Preliminary Results and Notice of AGM

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UK 100

RNS Number : 2598I

Block Energy PLC

22 November 2018

Block Energy Plc / Index: AIM / Epic: BLOE.L / Sector: Oil and Gas

22 November 2018

Block Energy Plc ("the Company", "Block" or "the Group")

Preliminary Results and Notice of Annual General Meeting

Block Energy Plc, the exploration and production company focused on the Republic of Georgia, is pleased to announce its preliminary results for the year ended 30 June 2018.

In addition, notice is hereby given that the Annual General Meeting of the Company will be held at the Washington Mayfair Hotel, 5 Curzon Street, Mayfair, London, W1J 5HE on 20 December 2018 at 2.00pm.

The Company's Annual Report and Notice of Annual General Meeting will shortly be posted to shareholders and made available on the Company's website at www.blockenergy.co.uk.

Highlights:

· Admission to AIM on 11 June 2018 in conjunction with a placing of £5million (before expenses), issuing 125,000,000 shares at 4p per ordinary share in line with strategy to transform Block into one of the largest independent oil and gas companies in Georgia

· Successfully acquired portfolio of oil and gas assets in Georgia, all of which are producing or have historically produced and all of which have significant development potential: 2P gross oil reserves of 2.5 MMbbl; gross contingent oil resources (2C) of 72.9 MMbbls of oil and 626 BCF of gas:

o Acquired a 100% interest in Satskhenisi Ltd and a 90% interest in the Satskhenisi Production Sharing Contract (PSC) for a consideration of £595,000 through the issue of 70,000,000 Block Energy Plc shares.

o Increased the interest in the Norio PSC from 38% to 100% through a £481,000 cash consideration and issue of 4,695,717 Block Energy Plc shares (£188,000) on listing. Total consideration for Block's 100% interest in the Norio PSC was £1,206,000, which, when compared to the P50 NPV valuation of £22,340,000 provided by the Competent Persons Report, illustrates the considerable upside in this asset.

o Increased the 5% interest in West Rustavi PSC to 25% through a cash consideration payment of £377,000, and issue of 18,782,870 Block Ordinary shares with a value £751,000 on listing.

· As at year end, Block Energy holds three operating licences - Norio (100% WI), Satskhenisi (90% WI) and West Rustavi (25% WI)

· Asheba Asset Sale and Purchase Agreement finalised for a total US$600,000 cash consideration payment in line with focus on oil and gas assets in Georgia

· Robust cash position at year end of £3,997,999 (2016: £215,000)

· Commenced work programme post-period end at Norio focussed on scaling up production to 150 bopd by the end of Q1 2019, with a planned additional sidetrack forecast to increase production further to 250 bopd

· Post-period end, began preparation work to drill horizontal sidetracks and test a legacy gas discovery in the Lower Eocene at the West Rustavi field which lies on the same play being targeted by Schlumberger on neighbouring fields

· Group continues to produce approximately 15bbls/d of oil from the legacy assets, with improved prices received for oil as the world price for crude has strengthened during the year

Paul Haywood, CEO of Block Energy said: "Block Energy is a junior oil and gas company with the potential resource base of a mid-cap oil and gas company. The solid operations infrastructure we have established and the well-designed work programme we are implementing are big steps towards closing the valuation mismatch. Specifically, the commencement of multi-well operations at Norio and the imminent West Rustavi work programme herald the beginning of another busy and exciting period for Block, one that promises much high impact news flow as we work to transform the Company into a leading independent oil and gas producer with a market valuation to match. At the same time, while overseeing our Georgian programme, our directors continue to evaluate additional late stage development opportunities offering clear paths to production and value creation for our shareholders. I look forward to providing further updates on our progress."

Chairman's Statement

Block Energy joined AIM this year with an oversubscribed fund raise of £5 million, indicative of our core strengths: a set of producing or previously producing licences in business-friendly Georgia; a robust strategy to surpass breakeven production in the near-term; and management, technical and operations teams with deep experience of the oil and gas sector across the region and beyond.

During the financial year the Company added the Satskhenisi licence, with a 90% WI, to its portfolio of Georgian assets, which, at the start of the period, comprised Norio (38%) and West Rustavi (5%). Block went on to increase its WI in Norio to 69% and then 100%, and in West Rustavi to 25%. The Sale and Purchase Agreement for West Rustavi gives the Company options to earn progressively into WI's of 50% and 75%. The Production Sharing Contract (PSC) is valid for an initial term of 25 years and became effective from 1 September 2018. The Company firmly intends to increase its WI in the PSC to 75%.

Our asset base provides a solid foundation for your Company to realise its ambition of becoming a leading independent oil and gas producer. Our three licences, located in a prolific hydrocarbon region, contain significant proven and contingent resources. Since our IPO in June, we have been working day-by-day, week-by-week to execute our strategy for unlocking the full value of our assets. We have:

· Assembled an experienced technical, operations and administrative team in Georgia and London.

· Established a rigorous Health, Safety and Environment (HSE) Plan that includes the full upgrade of the facilities we inherited from previous operators.

· Secured the rigs and equipment necessary to implement our work programme at much lower rates than anticipated.

· Identified a specialist perforation tool that our research indicates will be particularly well suited for use in our fields and allow significantly higher flow rates.

· Commenced an eight well workover programme and a sidetrack on our Norio licence, aiming to increase production at the field from 10 to 150 bopd by the close of 2019.

· Developed a programme to drill horizontal sidetracks and test a legacy gas discovery in our West Rustavi licence, a discovery lying on the same play being targeted by Schlumberger on neighbouring fields.

In early October 2018, Timothy Parson retired from the Board to fully dedicate himself to his interests in deepwater drilling. Our thanks are due to him for his contributions to the formulation of the work programme and to the preparations for our AIM listing. We wish him well with his future endeavours. Timothy's place as an independent non-executive director was taken by Christopher Brown. We welcome Christopher to the Board and the Company. We are already benefitting from his considerable knowledge and experience of managing the discovery, evaluation and development of oil and gas fields.

We look forward to welcoming you to our AGM on the 20 December 2018, during which we will be addressing, in addition to ordinary business, special business resolutions to grant power to the Directors to allot shares and apply pre-emption rights. This is to give the Company the flexibility to conduct business growth efficiently.

We have strong fundamentals, are implementing our programme and are confident the market will recognise our inherent value, robust balance sheet and re-rating potential. I would like to thank all our team for their focus and hard work. We look forward to updating shareholders with a strong flow of news through the busy weeks and months to come.

Philip Dimmock

Chairman

Chief Executive Officers' statement

Rapid Progress

Block Energy is an asset backed, revenue generative oil and gas company with a defined development path designed to unlock near term significant value for shareholders. Asset backed, thanks to our three licences in Georgia which, according to our January 2018 Competent Person's Report (CPR) written by Gustavson Associates, hold 2P gross oil reserves of 2.5 MMbbl with an NPV10 of US $39.3 million, gross contingent oil resources (2C) of 72.9 MMbbls of oil and 626 BCF of gas. Revenue generative, due to existing production of 15 bopd through our Norio and Satskhenisi licences which, at current oil prices, cover our operational expenses at the field level. Fully funded, following our AIM admission and concurrent £5 million raise in June 2018, allowing us to rapidly scale up production through the roll-out of low-cost work programmes across our asset base.

Block has come a long way in a short time. Over the last 18 months, we have secured a strategic licence position in the prolific Kura basin. Our licences are situated in the heart of a region equipped with an established infrastructure that has produced more than 90% of Georgia's oil to date, and, directly to the south of Schlumberger's 100%-held Block XIb, which has produced 210 MMbbls of oil at rates of up 70,000 bopd.

Block holds 100% and 90% WIs in the Norio and Satskhenisi fields respectively, and a 25% WI in the West Rustavi licence as part of an agreed earn-in to increase to 75%. All three licences are current or historical producers of light sweet crude oil. West Rustavi has additional potential oil and gas resources of a company-making magnitude. We are implementing a dual-focus strategy to realise the full promise of our assets: we will significantly increase existing production in the near term through low cost workover and side-track drilling programmes while simultaneously testing West Rustavi's substantial gas resources. A successful test will upgrade a substantial proportion of the Company's contingent gas resources to the reserve category, allowing us to finalise the gas offtake agreement, executed with domestic gas purchaser Bago, and implement an advanced gas development strategy. Our work programmes are designed to pursue both objectives concurrently. At present the Company is prioritising work in its other licences. However, a plan of three re-entries and reactivations to enhance oil production in the Satskhenisi licence are planned for the next phase of work.

