Goldcrest Resources plc, has agreed terms to acquire a 100% interest in the producing Norio onshore oil field Production Sharing Agreement (PSA) and an option to form a farm-in agreement to acquire a 70% interest in Block VIII PSA that hosts the East Khavtiskhevi onshore field in the Republic of Georgia. The deal, to be satisfied in cash and shares in the Company, marks a transformational step in the Company’s genesis and provides access to two highly prospective blocks in a politically friendly jurisdiction.
· Norio and Block VIII are two highly prospective blocks in the Republic of Georgia covering 4,722.5 sq km
· Norio block has 118.7MMbbl STOIIP estimated, 400km of seismic and production which covers existing overheads
· Block VIII, the largest oil and gas block in the Republic of Georgia, has a current 36.9 MMbbl risked resource estimate, over 250km of seismic, multiple targeted horizons, oil shows and a drill ready target
· Defined Phase 1 development strategy to increase existing production on Norio for limited outlay
· Republic of Georgia is a rapidly emerging stable oil and gas jurisdiction with established infrastructure and international standard legislation
· Intention to dispose of existing gold assets in Ghana with proceeds used to focus on new oil and gas strategy
Paul Haywood, Director, said, “This is a transformational deal for the Company and provides us with exposure to two highly prospective blocks, one of which has existing production. We believe a low cost work programme will increase production significantly and allow us to achieve cash flow positivity within the year. Additionally, with further investment we believe we can work with our partners to maximise the significant exploration upside that the Norio and East Khavtiskhevi blocks have.
“Importantly, there is fantastic oil and gas infrastructure in the Republic of Georgia, the Norio field is only 4km from the Baku-Supsa pipeline and fit for purpose rigs are available in country. The country is rapidly becoming a highly exciting oil and gas destination and is one of the best jurisdictions in the region for ease of doing business and transparency. We believe Goldcrest is well positioned to take a defining role in the resurgence of the industry in the Republic of Georgia, an industry which once produced over 70,000bopd but has since dwindled to <2,000bopd due to lack of investment.”
Acquisition of Georgian Oil and Gas Assets
Norio is a 22.5 sq km onshore oil field drilled in the Soviet era that has produced 1.9MMbbl to date and which Schlumberger estimated contains 118.7 MMbbl STOIIP. There is extensive existing data available including 400km of seismic data. The PSA is valid until 2026 with optional five year renewal and there are no minimum work programme commitments. The current production is 25bbls/d of light sweet oil from three wells drilled in the mid/late 1970s and is currently generating sufficient revenue to cover operational costs. The Board intends to increase this production rate to 250 bbls/d and move the Company into free cash flow territory within six months of the work programme commencing. This will be achieved by cleaning up existing producing wells (cleaning/changing of pumps etc.) and re-completing further existing wells utilising modern drilling technologies, re-perforating and horizontal side tracks. Given the shallow depths of the targets (1,000 to 1,500m) and proximity of the field to drilling equipment and transport facilities for oil sales, the Board expects its development plan to be efficiently rolled out to achieve a sharp increase in field production. To date, development of the Norio field has been hindered by the lack of capital and the recent global pricing environment of oil. Breakeven oil price on completion of the planned workovers, is believed to be sub $20 bbl oil.
The 4,700 sq km Block VIII, is the largest oil and gas block in the Republic of Georgia and hosts the East Kavtiskhevi Oil Field. The block has been subjected to over 250km of seismic, contains a drill ready discovery, in additional to multiple prospects elsewhere in the Block. Block VIII offers significant scope for appraisal drilling and field development highlighted by data from Soviet stratigraphy wells which intersected multiple zones of oil shows. The blocks prospectivity and technical understanding has been supported by modern seismic and ground gravity magnetics. An Independent estimate of 36.9 MMbbl risked resources were calculated by Gustavson Associates and the Board believes it has potential to produce in excess of 4,000 bopd with further investment.
With control of the blocks, the Board will examine all funding opportunities available to it including farm-in partnerships, debt, project finance and equity. Additionally, the Company is in discussion with a number of parties regarding the disposal of its existing assets in Ghana which it believes retain significant value. Proceeds of any disposal will be utilised to advance the Company’s new oil and gas strategy in the Republic of Georgia.
Under the terms of the agreement Goldcrest has paid US$380,000 to acquire a 38% interest in the Norio Block. As part of the consideration the Company has committed to issuing shares valued at US$300,000 to Georgia Oil and Gas at a share price of 0.5p, conditional on resolutions being passed at the next General Meeting granting the board sufficient authorities to issue the shares. The Company has the option to acquire the remaining 62% interest in the PSA via a payment of $620,000 and the issuance of further shares in the equity of the company to a value of $250,000. With regards to Block VIII the Company has been granted an exclusive option until 31st May 2017 to form a Farm-In agreement with the vendor.