In the Notice of General Meeting posted to shareholders on 23 July 2021 (available in the Investors section of the Company’s website at: www.blockenergy.co.uk/investors/circulars-presentations-and-reports/), the Board outlined why it believed that shareholders should vote against the resolutions, and maintain the current Board composition.
The following observations are made in respect of claims made by the Company:
Claim: A track record of delivering value, with net asset value having increased by over 200% from US$9.2 million as of 30 June 2018 to US$29.7 million as of 31 December 2020, and 2P reserves increasing by more than 40-fold over the same period, despite the impact of Covid-19.
Response: While net asset value (NAV) has increased, it has been done so without adding value for shareholders who have been significantly diluted. Using the Company’s NAV numbers the effect of dilution has been a NAV / share of c.2.5p per share at IPO to only c.2.7p per share fully diluted. This is before the Schlumberger deal (which accounts for the claim on the reserve increase) which on a fully diluted basis sees a reduction in NAV / share to 2.3p per share.
Claim: Continuity with the operations team at a critical time in the current, potentially Company-transforming, drilling campaign.
Response: The Chairman is not part of the operations team, and his removal would have no effect on the day-to-day operations of the drilling campaign. To suggest that the Chairman is critical to the success of the drilling is worrying in itself as it suggests a lack of robustness in the team and operational processes.
Claim: The Company has increased production from 15 to 486 boepd between 2018 and Q2 2021, representing a 3,000% increase and established itself as Georgia’s leading independent producer through:
1. the transformational acquisition of Schlumberger’s Georgian assets in 2020;
2. the drilling campaign in the West Rustavi field; and
3. the strategic partnership with Baker Hughes, which provides key technologies (such as engineering and subsurface support) to execute a portfolio-wide development plan.
Response: Production rates have been inconsistent, and the Company is incorrectly presenting itself as having a stable production base. The Schlumberger acquisition was highly dilutive to existing shareholders, as shown above, and the results of the drilling campaign in the West Rustavi field have been poor. One well has struggled to produce, and another was a complete failure. Rather than a strategic partnership, the relationship with Baker Hughes is a service contract (standard in the industry) and it is unclear as to what, if any, commercial benefits the Company achieves from the arrangement.
Claim: Following the fundraising in late 2020, supported by over 99% of voting Shareholders, the Company is currently drilling a potentially transformative well designed to target 2.1 million boe of recoverable oil and gas and increase production to over 1,000 boepd, resulting in a material uplift in value and cashflows.
Response: The fundraising was conducted to execute a three-well campaign. The Company has not referenced this in its response, which the group of shareholders believes is due to poor financial management of the project, and the Company