Commencing our Work Programme

Following our negotiation of a contract to lease drilling and workover rigs and equipment at much lower rates than foreseen at the time of our IPO, we are implementing an eight well workover programme at Norio and will begin drilling at West Rustavi once rig inspections have been completed. The programme commenced in October. An A50 rig is being used to clean out and log the wells before a specialist perforation tool, imported from North America and selected to bypass any damage caused by historic heavy mud drilling, will be applied to each well. The technology replaces conventional shaped charge perforation with a micro drilling tool capable of cutting horizontal drain holes at multiple levels. New or refurbished pumps will then be installed to bring the wells to production. Norio currently produces 10 bopd, so all of the infrastructure necessary to allow oil sales to commence immediately is already in place. Norio has multiple wells available for re-entry, and the Satskhenisi field, with 27 MMbbls 2C resources, offers further potential for the perforation tool to unlock.

This initial workover programme aims to rapidly scale Norio's production from 10 to 150 bopd. When we have completed these workovers, we will sidetrack one of the field's wells, an operation forecast to increase net production to 250 bopd, approximately three times the Company's break-even production rate. With crude oil from Norio selling at Brent minus US $10/bbl, a production rate of 250 bopd would generate significant cashflows for reinvestment into further development activity across our asset base. For example, at a typical contemporary oil price of US $75/bbl, a production rate in the region of 250 bopd would generate around US $3.5 million in annual revenue, allowing us to recover our total development costs in less than a year.

Realising West Rustavi's Potential

We have also been preparing to begin work at West Rustavi following the Georgian government's approval of the PSC. This field offers multiple oil and gas bearing structures, several of which have historically produced or been positively tested. As our CPR notes, West Rustavi's 'Middle Eocene has proven production and the Lower Eocene and Upper Cretaceous have had good tests for gas and condensate.' Over the years, approximately 500,000 bbls of light sweet crude from the Middle Eocene have been recovered within the licence area, and gas wells on the Schlumberger held and operated Samgori and Teleti fields contiguous to the north of Block's permit have flowed at rates of over seven MMCF/d.

We plan two horizontal sidetracks at West Rustavi that are forecast to bring our total production (including Norio) to 900 bopd, at which point we would have increased our working interest in the field from 25% to 75%. We have identified four other West Rustavi wells that offer similar opportunities for re-entry and sidetracking. In addition to this work we will workover two of the field's other wells in order to test the potential of its Lower Eocene and Upper Cretaceous gas zones. As specified in the CPR, previous well tests achieved rates of up to 0.9 MMCF/d from the Lower Eocene and 1.6 MMCF/d from the Upper Cretaceous. If the testing demonstrates West Rustavi's capacity, we will swiftly finalise our field development plan and gas sales contracts and install production infrastructure.

The field promises to unlock great value for our shareholders. Assuming we have secured a 75% WI, we estimate the cost of gas development and production at West Rustavi at around US $2.00 MCF, with operating netbacks of around US $2.6 MCF. Georgia currently purchases its gas for approximately US $5.5/Mcf, so with an estimated netback of US $2.6 MCF, and a first phase of gas development producing gross 30 MMCF/D, the gas development project has the potential to deliver net annual cash flows of more than US $20 million. We look forward to updating our stakeholders on our progress towards realising West Rustavi's great potential over the coming year.

Paul Haywood

Chief Executive Officer

The Group's financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations, issued by the International Accounting Standards Board ("IASB") as endorsed for use in the EU and applicable UK Law and Regulations that are applicable to companies that prepare their financial statements under IFRS.

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 June 2017 or 30 June 2018, but is derived from the audited accounts for those years. Statutory accounts for 30 June 2018 will be available towards the end of November 2018. The auditors have reported on those accounts: their report was unqualified and did not draw attention to any matters by way of emphasis.

Consolidated Statement of Comprehensive Income for the year ended 30 June 2018

			Year ended	Year ended
	Note		30 June 2018	30 June 2017
Continuing operations			£'000	£'000

Revenue	4		133	-

Other cost of sales		(198)		-
Depreciation and depletion of oil and gas assets	5	(36)		-

Total Cost of Sales			(234)	-

Gross (loss)/ profit			(101)	-

Exploration and evaluation expense			-	(3)

Costs in relation to AIM listing		(385)		-
Administrative costs		(775)		(281)
Share based payments charge		(68)
Total Administrative expenses	6		(1,228)	(281)

Foreign exchange movement			4	-

Results from operating activities and other income			(1,325)	(284)

Finance income			1	-
Finance expense			(36)	(6)

Loss for the year before taxation			(1,360)	(290)
Taxation	8		-	-

Loss for the year from continuing operations (attributable to the equity holders of the parent)			(1,360)	(290)

Discontinued operations

Discontinued operations	12		127	9


Loss for the year			(1,233)	(281)

Total comprehensive income for the year attributable to the equity holders of the parent			(1,233)	(281)

Earnings per share basic and diluted	9		(1.20)p	(0.60)p

Consolidated Statement of Financial Position at 30 June 2018


		2018	2017
	Note	£'000	£'000

Non- current assets
Intangible assets	13	1,435	654
Property, plant and equipment	14	1,365	-
		2,800	654
Current assets
Trade and other receivables	18	127	244
Inventory	16	253	-
Cash and cash equivalents	19	3,997	215
Assets Held for Sale	15	-	329

Total current assets		4,377	788

Total assets		7,177	1,442

Equity and liabilities
Capital and reserves attributable to
equity shareholders of the Company

Share capital	22	1,675	1,217
Share premium		9,222	2,721
Other reserves	23	68	-
Accumulated deficit		(3,998)	(2,807)

Total Equity		6,967	1,131

Liabilities
Trade and other payables	21	165	64
Borrowings	26	45	247
Total current liabilities		210	311

Total equity and liabilities		7,177	1,442

The financial statements were approved by the Board of Directors and authorised for issue on 21 November 2018 and were signed on its behalf by:

Serina Bierer Paul Haywood

Director Director

Consolidated Statement of Changes in Equity at 30 June 2018

Group

	Share Capital	Share premium	Accumulated deficit	Other Reserves	Total equity
	£'000	£'000	£'000	£'000	£'000
Balance at 30 June 2016	1,048	1,628	(2,527)	-	149
Loss for the year	-	-	(281)	-	(281)
Total comprehensive loss for the year	-	-	(281)	-	(281)
Issue of shares	169	1,110	-	-	1,279
Cost of issue	-	(17)	-	-	(17)
Total transactions with owners	169	1,093	-	-	1,262
Balance at 30 June 2017	1,217	2,721	(2,808)	-	1,130
Loss for the year	-	-	(1,233)	-	(1,233)
Total comprehensive loss for the year	-	-	(1,233)	-	(1,233)
Share based payments	-	-	-	68	68
Issue of shares	458	6,877	-	-	7,335
Foreign exchange revaluation	-	-	43	-	43
Cost of issue	-	(376)	-	-	(376)
Total transactions with owners	458	6,501	(1,191)	68	5,836
Balance at 30 June 2018	1,675	9,222	(3,998)	68	6,967

Notes forming part of the Consolidated Financial Statements (continued)

		2018	2017
	Note	£'000	£'000

Operating activities
Loss for the year before income tax		(1,360)	(290)
Profit from discontinued operations		127	9
Adjustments for :
Non-refundable deposit received		-	(39)
Depreciation and depletion	5	36	-
Finance income		(1)	-
Finance expense		36	6
Share based payments expense	6	68	-
Gain on sale of subsidiary		(131)	-
Foreign exchange		(4)	-
AIM Admission costs		385
Net cash flow from operating activities before changes in working capital		(844)	(314)

Decrease in trade and other receivables		117	(286)
Increase in trade and other payables		101	291
Increase in inventory		253	-
Net cash flow from operating activities		(369)	(309)

Investing activities
Non-refundable deposit received		-	39
Income received		1	-
Expenditure in respect of intangible assets		(592)	(422)
Expenditure in respect of PPE		(527)	-
Consideration received on sale of subsidiary	10	454	-
Cash used in investing activities		(664)	(383)

Financing activities
Issue of ordinary share capital		5,250	750
Costs related to issue of ordinary share capital		(761)	(17)
Interest paid		(36)	-
Convertible loan notes issued	9	360	170
Net cash from financing activities		4,813	903

Net increase in cash and cash equivalents in the year		3,779	211
Cash and cash equivalents at start of year		215	12
Effects of foreign exchange rate changes on cash and cash equivalents		2	(8)
Cash and cash equivalents at end of year		3,997	215

Corporate Information

Block Energy Plc traded on NEX until March 2018 and gained admission to AIM on the 11 June 2018, trading under the symbol of BLOE.

The Consolidated financial statements of the Group, which comprises Block Energy Plc and its subsidiaries, for the year ended 30 June 2018 were authorised for issue in accordance with a resolution of the Directors on 21 November 2018. Block Energy is a Company incorporated in the UK whose shares are publicly traded. The address of the registered office is given in the officers and advisors section of this report. The Company's administrative office is in London, UK.

The nature of the Company's operations and its principal activities are set out in the Strategic report and the Report of Directors.

1. Significant Accounting policies

IAS 8 requires that management shall use its judgement in developing and applying accounting policies that result in information which is relevant to the economic decision-making needs of users, that are reliable, free from bias, prudent, complete and represent faithfully the financial position, financial performance and cash flows of the entity.

