Block Energy expands Georgian oil footprint with XIQ PSC stake

Block Energy plc has strengthened its presence in Georgia’s oil and gas sector with the acquisition of a 10% participating interest in the XIQ Production Sharing Contract (PSC). This strategic move positions the company within a promising hydrocarbon basin, reinforcing its commitment to exploration and production in the region.

With an option to increase its stake to 22%, Block Energy aims to leverage the significant resource potential of the XIQ PSC acquisition, which includes an estimated 451.5 million barrels (MMbbl) of oil and 823.3 billion cubic feet (BCF) of natural gas, according to a June 2023 assessment by DeGolyer and MacNaughton. The company’s initial focus within the license area will be the Martkopi Terrace prospect, a Middle Eocene structure holding an estimated 267.2 MMbbl in unrisked recoverable oil resources. This prospect is considered a key asset in Block Energy’s exploration portfolio, given its proximity to the Patardzueli-Samgori oil field, which has produced over 180 MMbbl historically.

What are the financial implications of Block Energy’s XIQ PSC acquisition?

Block Energy has fully funded the acquisition from its existing cash reserves, ensuring that the company’s obligations under the Joint Operating Agreement (JOA) are met for at least the next 12 months. The financial structure of the deal provides Block Energy with an initial 10% stake at a nominal cost of USD 1, while requiring a USD 77,000 contribution toward the 2025 work programme. Should the company exercise its option to expand to 22%, the additional stake’s valuation will be determined by third-party farm-in terms or, in the absence of a farm-out agreement, based on historical transactions involving the Georgian Oil and Gas Corporation (GOGC).

The investment in the XIQ PSC acquisition aligns with Block Energy’s broader strategy of balancing high-impact exploration with financial discipline. The company’s existing production base remains above breakeven, providing a solid foundation for expansion without overextending financial commitments.

How is the stock market reacting to Block Energy’s acquisition?

Investor sentiment surrounding the XIQ PSC acquisition has been cautiously optimistic, with Block Energy’s stock (LSE: BLOE) experiencing a 2% increase following the announcement. Currently trading at approximately 1.02 GBp, the stock remains within a 52-week range of 0.60 GBp to 2.00 GBp, reflecting the volatility typical of small-cap exploration companies.

Block Energy’s market capitalization stands at approximately £7.14 million, and while the acquisition adds promising assets to the company’s portfolio, concerns persist regarding its historical financial performance. The company has recorded a negative return on equity of -5.74%, raising questions about its ability to convert exploration opportunities into sustained production and profitability.

Industry analysts have issued a “Hold” rating on the stock, emphasizing the long-term potential of the Martkopi Terrace prospect while urging caution due to operational risks and historical stock fluctuations.

What exploration and development plans does Block Energy have for the XIQ PSC?

Block Energy’s first-year work programme for the XIQ PSC acquisition focuses on re-entering the Martkopi-10 well to evaluate its potential for deepening or sidetracking, alongside conducting an environmental baseline study to ensure compliance with regulatory requirements.

The Martkopi-10 well, drilled in the 1970s, never reached the Middle Eocene target. By re-entering the well, Block Energy aims to assess its condition and determine whether deepening or sidetracking could unlock additional recoverable resources.

Block Energy is also engaged in farm-out discussions with multiple third parties. The company’s operating partner, Georgian Oil and Gas Limited (GOGL), is negotiating potential deals to secure funding for 3D seismic acquisition and future exploration drilling. While no agreements have been finalized, a successful farm-out could reduce Block Energy’s capital expenditure and strengthen its ability to advance the project.

How does the Combination Project enhance Block Energy’s position in Georgia?

The XIQ PSC acquisition is part of a broader initiative to consolidate multiple Georgian licenses into a single, enlarged contract known as the Combination Project. This restructuring includes the unitization of XIC, XIK, XIM, XIN, XIQ, and Didi Lilo PSCs, a move designed to enhance the commercial appeal of these assets to prospective farm-in partners.

As part of this process, Block Energy relinquished its stake in Didi Lilo in exchange for securing two back-in options: a 10% stake in XIQ (exercised), costing USD 1 with a USD 77,000 work commitment, and an option to acquire an additional 12% (for a total of 22%) within one year or 90 days post farm-out. By restructuring its holdings in Georgia, Block Energy is positioning itself for long-term growth in a more commercially viable operating environment.

What are Block Energy’s wider expansion efforts in Georgia?

Beyond the XIQ PSC acquisition, Block Energy continues to pursue opportunities within the South Samgori license, where it holds a 50% stake alongside GOGL. The company is evaluating options to unitize multiple licenses in this region under an enlarged PSC, similar to the Combination Project structure.

This expansion strategy aligns with Block Energy’s objective of leveraging its existing infrastructure and technical expertise to secure additional high-impact exploration opportunities in Georgia.

What does the future hold for Block Energy’s exploration activities?

Block Energy’s XIQ PSC acquisition represents a strategic move aimed at expanding its presence in Georgia’s oil and gas sector. With a focus on the Martkopi Terrace prospect, the company is set to begin critical exploration activities that could significantly enhance its resource base. However, the success of the project will hinge on securing external investment through farm-out negotiations, managing financial risks, and demonstrating the commercial viability of its assets.

While stock market reaction has been cautiously positive, long-term gains will depend on execution, funding, and resource conversion. As Block Energy advances its drilling and exploration plans, investors will be watching closely to see whether the company can translate its ambitious strategy into sustained operational success.