Georgia: Block Energy executes Binding Framework Agreement for Project III farm out

Block Energy, the development and production company focused on Georgia, has executed a binding Framework Agreement with Zhijiang Sanning Energy Co. Ltd ('Sanning') for the farm-out of Project III.

Highlights:

Framework Agreement

Under the Framework Agreement, between Block and Sanning ("the Parties"), Sanning will acquire a 51% Participating Interest in Project III (being the Lower Eocene and deeper horizons) of the XIB and XIF Production Sharing Contracts*¹ ("PSCs"). In exchange, Sanning commits to carry Block on all capital and operating costs, currently estimated at USD 13 million, for the appraisal of the Patardzueli-Samgori field.

Subject to successful appraisal results and the triggering conditions to be set out in the Transaction Documents, Sanning shall carry Block on all costs of procuring and installing an early gas processing facility and associated pipeline infrastructure, up to an additional estimated commitment of USD 12 million.

At Sanning's election, Sanning may carry an optional work programme for the appraisal of the Rustavi and Teleti fields. If Sanning proceeds, Sanning shall carry Block through appraisal (a) drilling two new deviated appraisal wells targeting the Lower Eocene and/or Upper Cretaceous horizons; and (b) installing associated facilities where required. The scope, sequencing and cost allocation may be adjusted by mutual agreement.

Sanning also has the option to participate in and carry Block on drilling and production facilities across Rustavi and Teleti fields, currently estimated at USD 50 million.

Block will retain a 49% Participating Interest in Project III, and remain operator throughout the appraisal programme. The Company will retain 100% ownership of Projects I, II, IV and CCS as well as all existing oil and gas production.

If Sanning does not complete the target work programme for the firm and contingent work plan, there shall be a corresponding dilution of the rights and interests it has obtained.

The Parties intend to finalise a farmout agreement, an assignment agreement and a joint operating agreement (together, the "Transaction Documents") in H2 2026. Completion of the proposed transaction remains subject to execution and delivery of the Transaction Documents, receipt of all necessary governmental approvals in Georgia and China, shareholder and regulatory approvals as required under the AIM Rules for Companies, and the absence of any material adverse change affecting the parties or the relevant PSCs. The Board believes the transaction represents a major milestone for Block, securing substantial third-party capital for the appraisal of Project III, and offering significant upside for shareholders.

Project III

Project III comprises the Lower Eocene and Upper Cretaceous gas discoveries across Block's XIB and XIF licences in central Georgia, including the Patardzueli-Samgori, Rustavi and Teleti fields and the South Dome prospect. Gas has been tested in legacy wells on each of the fields with a methane concentration greater than 95% and no Hydrogen sulfide. The XIB and XIF areas benefits from 3D seismic.

Project III is a low capex, short-cycle, gas appraisal and development opportunity supported by existing wells and infrastructure. The fields are located within 15 miles of the South Caucasus Pipeline, which transports gas to Turkey and Europe.

Block will operate the appraisal programme, drawing on the Company's extensive experience of operating the fields at the shallower, oil producing, Upper and Middle Eocene horizons.

Total 2C Contingent resources are 2.77 TCF (Block Energy, 2024), with a further 574 BCF 2U Prospective Resources (Block Energy, 2024).

Project III was declared strategic by Georgia's Ministry of Economy and Sustainable Development in 2023.

Patardzueli-Samgori Appraisal Programme

The Patardzueli-Samgori appraisal programme will appraise the Lower Eocene reservoir interval through a re-test and side-track drilling programme, and test the Upper Cretaceous interval for further evaluation.

The programme is designed to acquire the reservoir data required to advance resources to reserves and to support full field development planning. Backed by a firm commitment of USD 13.0 million, the programme comprises

Each operation will include extensive data collection and well tests to determine the long-term production profiles and number of wells required to recover the resource.

If tested successfully the wells will be converted to producers, targeting an initial production of 20 MMCF/d (c. 3,300 boepd) in the 2C case. They will be monetised through the rapid construction of an early gas processing facility and associated intra-field and sales gas pipelines. 

Patardzueli-Samgori contains 1,074 BCF 2C Contingent Resources (Block Energy, 2024).

Production and Development Pathway

Block has developed a full appraisal and early gas monetisation plan for each of the Patardzueli-Samgori, Rustavi and Teleti fields, together with conceptual full-field development plans and associated production profiles.

The fields are expected to be appraised and developed in phases, with initial investment in testing and drilling followed by early gas production facilities to reduce overall development capital requirements, and thereafter a staged ramp-up in production to a plateau of up to 500 MMCF/d (c. 83,000 boepd) in the 2C case across Project III.

Georgia's robust investment and operating environment supports accelerated appraisal and development, with the potential to ramp up production quickly in a success case.

About Sanning

Zhijiang Sanning Energy Co. Ltd ("Sanning Energy") is the upstream affiliate of Hubei Sanning Chemical Industry Co. Ltd ("Sanning Chemical").

Sanning Chemical is one of China's leading chemical companies and is privately held. Production of fertiliser and chemical products exceeded 11.5 million tons in 2025, delivering revenues in excess of USD 2.8 billion. Sanning Chemical, with operations primarily based in Hubei province and Shanghai, has been named a leading National High-Tech Enterprise.

Sanning Energy is focused on upstream investments in energy, particularly natural gas, as it aims to reduce its environmental footprint and improve overall efficiency.

Transaction Next Steps

Next steps in the Transaction include negotiation, finalisation and completion of definitive Transaction Documents and approvals from both the Georgian and Chinese governments. Under the Framework Agreement the documents are expected to be executed in H2 2026, and should a successful transaction be concluded in this time frame, operations will commence 1H 2027.

Commenting, Mr. Tatishvili, Head of the State Agency of Oil and Gas commented;  

"Project III is strategically important for Georgia and, if successfully appraised and developed, has the potential to make a meaningful contribution to domestic gas supply, foreign direct investment, job creation and longer-term energy security. The proposed entry of Sanning is encouraging and reflects both the quality of the project and growing international interest in Georgia as an energy investment destination."

Commenting, Mr. Haywood, Chief Executive Officer of Block Energy plc commented;

"This is a major step forward for Block and a defining milestone for Project III. The agreement provides a clear pathway to secure substantial third-party capital for appraisal and early gas monetisation, whilst preserving significant upside for our shareholders through our retained interest and continued operatorship.

Just as importantly, we see this as the foundation of a broader strategic partnership. Block brings upstream capability, while Sanning brings downstream demand, infrastructure ambition and commercial depth. We believe this partnership has the potential to extend beyond Georgia as we continue to expand our new ventures strategy."

Commenting, Mr. Xiong, Chief Executive Officer of Sanning commented;

"We are pleased to enter into this agreement with Block Energy in relation to Project III. The project represents an attractive gas appraisal and development opportunity with meaningful scale and strong strategic relevance to Sanning's core business and expansion plans.

We have been impressed by the quality of Block's technical work and its upstream capability. We look forward to working closely together with Block, to advance the appraisal programme and to exploring broader opportunities beyond Georgia."

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Source: Block Energy