Basis of preparation

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. All amounts presented are in '000 GBP unless otherwise stated.

These financial statements have been prepared on a historical cost basis in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations issued by the International Accounting Standards Board (IASB) adopted by the European Union and in accordance with applicable UK Law. The adoption of all of the new and revised Standards and Interpretations issued by the IASB and the IFRIC of the IASB that are relevant to the operations and effective for annual reporting periods beginning on 1 July 2017 are reflected in these financial statements.

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based, or as a result of new information or more experience. Such changes are recognised in the period in which the estimate is revised.

New Accounting Standards issued but not yet effective

Standards issued and relevant to the Group, but not yet effective at the date of these Group financial statements are listed below. The standards discussed are those that the Group reasonably expects to be applicable to the financial statements in the future and therefore do not include those standards or interpretations that the directors consider will not be relevant to the Group. The Group intends to adopt these standards when they become effective. The directors do not expect that the adoption of these standards will have a material impact on the Group's financial statements either in the period of initial application or thereafter. An assessment of the impact of each relevant standard is included below.

IFRS 9: Financial Instruments

IFRS 9 is effective for accounting periods starting on or after 1 January 2018 and deals with the classification and measurement of financial instruments. Financial instruments will include loans receivable/payable, derivative financial instruments and accounts payable and receivable balances. Measurement remains broadly consistent with previous guidance with financial assets and liabilities at fair value or amortised cost. Where financial assets and liabilities are carried at fair value, the standard provides guidance on where to recognise periodic changes in fair value with the primary options being through the income statement or directly to reserves. The standard also provides guidance on hedge accounting where a company elects to apply hedge accounting. The most significant change in the new standard that impacts the Group relates to the measurement of credit risk and the recognition of that risk through adjusting the carrying value of the underlying instrument. The standard requires a company to assess the '12-month expected credit losses' on inception of a financial instrument (generally an asset) and recognise those expected losses in the income statement by way of an allowance. Where the expected credit risk increases significantly and is not considered to be low, the full credit loss that is expected over the lifetime of the asset is recorded.

At present the Group are assessing the particular impact of IFRS 9 on the Group. Balances which may be impacted are the trade receivables and the inter-company loan balances.

IFRS 15: Revenue from Contracts with Customers (IFRS 15)

IFRS 15 is effective for accounting periods starting on or after 1 January 2018 and seeks to provide more meaningful information regarding revenue to users of financial statements. The standard describes a five-step approach to be taken to the assessment of revenue that requires companies to:

1. identify the customer party to each contract;

2. understand the performance obligations in the contract;

3. determine the transaction price;

4. allocate that price to the identifiable performance obligations; and

5. recognise revenue when (or as) a performance obligation is met.

The standard could result in a change in the pattern of revenue recognition for certain types of contract that (typically) contain multiple performance elements and are delivered over a period of time.

There is not expected to be any difference to revenue recognition for the Group under the new standard. Consistent with industry practice the Group makes sales of crude oil which are commodity products. Contracts define a specific delivery point which is considered to be the signing of the Act of Acceptance when physical custody is transferred and title passes. There is a single performance obligation being physical delivery at a specified point. The Group receives revenue that is measured at fair value of the consideration receivable net of value added tax.

The implementation of IFRS 15 is therefore not expected to have any effect on revenue recognition (timing or quantum) for oil sales.

IFRS 16: Leases

The new standard recognises a lease asset and a lease liability for almost all leases and requires them to be accounted for in a consistent manner. This introduces a single lessee accounting model and eliminates the previous distinction between an operating lease and a finance lease. Management have not identified material lease arrangements to date but will continue to assess the potential impact of the Standard prior to the effective date of the Standard.

(i) New and amended standards adopted by the Group:

No new standards and amendments to standards and interpretations effective for annual periods commencing on or after 1 July 2017 have had a material impact on the Group.

(ii) The following standards, amendments and interpretations, which are effective for reporting periods beginning after the date of these financial statements, have not been adopted early:

Standard	Description	Effective date
IFRS 15	Revenue from Contracts with Customers	1 January 2018
Clarifications to IFRS 15	Revenue from Contracts with Customers	1 January 2018
IFRS 9	Financial Instruments	1 January 2018
IFRS 16	Leases	1 January 2019
Amendments to IFRS 2	Classification and Measurement of Share-based Payment Transactions	1 January 2018
Annual Improvements 2014-2016 Cycle	Annual Improvements to IFRS Standards; 2014-2016 Cycle - Partial adoption	1 January 2018
IFRIC Interpretation 22	Foreign Currency Transactions and Advance Consideration	1 January 2018
IFRIC 23	Uncertainty over Income Tax Treatments	1 January 2019

Basis of consolidation

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. De-facto control exists in situations where the Company has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights. In determining whether de-facto control exists the Company considers all relevant facts and circumstances, including:

· The size of the Company's voting rights relative to both the size and dispersion of other parties who hold voting rights

· Substantive potential voting rights held by the Company and by other parties

· Other contractual arrangements; and

· Historic patterns in voting attendance.

Business combinations and Goodwill

The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The difference between the consideration paid and the acquired net assets is recognised as goodwill. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. Any difference arising between the fair value and the tax base of the aquiree's assets and liabilities that give rise to a deductible difference results in recognition of deferred tax liability. No deferred tax liability is recognised on goodwill.

Acquisitions

The Group and Company measure goodwill at the acquisition dates as:

· The fair value of the consideration transferred; plus

· The recognised amount of any non - controlling interests in the acquire

· Plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the aquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

Cost related to the acquisition, other than those associated with the issue of debt or equity securities., that the Group incurs in connection with a business combination are expensed as incurred.

Asset Acquisition

Acquisitions of mineral exploration licences through the acquisition of non-operational corporate structures that do not represent a business, and therefore do not meet the definition of a business combination, are accounted for as the acquisition of an asset. An example of such would be increases in working interests in licences.

The consideration for the asset is allocated to the assets based on their relative fair values at the date of acquisition.

Going concern

It is the prime responsibility of the Board to ensure the Group remains a going concern. At 30 June 2018 the Group had cash and cash equivalents of £4 million (2017: £0.2million). In addition, the Group is fully funded to carry out the operational workplan across the three Georgian PSC's over the next year.

In the event of extreme financial distress, the Directors are confident that the implementation of austerity measures will allow the Group to meet all committed and contractual expenditure without requiring external investment twelve months from the date of approval of the financial statements.

The Directors, taking into account the above, are satisfied that it is appropriate to adopt the going concern basis of accounting in preparation of the Financial Statements.

Intangible Assets

Exploration and evaluation costs

The Group applies the full cost method of accounting for Exploration and Evaluation (E&E) costs, having regard to the requirements of IFRS 6 'Exploration for and Evaluation of Mineral Resources'. Under the full cost method of accounting, costs of exploring and evaluating properties are accumulated and capitalised by reference to appropriate cash generating units ("CGUs"). Such CGU's are based on geographic areas such as a licence area, type or a basin and are not larger than an operating segment - as defined by IFRS 8 'Operating segments.

E&E costs are initially capitalised within 'Intangible assets'. Such E&E costs may include costs of licence acquisition, technical services and studies, seismic acquisition, exploration drilling and testing, but do not include costs incurred prior to having obtained the legal rights to explore an area, which are expensed directly to the statement of comprehensive income as they are incurred. Plant and equipment assets acquired for use in exploration and evaluation activities are classified as property, plant and equipment. However, to the extent that such an asset is consumed in developing an unproven oil and gas asset, the amount reflecting that consumption is recorded as part of the cost of the unproven oil and gas asset.

Exploration and unproven oil and gas assets related to each exploration license/prospect are not amortised but are carried forward until the technical feasibility and commercial feasibility of extracting a mineral resource are demonstrated.

Impairment of Exploration and Evaluation assets

All capitalised exploration and evaluation assets and property, plant and equipment are monitored for indications of impairment. Where a potential impairment is indicated, assessment is made for the Group of assets representing a cash generating unit.

In accordance with IFRS 6 the Group firstly considers the following facts and circumstances in their assessment of whether the Group's exploration and evaluation assets may be impaired, whether:

· the period for which the Group has the right to explore in a specific area has expired during the period or will expire in the near future, and is not expected to be renewed;

unexpected geological occurrences render the resource uneconomic;

· a significant fall in realised prices or oil and gas price benchmarks render the project uneconomic; or

· an increase in operating costs occurs.

If any such facts or circumstances are noted, the Group perform an impairment test in accordance with the provisions of IAS 36.

The aggregate carrying value is compared against the expected recoverable amount of the cash generating unit. The recoverable amount is the higher of value in use and the fair value less costs to sell. An impairment loss is reversed if the asset's or cash-generating unit's recoverable amount exceeds its carrying amount. A reversal of impairment loss is recognised in the profit or loss immediately.

