Block Energy – Over 200% up in the last year and there is so much more to go for yet
Well what a year it has been for Block Energy (LON:BLOE) the AIM quoted oil and gas company. It floated on 11th June last year, raising £5m by way of an oversubscribed Placing and subscription of 125m new shares at just 4p each.
That valued the company at £10.3m on its Admission.
Since then the shares have been up to 17.7p each before falling back to trade at around the 13p level, due to a recent two-stage £12m fund raising at 11p per share.
Now that is what this stock market is all about – raising new capital for growing companies, using market experts in funding. Hopefully there will be more such fund issues as the company’s interests mature.
Until April 2017 the company was Goldcrest Resources plc. It was a gold and copper focused exploration company, with interests in projects primarily in Ghana and Mauritania. In that month the company amended its strategy to focus on oil and gas projects in the Republic of Georgia. It changed its name to Block Energy plc in May 2017.
The company holds three oil and gas assets, with existing oil production in the Republic of Georgia.
These are: the Norio PSA, in which the Company has a 100% Working Interest; the Satskhenisi PSA, in which it has a 90% Working Interest; and the West Rustavi PSA, with a 71.5% Working Interest (but also with an agreement in place to take the company’s Working Interest to 100% by 31st August 2019).
The owner of the balance of the Working Interests in the Satskhenisi PSA and the West Rustavi PSA, is Georgia Oil and Gas, is a 10.12% shareholder in the company’s issued ordinary share capital and is one of Georgia’s largest oil and gas asset holders. GOG is an established operator and is one of the company’s service providers.
Block Energy operates in Georgia, a geographic area close to one of my recommendations of last week Genel Energy (LON:GENL) in the Kurdistan Region of Iran, next door to both Turkey and Armenia.
Georgia is a low cost, stable economic and political regime. It has a liberal democracy, pursuing a pro-Western foreign and economic policy. Over the last decade its economy has grown by an average of 4.5% per annum. The country is tightly bound into the global community through membership of the WTO, the Asian Development Bank, the Council of Europe and the EBRD. It is in the Top 10 in the World Bank’s ease of doing business index.
However, most attractive of all of Georgia’s assets is that it has a regulatory environment facilitating a liberalised energy market and a stable framework for Production Sharing Agreements.
The company boasts a management team with unrivalled experience and contacts in the Caucasus region, with its three licences being close to the Georgian capital of Tbilisi. That team is using innovative technology to realise the full potential of previously discovered fields in Georgia. And its strategic aim is to become one of Georgia’s leading independent oil and gas companies.
The funds that the company has just raised will be used to expand the West Rustavi field’s facilities to increase production capacity to 4,000 to 5,000 bbl/d. That is within the next year.
Over the next two years, and now fully funded, it is aiming to bring that field’s gas reserves into production, whilst it continues oil development across all the company’s licences, and for any more licences that it may secure in Georgia and also in the wider region.
It has a plethora of low-cost services in close proximity to all of its assets. It has a good production and transportation infrastructure, together with an operating and oil sale marketing structure.
The company, which has yet to declare any operating profits, is soon to see its cash flow increasing at a very strong rate – generating some $1m a month helped by its testing at well 16a on the West Rustavi. The test indicated a well performance that is better than any well drilled in Georgia in the last 50 years. The news of that well, less than a month ago, saw the company’s share surge up to 17.7p at one stage.
Taking advantage of the higher price enabled the company to successfully raise that important £12m of new funds – it is a game changer.
At the close of the first funding stage Edinburgh investment managers Amati Global Investors increased their stake to 55,305,000 shares (17.33%), whilst Georgia Oil and Gas now hold 27,958,802 shares (8.77%), Miton Group holds 23,750,000 (7.45%), Alistair Fergusson holds 17,150,606 (5.38%), and Pelamis Investments 14,176,470 (4.44%).
Block Energy director Roger McMechan is a significant shareholder in Iskander Energy, which has 14,000,000 shares (4.39%), whilst three other directors hold a total of 3,701,954 shares (1.16%).
Admittedly this is still a very early stage of the development of the company and, until the cash really does start to flow as fast as the oil and gas, its shares, now 13p are a big gamble.
Even so I take the view that the fund raising has marked out a new base level for the shares at 11p and that they are going to very soon reflect the major upside potential.
A Speculative Target Price over the next year is 25p.