised US$ 3.1 million of its cash reserves during the first three months of 2020.
• In its last operations update, the company announced a series of cost-cutting measures plus the shut-in of production at certain wells to conserve cash; however, it would be helpful at this point if the board or its broker updated shareholders on forecast outturn for the remainder of 2020. I assume they have this information.
• The acquisition of two Production Sharing Contracts from Schlumberger was completed in March 2020, so it is too soon to say what impact that will have on the performance of the business.

Verdict

03.06.20: Hold until greater visibility on forecast earnings, cashflow and update on performance of recent acquisition.

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