Property, plant and equipment - development and production (D&P) assets

Capitalisation

The costs associated with determining the existence of commercial reserves are capitalised in accordance with the preceding policy and transferred to property, plant and equipment as development assets following impairment testing. All costs incurred after the technical feasibility and commercial viability of producing hydrocarbons have been demonstrated are capitalised within development assets on a field-by-field basis. Subsequent expenditure is only capitalised where it either enhances the economic benefits of the development asset or replaces part of the existing development asset (where the remaining cost of the original part is expensed through the income statement). Costs of borrowing related to the ongoing

construction of development and production assets and facilities are capitalised during the construction phase. Capitalisation of interest ceases once an asset is ready for production.

Depreciation

Capitalised oil assets are not subject to depreciation until commercial production starts. Depreciation is calculated on a unit-of-production basis in order to write off the cost of an asset as the reserves that it represents are produced and sold. Any periodic reassessment of reserves will affect the depreciation rate on a prospective basis. The unit-of-production depreciation rate is calculated on a field-by-field basis using proved, developed reserves as the denominator and capitalised costs as the numerator. The numerator includes an estimate of the costs expected to be incurred to bring proved, developed, not-producing reserves into production. Infrastructure that is common to a number of fields, such as gathering systems, treatment plants and pipelines are depreciated on a unit-of-production basis using an aggregate measure of reserves or on a straight line basis depending on the expected pattern of use of the underlying asset.

Proven oil and gas properties

Oil and gas properties are stated at cost less accumulated depreciation and impairment losses. The initial cost comprises the purchase price or construction cost including any directly attributable cost of bringing the asset into operation and any estimated decommissioning provision.

Once a project reaches the stage of commercial production and production permits are received, the carrying values of the relevant exploration and evaluation asset are assessed for impairment and transferred to proven oil and gas properties and included within property plant and equipment.

Proven oil and gas properties are accounted for in accordance with provisions of the cost model under IAS 16 "Property Plant and Equipment" and are depleted on unit of production basis based on the estimated proven and probable reserves of the pool to which they relate.

Impairment of development and production assets

A review is performed for any indication that the value of the Group's D&P assets may be impaired such as:

• significant changes with an adverse effect in the market or economic conditions which will impact the assets; or

• obsolescence or physical damage of an asset; or

• an asset becoming idle or plans to dispose of the asset before the previously expected date; or

• evidence is available from internal reporting that indicates that the economic performance of an asset is or will be worse than expected.

For D&P assets when there are such indications, an impairment test is carried out on the CGU. CGUs are identified in accordance with IAS 36 'Impairment of Assets', where cash flows are largely independent of other significant asset Groups and are normally, but not always, single development or production areas. When an impairment is identified, the depletion is charged through the Consolidated Statement of Comprehensive Income if the net book value of capitalised costs relating to the CGU exceeds the associated estimated future discounted cash flows of the related commercial oil reserves.

An assessment is made at each reporting as to whether there is any indication that previously recognised impairment charges may no longer exist or may have decreased. If such an indication exists, the Group estimates the recoverable amount. A previously recognised impairment charge is reversed only if there has been a change in the estimates used to determine the assets recoverable amount since the last impairment charge was recognized. If this is the case the carrying amount of the asset is increased to its recoverable amount, not to exceed the carrying amount that would have been determined, net of depreciation, had no impairment charges been recognized for the asset in prior years.

Property, plant and equipment and depreciation

Property, plant and equipment which are awaiting use in the drilling campaigns, and storage, are recorded at historical cost less accumulated depreciation. Property, plant and equipment are depreciated using the straight line method over their estimated useful lives, as follows:

PPE - 6 years

The carrying value of Property, plant and equipment is assessed annually and any impairment charge is charged to the Consolidated Statement of Comprehensive income.

Operating leases

Rent paid on operating leases is charged to the Consolidated Statement of Comprehensive Income on a straight line basis over the term of the lease.

Inventories

Inventories of drilling tubulars and drilling chemicals are valued at the lower of cost or net realisable value, where cost represents the weighted average unit cost for inventory lines on a line by line basis. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Decommissioning provision

A provision is made for decommissioning of oil and gas wells. The cost of decommissioning is determined through discounting the amounts expected to be payable to their present value at the date of the provision is recognised and reassessed at each reporting date. In the current year, due, to no further development of the licences from their original sedentary working state, the decommissioning provision applicable was deemed immaterial to provide for.

Asset held for sale

Non-current assets (or disposal Groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal Group) is available for immediate sale in its present condition subject only to terms that are usual and customary.

Immediately before classification as held for sale, the measurement of the non-current assets (or all the assets and liabilities in a disposal Group) is brought up-to-date in accordance with applicable IFRSs. Then, on initial classification as held for sale, non--current assets (other than investment properties, deferred tax assets, financial assets and inventories) are measured in accordance with IFRS 5 that is at the lower of carrying value and fair value.

The Asheba asset (£329,000) held within the Ensign Resources Ltd subsidiary was classed as 'Held for sale' in the year ended 30 June 2017. The transaction was finalised in February 2018 and is therefore there is no 'Held for sale' balance as at year end.

Taxation and deferred tax

Income tax expense represents the sum of the current tax and deferred tax charge for the year.

The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial information and the corresponding tax bases and is accounted for using the balance sheet liability method.

Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Judgement is applied in making assumptions about future taxable income, including oil and gas prices, production, rehabilitation costs and expenditure to determine the extent to which the Group recognises deferred tax assets, as well as the anticipated timing of the utilisation of the losses.

Deferred tax is calculated at the tax rates that have been enacted or substantively enacted and are expected to apply in the period when the liability is settled, or the asset realised. Deferred tax is charged or credited to the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Foreign currencies

Monetary assets and liabilities denominated in foreign currencies are translated into Sterling GBP at the rates of exchange prevailing at the reporting date. Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Exchange differences are taken to the Statement of Comprehensive Income.

The presentational and functional currency the Company is Sterling (GBP) and accordingly the financial statements have also been prepared in this currency. GOG Norioskhevi Ltd, Satskhenisi Limited, GNV Inc and Ensign Resources Limited functional currencies are the US Dollar ($USD).

Foreign operations

The assets are translated into GBP at the exchange rate at the reporting date and income and expenses of the foreign operations are translated at the average exchange rates. Exchange differences arising on translation are recognized in other comprehensive income and presented in the other reserves catergory in equity.

Determination of functional currency and presentational currency

The determination of an entity's functional currency is assessed on an entity by entity basis. A company's functional currency is defined as the currency of the primary economic environment in which the entity operates. As the operating entities within the Group are oil and gas businesses and the oil and gas is sold in US dollars and funds are received for sales in US dollars the functional currency of such entities is considered to be the US dollar. The functional currency of the Parent Company is Sterling (GBP).

The presentational currency of the Group for the year ended 30 June 2018 is Sterling (GBP). The presentational currency is an accounting policy choice.

Revenue

Revenue from the sale of oil is recognised when the significant risks and rewards of ownership have been transferred, which is when the title passes to the customer which is considered to be the signing of the Act of Acceptance. Revenue is measured at fair value of the consideration receivable net of value added tax.

Finance income and expenses

Finance costs are accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Finance expenses comprise interest or finance costs on borrowings.

Borrowings

Borrowings are recorded initially at fair value, net of attributable transaction costs. Borrowings are subsequently carried at their amortised cost and finance charges, including any premium payable on settlement or redemption, are recognised in the profit or loss over the term of the instrument using the effective rate of interest.

Financial instruments

The Group's financial assets consist of cash and cash equivalents at variable interest rates, loans and other receivables. Any interest earned is accrued and classified as interest. Trade and other receivables are stated initially at fair value and subsequently at amortised cost.

The Group's financial liabilities consist of convertible loan notes and trade and other payables. The trade and other payables are stated initially at fair value and subsequently at amortised cost. Convertible loan notes are treated as described below.

Convertible loan notes ("CLN")

In accordance with IAS 32, the Group has classified the convertible debt in issue as a compound financial instrument.

The functional currency and the CLNs are issued in GBP (the functional currency of the company). Under the terms of these CLNs the loan instruments are considered to be financial liabilities since there is an obligation to settle cash which the issuer cannot avoid. Since the CLNs include a term whereby a 10% discount is given on the IPO issue price, and since the value of the 10% discount cannot be known at inception of the CLN the number of potential shares is not known. This will mean that the CLN fails the "fixed for fixed" criteria and the conversion feature must therefore be accounted for as a derivative liability. For convertible loan notes which have been identified as containing embedded derivative liabilities, the embedded derivative liability is valued first with the residual balance (after deducting the value of the embedded derivative from the CLN) being considered to be the host loan financial instrument. The embedded derivative is accounted for at fair value through profit or loss and the loan liability is carried at amortised cost. The embedded derivative must be fair valued at each reporting date and the changes recognised in the income statement. Interest expense, is calculated using an effective interest rate method.

Share based payments

The fair value of options and warrants granted to directors and others in respect of services provided is recognised as an expense in the Statement of Comprehensive Income with a corresponding increase in equity reserves - 'other reserves'.

On exercise or cancellation of share options and warrants, the proportion of the share based payment reserve relevant to those options and warrants is transferred to the accumulated deficit. . On exercise, equity is also increased by the amount of the proceeds received.

The fair value is measured at grant date charged in the accounting period during which the option and warrants becomes unconditional.

The fair value of options and warrants are calculated using the Black -Scholes model, taking into account the terms and conditions upon which the options and warrants were granted. Vesting conditions are non-market and there are no market vesting conditions. These vesting conditions are included in the assumptions about the number of options and warrants that are expected to vest. At the end of each reporting period, the Company revises its estimate of the number of options and warrants that are expected to vest. The exercise price is fixed at the date of grant and no compensation is due at the date of grant. Where equity instruments are granted to persons other than employees, the statement of comprehensive income is charged with the fair value of the goods and services received.

2. Segmental disclosures

IFRS 8 requires segmental information for the Group on the basis of information reported to the chief operating decision maker for decision making purposes. The Company considers this role as being performed by the Board of Directors. The Group's operations are focused on oil and gas development and production activities (Oil extraction segment) in Georgia and has a corporate head office in the UK (corporate function). Based on risks and returns the Directors consider that there are two operating segments that they use to assess the Group's performance and allocate resources being the Oil extraction in Georgia, and the Corporate function including unallocated costs.

The segmental results are as follows:

	Group
	Oil Extraction	Corporate and Other	Total
Year ended 30 June 2018	£	£	£
Revenue	133	-	133
Cost of sales	(234)	-	(234)
Discontinued operations	-	127	127
Administrative costs	(205)	(1,023)	(1,228)
Net Finance costs and income	-	(35)	(35)
Loss from operating activities	(306)	(931)	(1,233)
Total non-current assets	2,800	-	2,800
Depreciation and depletion	36	-	36

Segmental disclosures (continued)

	Group
	Oil Extraction	Corporate and Other	Total
Year ended 30 June 2018	£	£	£
Other Income	-	39	39
Exploration costs	(3)	-	(3)
Administrative costs	-	(311)	(311)
Finance costs	-	(6)	(6)
Lost from operating activities	(3)	(278)	(281)
Total non-current assets	654	-	654
Depreciation and depletion

	30 June 2018	30 June 2017
Segmental Assets	£'000	£'000

Mineral Exploration - Ghana	-	329
Oil exploration - Georgia	3,078	654
Corporate and other	4,099	459
	7,177	1,442

Segmental Liabilities	30 June 2018	30 June 2017
	£'000	£'000

Oil exploration - Georgia	54	-
Corporate and other	156	311
	210	311

3. Critical accounting judgments, estimates and assumptions

The Group makes estimates and assumptions regarding the future. Estimates and judgements are continuously evaluated based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may deviate from these estimates and assumptions. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

Recoverable value of Intangible assets

Under the full cost method of accounting for exploration and evaluation costs, such costs are capitalised as intangible assets by reference to appropriate cost pools, and are assessed for impairment in accordance with the IFRS 6 impairment indicators detailed in the accounting policy note 1. As at 30 June 2018, the Group assessed the exploration and evaluation assets disclosed in note 13 and determined that no indicators of impairment existed. There a number of judgements involved in the assessment of impairment triggers.

Recoverable value of Development & Production assets

Costs capitalised in respect of the Group's development and production assets are required to be assessed for impairment under the provisions of IAS 36. Such an estimate requires the Group to exercise judgement in respect of the triggers and also in respect of inputs used in the models which are used to support the carrying value of the assets. Such inputs include production profiles, costs, inflation rates and discount rates. The Directors concluded there was no impairment in the current period.

Estimation of oil and gas reserve volumes

Oil and gas reserves are the quantities of oil and gas that management considers are commercially recoverable in the future from known accumulations within the Group's licence areas and under defined economic and operating conditions. The estimation of reserve volumes is inherently imprecise, requires the application of judgement and is subject to future revision. Decreases in sales prices, increases in cash operating costs or variations in the expected production profile for wells, as compared to the assumptions applied in the estimation of reserve volumes as per the CPR, can cause variation from those estimates. Variations can be positive or negative. Subsurface conditions and other engineering factors can also affect estimated reserve volumes. Oil and gas reserve volumes have been derived from an external CPR produced on 1 January 2018. The estimation of reserve volumes primarily influences the depreciation, depletion and amortisation charge for the year.

Accounting for business combinations and fair value

Business combinations are accounted for at fair value. The assessment of fair value is subjective and depends on a number of assumptions. These assumptions include assessment of discount rates, and the amount and timing of expected future cash flows from assets and liabilities. In addition, the selection of specific valuation methods for individual assets and liabilities requires judgment. The specific valuation methods applied will be driven by the nature of the asset or liability being assessed. The consideration given to a seller for the purchase of a business or a company is accounted for at its fair value. When the consideration given includes elements that are not cash, such as shares, then the fair value of the consideration given is calculated by reference to the specific elements of the consideration given to the seller.

4. Revenue

	Year ended 30 June 2018	Year ended 30 June 2017
	£'000	£'000

Crude oil revenue	133	-

The first crude oil sale was made in December 2017 from the Norioskhevi and Satskhenisi oil fields.

5. Depreciation and Depletion on Oil and Gas assets

	Year ended 30 June 2018	Year ended 30 June 2017
	£'000	£'000

Depreciation of PPE	22	-
Depreciation of oil and gas assets	14	-
	36	-

6. Administration costs

	Year ended 30 June	Year ended 30 June
	2018	2017
	£'000	£'000
Administration costs are as follows:


Employee benefit expense (note 7)	304	99
Share option charge	63	-
Warrants charge	5	-
AIM listing fees	385	-
Audit fees paid to the Audit in respect of the Group and Company audit	23	14
Fees to Auditor for other non-audit services	13	-
Regulatory fees	21	13
Operating lease expense	22	-

7. Employees

Year ended Year ended

	30 June	30 June
	2018	2017
	£'000	£'000
Employment costs consist of:

Wages and salaries	250	73
Shares issued in lieu of services	42	-
Share based payments	63	24
Social security costs	12	2
	367	99

The average monthly number of employees during 2018 was 2 (2017: 3). The Group pension plan was not active at year end. The wages and salaries of the Company are equivalent to those of the Group, as employees are contracted with Block Energy Plc only. The share based payments were shares issued for consulting services provided.

Amounts attributable to the highest paid director:	Year ended 30 June 2018 £'000	Year ended 30 June 2017 £'000
Director's fees and benefits	75	39
Share based payments	30	7
Social security costs	7	1
	112	47

Key management and personnel are considered to be the Directors. The Group provides Directors' and Officers' liability insurance at a cost of £1,546 (2017: £1,530). This cost is not included in the above table.

8. Taxation

Based on the results for the period, there is no charge to UK or foreign tax. This is reconciled to the accounting loss as follows:

	Year ended	Year ended
	30 June 2018	30 June 2017
UK taxation	£'000	£'000

UK Loss on ordinary activities	(1,402)	(235)

Loss before taxation at the average UK standard
rate of 19% (2017:20%)	(266)	(47)

Effect of:
Tax losses for which no deferred income tax asset was recognised	(266)	(47)

Current tax	-	-

The Group offsets deferred tax assets and liabilities if, and only if, it has a legally enforceable right to offset current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities related to corporation taxes levied by the same tax authority. Due to the tax rates applicable in the jurisdictions of the Group's subsidiary entities (being 0%) no deferred tax liabilities or assets are considered to arise.

For any other jurisdictions which the Group has not recognized deferred income tax assets for tax losses carried forward for entities in which it is not considered probable that there will be sufficient future taxable profits available for offset. Unrecognized deferred income tax assets related to unused tax losses. The Company has UK corporation tax losses available to carry forward against future profits of approximately £2,262,000 (2017: £861,000).

9. Earnings per share

	Year ended	Year ended
	30 June 2018	30 June 2017
(Loss) per share from continuing operations-basic	(1.32)p	(0.62)p
Earnings per share from discontinuing operations-basic	0.12p	0.02p
Loss per share-basic	(1.20)p	(0.60)p

The basic loss per share is derived by dividing the loss for the period attributable to ordinary shareholders by the weighted average number of shares in issue.

	Year ended	Year ended
	30 June 2018	30 June 2017
(Loss) for the year from continuing operations (used in calculation of basic LPS from continuing operations)	(1,360)	(290)
Profit for the year from discontinuing operations (used in calculation of basic LPS from discontinuing operations)	127	9
(Loss) for the year (used in calculation of total basic LPS)	(1,233)	(281)
Weighted average number of Ordinary shares of 0.25p in issue	102,915,614	47,095,974

The loss per share of all years also take into the post year end 5:1 share consolidation, as detailed in note 22 to the consolidated financial statements.

Diluted share earnings per share has not been calculated as the options and warrants have no dilutive effect given the loss arising for the year

10. Acquisition of Subsidiaries and associated PSC interests

Acquisition of GNV Inc

On the 12 September 2017 the Company reached an agreement for the acquisition of the entire share capital of GNV Inc ("GNV"), a Bahamas registered company.

On acquisition, Block Energy paid US $1 for the issuance of 1 ordinary GNV share, which means GNV is now a wholly owned subsidiary of Block Energy. GNV's principal activity is oil and gas extraction, and was bought for the purpose of holding the West Rustavi PSC licence, of which, it held initially a 5% interest, increasing to 25% by 30 June 2018. The transaction was treated as an asset acquisition.

Acquisition of interest in the West Rustavi PSC

The initial 5% interest in the West Rustavi PSC was bought for £79,000 (US $100,000) from Georgian Oil and Gas (GOG) in the prior year. On admission to AIM, GOG were issued with US $1milion of shares and US $500,000 in cash in exchange for a further 20% working interest in the PSC. The total Group interest in the West Rustavi PSC was 25% at 30 June 2018.

As an increase in a working interest this transaction has been treated as an asset acquisition and recorded at cost.

Acquisition of Satskhenisi Ltd and associated 90% interest in the Satskhenisi PSC

On the 1 August 2017, the Company acquired 100% of the share capital of Satskhenisi Limited ("Satskhenisi"), a Marshall Islands registered company, and through this transaction a 90% interest in the Satkhenisi PSC.

On acquisition, the company paid US $1,000 for the issuance of 1 ordinary Satskhenisi share. 70,000,000 ordinary shares valued at 0.85 pence were additionally issued as part of the consideration for the Satskhenisi PSC licence.

Satskhenisi's principal activity is oil and gas extraction, and was acquired for the purpose of facilitating petroleum operations under the Satskhenisi PSC licence. Petroleum operations include all activities relating to the Exploration, Development and transportation to the Measurement Point.

The transaction has been classed as a business combination under IFRS 3.

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

	Fair Values £'000
Intangible assets	357
PPE	68
Oil inventory	12
Inventory and spare parts	169
Trade and other payables	(11)
Total net assets acquired	595
Fair value of consideration paid Total consideration - Cash and Ordinary shares of the Company 70,000,000 of 0.0085p each	595

Since the acquisition date, Satskhenisi Ltd has contributed £111,000 to the Group loss and revenue of £46,000.

The intangible asset fair value is derived from the Competent Persons Report (CPR) , and is based on P50 NPV with a discount rate of 10%. The PPE and Spare parts were fair valued based on the condition of the items, and application of an industry accepted discount to the original cost. The oil inventory was fair valued by Management based on the post-acquisition recoverable value.

Increase in Interest in Norio PSC and transfer into Norioskhevi Ltd

Block Energy Plc acquired GOG Norioskhevi Ltd (Norio), a BVI incorporated company on the 20th April 2017. Prior year, the Group's interest in the Norioskhevi PSC was 38%. During current year the interest increased from 38% to 100%, through US $610,0000 cash consideration payment, and US $250,000 share issue on AIM listing. In total, the consideration paid for the 100% interest in the Norio PSC was a cash payment of US $1.3million and an issue of US $250,000 worth of Block Energy Plc ordinary shares.

This transaction has been treated as an asset acquisition and recorded at cost.

11 Sale of Taoudeni Resources SARL

On the 8 November 2017, an SPA was signed for the sale of Taoudeni Resources SARL. The consideration receivable was agreed as either:

a) A sum of £40,000 or,

b) Shares in the capital of the Buyer with a value of £40,000 (price being 30 day average weighted volume if buyer is listed).

The consideration is payable on the earlier of 30 days from the date of first production or the date falling on the fifth anniversary of the agreement (8 November 2023). Management have taken the view that five years is the most viable time period at which consideration will be received, and have discounted this amount to a present value of £36,000.

12. Discontinued operations - Antubia Ltd

The Antubia Ltd sale completed on 26 February 2018 for a total consideration of US $600,000.The assets fair value was considered to be its carrying value. The analysis of total gain on disposal, carrying values of the assets and liabilities disposed, and also the net cash inflow from the disposal were as follows:

Total gain on divestment of Antubia Ltd

	£'000
Consideration received from divestment	454
Carrying value of net assets	(329)
Foreign exchange	2
Cashflow from divestment of Antubia Ltd	127

	£'000
Consideration received from divestment	454
Cash and cash equivalents of Antubia foregone		-
Net cash inflow from divestment	454

13. Intangible assets


	£'000	£'000	£'000
	Licences	Exploration and Evaluation cost	Total
Cost
At 1 July 2017	617	37	654
Additions during the year	1,335	-	1,335
Transfer to property, plant and equipment	(525)	(37)	(562)
Foreign exchange movements	8	-	8
At 30 June 2018	1,435	-	1,435

The additions in the current year are a result of the West Rustavi PSC increase from 5% through to 25%. The transfer to PPE relates to the Norioskhevi (£550,000) and Satskhenisi PSC (£12,000).

All the intangible assets are located in Georgia.

	£'000	£'000	£'000
	Licences	Exploration and Evaluation cost	Total
Cost
At 1 July 2016	329	-	329
Reclassified to asset held for sale	(329)	-	(329)
Additions during the year	617	37	654
At 30 June 2017	617	37	654

14. Plant Property and Equipment

	2018	2018	Total
	£'000	£'000	£'000
	Licence area	Plant, Property and Equipment	Total

Cost
At 1 July 2017	-	-	-
Transfer from intangibles	562	-	562
Additions	683	155	838
Forex	(2)	2	-
At 30 June 2018	1,243	157	1,400

Accumulated Depreciation
At 1 July 2017	-	-	-
Charge for the period	14	21	35
At 30 June 2018	14	21	35

Carrying amount At 30 June 2018	1,229	136	1,365
At 30 June 2017	-	-	-

15. Asset Held for Sale

Details of asset held for sale are as follows:

	2018	2017
Cost	£'000	£'000

At 1 July	329	-
Additions	-	329
Disposal of assets	(329)	-

At 30 June 2018	-	329

On 8 June 2017 the Antubia Head of Terms was signed, and the asset classed as held for sale. The SPA was signed on 6 September 2017. The assets fair value is considered to be its carrying value. The Sale of Antubia was finalised and completed on 26 February 2018.

Antubia Ltd was a subsidiary of Ensign Resources and was sold for consideration of £454,000 (US $600,000) giving rise to a gain on disposal of £127,000.

16. Inventory

Spare parts includes drilling equipment and consumables utilised by the Group's seismic services company and will be consumed within 12 months.

17. Provisions

Decommissioning provisions are based on management estimates of work and the judgement of the Directors. By its nature, the detailed scope of work required, and timing of such work is uncertain.

No development work was performed on either the Norioskhevi or Satskhenisi oil fields during the year since the purchase of the Group's interest in these licences. As such, the potential decommissioning costs are considered to be immaterial at the reporting date and no provision has been made.

18. Trade and other receivables

	2018	2017
	£'000	£'000
Other receivables	105	213
Unpaid share capital	-	25
Prepayments	22	6
	127	244

The 2018 balance relates mainly to VAT recoverable, and consideration to be received from the sale of Taoudeni SARL (please refer to note11).

19. Cash and cash equivalents


	2018 £'000	2017 £'000

Cash and cash equivalents	3,997	215
	3,997	215

Cash and cash equivalents consist of balances in bank accounts used for normal operational activities. The bank account is held within an institution with a credit rating of A-1.

All cash and cash equivalents are denominated in GBP (£) Sterling.

20. Non - cash transactions

During the year, the following shares were issued in settlement of liabilities;

Shares issued in lieu of service	No of shares	Value £'000
Serina Bierer	420,000	17
Philip Dimmock	312,500	12
Timothy Parson	325,000	13
Caravel	24,553	1
Taoudeni	72,120	3
St Brides	500,000	20
Spark	187,500	8
Total	1,841,673	74

On the 11 June 2018, as part of the AIM listing share issue, 4,695,717 shares at 4p (£187,828) were issued on behalf of GOG Norioskhevi as part of the PSC purchase agreement. In addition, 18,782,870 shares were issued at 4p (£751,315) on behalf of GNV Inc as part of the West Rustavi PSC consideration.

The listing also activated the conversion of all outstanding £360,000 convertible loan notes at a discounted price of 3.6p which resulted in the issue of 10,759,132 shares with a value of £387,329.

21. Trade and Other Payables

	2018	2017
	£'000	£'000

Trade and other payables	71	14
Accruals	94	50
	165	64

Trade and other payables principally comprise amounts outstanding for corporate services.

All trade and other payables are denominated in GBP (£) Sterling.

22. Share capital

Called up, allotted, issued and fully paid
	No. Ordinary Shares	No. Deferred Shares	Nominal £

As at 30 June 2016	2,095,165,355	-	1047582
Share sub-division at 31 December 2016	-	2,095,165,355	-
Share consolidation at 31 December 2016	(2,053,262,048)	-	-
Issue of equity on 10 January 2017	163,320,001	-	81,660
Issue of equity on 31 March 2017	30,000,000	-	15,000
Issue of equity on 9 May 2017	144,617,740	-	72,309
As at 30 June 2017	379,841,048	2,095,165,355	1,216,551
Issue of equity on 3 July 2017	10,588,235	-	5,294
Issue of equity on 1 August 2017	70,000,000	-	35,000
Issue of equity on 31 August 2017	29,411,765	-	14,706
Consolidation of Ordinary shares at 15 November 2017	(391,872,839)	-	-
Issue of equity on 11 June 2018 161,079,392*	161,079,392*	-	402,699
As at 30 June 2018	259,047,601	2,095,165,355	1,674,250

* See below breakdown of the balance.

A subdivision and consolidation of capital exercise was undertaken at 31 December 2016. Every 50 existing Ordinary Shares of 0.05p were first subdivided into one Ordinary Share of 0.001p and one Deferred Share of 0.049p.

Following this subdivision, each 50 Ordinary shares of 0.001p were consolidated into one Ordinary Share of 0.05p, resulting in a reduction in the number of Ordinary Shares from 2,095,165,355 to 41,903,307 and the creation of 2,095,165,355 Deferred Shares.

On the 10 January 2017, £217,000 was raised though a placing of 86,800,000 shares of 0.05p, £121,300 of liabilities settled for 48,520,000, and 28,000,001 shares issued on conversion of the Pelemis convertible loan note.

On the 31 March 2017, £150,000 was raised through the issue of 30,000,000 ordinary shares at 0.05p to Pelemis Investments Ltd.

The issue of 144,617,740 shares at 0.05p on 9 May 2017 was executed to facilitate the following transactions;


	No. shares
Loan note conversion	20,000,000
GOG issue for investment in Norio PSC	46,317,740
Payment of services	500,000
Placing at 0.05p	74,800,000
	141,617,740

On the 3 July 2017, through an equity placing of 10,588,235 ordinary shares at a price of 0.85p per share, £90,000 of funds were raised in conjunction with £210,000 of convertible loan notes.

On the 1 August 2017, the company issued 70,000,000 ordinary shares at a price of 0.85 per share, for the acquisition of Satskhenisi Ltd and a 90% interest in the Satskhenisi PSC.

On the 31 August 2017, the company raised £250,000 of funds through the placing of 29,411,765 new shares at 0.85p per share.

On the 15 November 2017 each 5 Ordinary shares of 0.05p were consolidated into one Ordinary Share of 0.25p, resulting in a reduction in the number of Ordinary Shares from 489,841,048 to 97,968,209.

The issue of equity on AIM listing comprised of the following

Issue of equity on AIM listing	Value (£)	Share issue price	No of shares

Shares issued on placing of £5 million	5,000,000	4p	125,000,000
GOG West Rustavi consideration	751,315	4p	18,782,870
GOG Norioskhevi consideration	187,829	4p	4,695,717
Conversion of loan notes	387,329	3.6p	10,759,132
Shares issued in lieu of services	73,667	4p	1,841,673

			161,079,392

On the 11 June 2018, The Company raised £5million through the placing of 125,000,000 ordinary shares at 4p per share.

On the 11 June 2018 the Company issued a further 18,782,870 ordinary shares at 4p to Georgian Oil and Gas for a further 20% interest in the West Rustavi PSC.

On the 11 June 2018 the Company issued a further 4,695,717 shares at 4p to GOG as part of the purchase consideration for the Groups 100% interest in the Norioskhevi PSC.

On the 11 June 2018 the Company converted all of the existing convertible loan note balance through the issue of 10,759,132 shares at a discounted price of 3.6p.

On the 11 June 2018, the company issued 1,841,673 shares at 4p to various consultants and professional advisors in lieu of fees. This issue was apportioned between directors (1,057,500 shares of value £42,000), and consultants (791,675 shares of value £32,000).

The Ordinary Shares consist of full voting, dividend and capital distribution rights and they do not confer any rights for redemption. The Deferred Shares have no entitlement to receive dividends or to participate in any way in the income or profits of the Company, nor is there entitlement to receive notice of, speak at, or vote at any general meeting or annual general meeting.

23. Reserves

The following describes the nature and purpose of each reserve within owners' equity.

Reserves	Description and purpose
Share Capital	Amount subscribed for share capital at nominal value
Share premium account	Amount subscribed for share capital in excess of nominal value, less attributable costs.
Other Reserves	The other reserve comprises the fair value of all share options and warrants which have been charged over the vesting period, net of the amount relating to share options which have expired, been cancelled and have vested
Accumulated deficit	Cumulative net gains and losses recognised in the income statement and in respect of foreign exchange.

24. Warrants

		Number of Warrants		30 June 2018 weighted average exercise price	Number of Warrants			30 June 2017 weighted average exercise price

Outstanding at the beginning of the year	4,045,151		125p			5,000,000**			125p
Additions		8,863,000		4p			2,045,151			2.5p
Lapsed		-		-	(3,000,000)			2.5p

Share capital reorganisation effect		(1,765,525)		-	-			-

Outstanding at the end of the year	11,142,626		42p				4,045,151			125p

** This represents the effect on the number of warrants of the 50 for 1 share consolidation exercise.

As at 30 June 2018, all warrants were available to exercise and were exercisable at a price of between 4p and 125p. The weighted average life of the warrants is 2.7 years. The warrants charge represents 22 days' worth of valuation charge, as all warrants became exercisable on AIM admission (11^th June 2018). The additions represent warrants issued on AIM listing, with terms ranging from 12 months to 5 years. The 2017 warrant additions were issued in lieu of director services, the replacement of 'like for like' warrants originally held in Goldcrest Resources Ltd.

25. Share based payments

During the year, the Group operated a Block Energy Plc Share Option Plan (Share Option Scheme).

Under IFRS 2, an expense is recognised in the statement of comprehensive income for share based payments, to recognise their fair value at the date of grant. The application of IFRS 2 gave rise to a charge of £63,000 for the year ended 30 June 2018. The equivalent charge for the year ended June 2017 was nil.

The Group recognised total expenses (all of which related to equity settled share-based payment transactions) under the current plans of:

	2018	2017
	£'000	$'000

Share option scheme	63	-
Warrants charge	5
	68	-

Share Option Scheme

The Option Plan provides for an exercise price equal to the closing market price of the Group shares on the date of the grant. The vesting period varies between 7 months to 2 years. The options expire if they remain unexercised after the exercise period has lapsed and have been valued using the Black Scholes model. The options which are subject to the satisfaction of performance criteria relating to the compound annual increase in share price of the Group and comparing the Group share price to a similar selected Group of companies are valued using appropriate valuation models.

The following table sets out details of all outstanding options granted under the Share Option Scheme.

	2018	2018	2017	2017
	Options	Weighted average exercise price	Options	Weighted average exercise price
Outstanding at beginning of year	1,200,000	£0.03	-	-
Granted during the year	22,497,717	£0.04	1,200,000	£0.03

Outstanding at the end of the year	23,697,717	£0.04	1,200,000	£0.03
Exercisable at the end of the year**	1,200,000	£0.03	-	-

** Please note that all the share options are issued to Directors of the Company. Due to the AIM listing restrictions, none of the vested share options can be exercised until 11 June 2019.

The exercise price of the share options exercisable at the year-end is £0.03 (2017: £nil). The weighted average contractual life of the share based payments outstanding at year end is 10 years.

The estimated fair values of options which fall under IFRS 2, and the inputs used in the Black Scholes Option model to calculate those fair values are as follows:

Share based payments (continued)

Date of grant	Number of options	Estimated fair value	Share price	Exercise price	Expected volatility	Expected life	Risk free rate	Expected dividends
Date of grant				Exercise price	Expected volatility	Expected life	Risk free rate	Expected dividends
30 June 2017	1,200,000	£0.03	£0.01	£0.03	84.00%	10	1.16%	0.00%
4 April 2018	4,400,000	£0.03	£0.04	£0.04	84.00%	10	1.34%	0.00%
11 June 2018	18,097,717	£0.03	£0.04	£0.04	84.00%	10	1.23%	0.00%

All share based payment charges are calculated using the Black Scholes model.

Expected volatility was determined by reviewing benchmark values from comparator companies.

26. Borrowings

	30 June 2018	30 June 2017
	£'000	$'000

Short term loans - unsecured	45	37
Convertible loan note	-	210
	45	247

All loans are denominated in GBP (£) Sterling.

The majority of the year ended 30 June 2017 loan balance (£210,000) relates to a convertible loan note, issued on 27 June 2017 ('the Note') which carried a 10% coupon rate. Upon AIM admission event the Notes were automatically redeemed by the Company by the issue of ordinary shares at a 10% discount to the share price on admission to AIM. The derivative element of this loan note was immaterial.

During the year, £150,000 convertible loan note was issued which held a 10% interest rate. The loan note converted on AIM listing, at a 10% discount to listing price.

The Directors consider it appropriate to classify the 2018 loan balance of £45,000 as current. The interest is payable annually at the rate of 20%. There is no agreement on the period of the loan.

Movement in borrowings is analysed as follows:

	2018	2017
	£'000	$'000

At 1 July	247	72
Proceeds from issue of loans	150	170
Interest accrued	32	5
Interest repaid	-	-
Conversion of convertible of loan notes	(384)
At 30 June	45	247

27. Financial instruments

The Board of Directors determine, as required, the degree to which it is appropriate to use financial instruments or other hedging contracts or techniques to mitigate risk. The main risk affecting such instruments is foreign currency risk which is discussed below.

There is no material difference between the book value and fair value of the Group cash balances, and the short-term receivables and payables because of their short maturities.

Credit risk

Financial assets which potentially subject the holder to concentrations of credit risk consist principally of cash balances. These balances are all held through a recognised financial institution. The maximum exposure to credit risk is £4,033,000 (2017: £215,000). The Group does not hold any collateral as security.

Market risk

Market risk arises from the Group's use of interest bearing and foreign currency financial instruments. It is the risk that future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), and foreign exchange rates (currency risk).

There are no variable interest bearing loans in the Group. No risk therefore identified.

Currency risk

The Group has potential currency exposures in respect of items denominated in foreign currencies comprising transactional exposure in respect of operating costs and capital expenditure incurred in currencies other than the functional currency of operations. As foreign exchange movements are immaterial no sensitivity analysis has been provided.

Liquidity risk

Liquidity risk arises from the possibility that the Group and its subsidiaries might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. In addition to equity funding, additional borrowings have been secured to finance operations. The Company manages this risk by monitoring its financial resources and carefully plans its expenditure programmes. As there are no loans outstanding at the period end, except loans which mature in less than twelve months, no maturity analysis has been presented.

Capital

The Company considers its capital to comprise its ordinary share capital, share premium and accumulated deficit. In managing its capital, the directors' primary objective is to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, through new share issues, the Group considers not only their short-term position but also their long term operational and strategic objectives.

Other than the 5:1 share consolidation in December 2017, there have been no significant changes to the Company's capital management objectives, policies and processes in the year nor has there been any change in what the Company considers to be its capital.

See note 22 for details of a post 30 June 2018 share consolidation.

28. Categories of financial instruments

In terms of financial liabilities, these solely comprise of those measured at amortised cost and are as follows:

	30 June 2018	30 June 2017
	£'000	$'000

Liabilities at amortised cost	165	64
Loans and receivables	45	247
	210	311
Cash and cash equivalents at amortised cost	3,997	215
Trade receivables at amortised cost	105	213
	4,102	428

No collateral has been pledged in relation thereto.

29. Subsidiaries

At 30 June 2018, the Group consists of the following subsidiaries, which are wholly owned by the Company.

Company	Country of Incorporation	Proportion of voting rights & equity interest 2018	Proportion of voting rights & equity interest 2017
GOG Norioskhevi Ltd	British Virgin Islands	100%	100%
Satskhenisi Limited	Marshall Islands	100%	-
GNV Limited	Bahamas	100%	-
Taoudeni Resources SARL*	Mauritania	-	100%
Ensign Resources**	Isle of Man	100%	100%

* Sold in the year

** In the process of liquidation

New Subsidiary - Nature of business

The principal activity of GNV Inc, Satskhenisi Limited and Norioskhevi Ltd is oil and gas extraction.

Ensign Resources is dormant, however held the Antubia Ltd company and associated Ghanaian mining asset until February 2018.

Registered Office

The registered office of GNV Inc is Bolam House, King and George Streets, P.O. Box CB 11.343, Nassau, Bahamas

The registered office of Satskhenisi Limited is Trust Company Complex, Ajeltake road, Ajeltake Island, Majuro, Marshall Islands MH96960

The registered office of GOG Norioskhevi Limited is Trident chambers, P.O.Box 146, Road Town, Tortola, British Virgin Islands, Registration No 1949997

The registered office of Taoudeni Resources SARL is International House, 1-6 Yarmouth place, London W1J 7BU.

The registered office of Ensign Resources is Falcon Cliff, Palace Road, Douglas, Isle of Man, IM2 4LB

Taoudeni SARL was sold on the 8th November 2017. Please see note 11 for further detail.

30. Commitments

Commitments at the reporting date that have not been provided for were as follows;

Operating lease commitment

UK operating lease commitment

At 30 June, the total of future minimum lease payments under non-cancellable operating leases for each of the following periods was:

	2018	2017
	£'000	£'000
Within 1 year	22	-
Between 1 and 5 years	26	-
Total	48	-

The Group has entered into a 2 year term contract over its new office premises in central London.

Georgian Operating contract commitment

The Group's Georgian Operating Company contract with NOC contains a one-month notice termination period. The monthly cost is US $17,500 USD, which is comprised of US$5,000 for the Satskhenisi PSC and US$12,500 for the Norioskhevi PSC.

31. Related party transactions

Key management personnel comprises of the Directors and details of their remuneration are set out in Note 7 and the Directors Remuneration report.

On 1 August 2017, Block Energy secured a 90% working interest in the Satskhenisi PSC via the acquisition of 100% of the share capital of Satskhenisi Ltd, a Marshall Islands registered company. Satskhenisi Ltd was bought from Iskander Energy Corporation for £595,000 consideration, paid in Block Energy Plc Ordinary shares. Roger McMechan is the CEO of Iskander Energy Corporation.

32. Subsequent events

On the 24 September the Group signed an agreement with JSC Norio Oil Company ('JSC NOC'), a Georgian drilling contractor, and Georgia Oil and Gas Ltd ('GOG'), a British Virgin Islands company and owner of drilling equipment in the Republic of Georgia, for the supply of drilling and workover equipment for the Company's 2018/2019 work programmes across its Georgian licence base.

On the 28 August 2018, the PSC terms for its West Rustavi licence were been ratified by the Government of the Republic of Georgia. The PSC will become effective as of 1 September 2018 and will allow Block to conduct planned operations within the Licence area.

On the 2 October 2018, Christopher Brown was appointed as non-executive director of the Company

On the 5 October 2018 a Memorandum of Understanding was signed with Bago Ltd, one of the largest private gas suppliers and purchasers in Georgia, for a proposed offtake agreement for gas produced in the West Rustavi PSC.

**ENDS**

For further information visit www.blockenergy.co.uk or contact:

Paul Haywood Chief Executive Officer	Block Energy Plc	Please contact St Brides Partners Ltd (see below)
Neil Baldwin (Nominated Adviser)	Spark Advisory Partners Limited	Tel: +44 (0) 203 368 3554
Craig Fraser (Joint Corporate Broker)	Baden Hill, a trading name of Northland Capital Partners ltd.	Tel: +44 (0) 20 7933 8731
Colin Rowbury (Joint Corporate Broker)	Novum Securities Ltd	Tel: +44 (0)207 399 9427
Frank Buhagiar / Juliet Earl (Financial PR)	St Brides Partners Ltd	Tel: +44 (0) 20 7236 1177

Notes:

Block Energy (BLOE.L) is an AIM quoted oil and gas company with a growing portfolio of production, development and exploration assets in the Republic of Georgia. Block holds a 100% Working Interest ('WI') in the producing Norio licence, a 90% WI in the producing Satskhenisi licence and a 25% WI in the West Rustavi licence with the right to farm-in to up to a 75% WI. Block's three licences lie in the heart of the Schlumberger's 100% held position in the Kura basin, which at its peak produced ~70,000 barrels of oil per day ('bopd') in Georgia and is estimated to hold over 7 billion barrels of proven reserves in Azerbaijan and North Caucasus (Russia).

The licences currently hold estimated net proven oil reserves of 1.5 million barrels plus 61 million barrels unrisked contingent oil resources ('2C'). Furthermore, the West Rustavi permit has estimated gross unrisked contingent gas resources (2C) of 608 BCF. Multiple gas discoveries have already been made in the Lower Eocence and Upper Cretaceous within the Licence and lie on trend with the same play currently being targeted by Schlumberger on neighbouring licence, Block XIb. The estimated cost of gas development and production at West Rustavi is c.US$2.00/Mcf which equates to operating netbacks of c.US$2.6/Mcf (assuming a 75% working interest) - Georgia currently purchases its gas for c.US$5.5 /Mcf (c.US$600m project value to the Company).

Appraisal of West Rustavi gas prospects is expected to be conducted contemporaneously with the rehabilitation of the producing Norio (100% WI) and Satskhenisi fields (90% WI) which provide immediate production uplift on commencement of field operations in Q1 2019. The near-term target is to raise production to 900 bopd from 15 bopd within 18 months via a low cost, low risk workover and sidetrack programme, and then to utilise cash flow from production to drill new horizontal wells and sidetracks to raise production to c.2,000 bopd over the medium term. Oil production across the fields offer excellent netbacks, with the current cost of production of c.US$25 per barrel providing netbacks of c. US$30-35 per barrel.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR FEAFMEFASESF

Block Energy (BLOE)

Friday, 15th November 2024

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