Block Energy Signs Major Farm-Out Deal for Project III with Chinese Firm Sanning

Binding deal: Block brings in Sanning to fund Project III appraisal in Georgia

Block Energy has signed a binding Framework Agreement with Zhijiang Sanning Energy for a farm-out of Project III, covering the Lower Eocene and deeper horizons on the XIB and XIF licences in central Georgia. Sanning will take 51% of Project III, with Block retaining 49% and operatorship during appraisal.

The headline: up to USD 75 million of carried spend across appraisal drilling and early facilities, aimed at unlocking Project III’s sizeable gas resource base of 2.77 TCF 2C Contingent Resources (Block Energy, 2024). The company also flags an estimated Project III 2C gross success case NPV10 of USD 2.2 billion.

Deal terms and who pays for what

A farm-out is where a project owner brings in a partner to fund activity in return for an equity interest. A “carry” means the partner pays the costs on behalf of the project owner.

Partner and stake	Sanning 51% of Project III; Block 49% (Block remains operator during appraisal)
Firm carry	USD 13.0 million for Patardzueli-Samgori appraisal (capital and operating costs)
Contingent carry	Up to USD 12.0 million for an early gas processing facility and pipelines (subject to triggers)
Optional programme	Rustavi and Teleti appraisal and facilities at Sanning’s election, currently estimated at USD 50 million
Total carry potential	Up to USD 75 million
What Block keeps	100% of Projects I, II, IV and CCS, and 100% of current oil and gas production

There is a backstop too: if Sanning does not complete the target work programme, its rights and interests will be correspondingly diluted. That is a useful protection for Block shareholders.

What is inside Project III

Project III spans the Patardzueli-Samgori, Rustavi and Teleti fields plus the South Dome prospect. Gas was tested historically on all fields with methane above 95% and no hydrogen sulphide reported. The acreage benefits from 3D seismic and sits within about 15 miles of the South Caucasus Pipeline that moves gas to Turkey and Europe.

Contingent resources total 2.77 TCF 2C, with another 574 BCF of 2U Prospective Resources (Block Energy, 2024). Georgia’s Ministry of Economy and Sustainable Development declared Project III strategic in 2023.

Patardzueli-Samgori: the first stop for the drill bit

The initial USD 13.0 million firm programme focuses on Patardzueli-Samgori, which holds 1,074 BCF of 2C Contingent Resources (Block Energy, 2024). The plan is to gather the data needed to move resources into reserves and firm up development design.

• Re-entry and testing of SAM-202 in existing and previously untested Lower Eocene intervals.
• Re-entry and testing of SAM-201 in existing and previously untested Lower Eocene intervals.
• A long-reach, highly inclined sidetrack of SAM-201 targeting Lower Eocene fracture zones.
• Re-entry and re-test of PAT-E1 in the Upper Cretaceous. The well previously tested gas but had hole stability issues.
• A long-reach, highly inclined sidetrack of PAT-E1 targeting untested Lower Eocene fracture zones.

If tests are successful, the wells will be converted to producers, targeting an initial 20 MMCF/d (about 3,300 boepd) in the 2C case, supported by a rapid-build early gas facility and sales pipelines.

Development pathway and scale

Block outlines a phased approach: appraise each field, install early monetisation kit, then scale up. In the 2C case, Project III could build to a plateau of up to 500 MMCF/d (around 83,000 boepd) across Patardzueli-Samgori, Rustavi and Teleti. That is not a forecast, but it gives a sense of the potential size if appraisal delivers.

For context, the company also notes in its background section that the XIB licence has over 2.77 TCF of 2C contingent gas resources with an NPV10 of USD 1.65 billion (Source: IER, OPC 2024 & Internal estimates). The RNS headline for Project III cites an estimated 2C gross success case NPV10 of USD 2.2 billion.

Why this matters for retail investors

My read is that this is a material de-risking step for Block. The structure brings in a partner to fund expensive appraisal and early infrastructure, while Block keeps operatorship and 49% of the upside on Project III – plus 100% of its other projects and all current production.

Sanning is the upstream affiliate of Hubei Sanning Chemical, a large Chinese chemicals group that produced over 11.5 million tons of product and generated revenues in excess of USD 2.8 billion in 2025. Access to a partner with downstream demand and balance-sheet depth should help if the project progresses into development.

There are caveats. This is a Framework Agreement, not completion. Final farm-out, assignment and joint operating agreements are targeted for H2 2026 and require approvals in Georgia and China, as well as shareholder and AIM regulatory approvals. Operations are guided to start in 1H 2027 if the transaction concludes on that timeline.

Jargon buster: quick definitions

• Farm-out: selling a project interest to a partner who funds work.
• Carry: the partner pays agreed costs on behalf of the operator.
• 2C Contingent Resources: discovered volumes not yet classed as reserves, pending further data and commercial steps.
• NPV10: net present value discounted at 10%, a standard way to value future project cash flows.
• PSC (Production Sharing Contract): a contract with the state defining rights, costs and profit sharing.

Risks and watchpoints

• Approvals and documentation: the deal still needs definitive agreements and multiple regulatory clearances. Timeline slippage is a risk.
• Subsurface risk: appraisal must confirm commercial flow rates. Until then, the 2C resources remain contingent.
• Commercial terms not disclosed: gas pricing, pipeline access and fiscal specifics are not disclosed, which will influence eventual economics.
• Execution: directional sidetracks and re-entries can be technically tricky, especially in fractured reservoirs and where prior hole stability issues were flagged.
• Optional spend: the USD 50 million across Rustavi and Teleti is at Sanning’s election. It is positive optionality but not a commitment today.

Key upcoming catalysts

• H2 2026: execution of the farm-out, assignment and joint operating agreements.
• Governmental approvals in Georgia and China; shareholder and AIM approvals.
• 1H 2027: targeted start of operations if the transaction completes on schedule.
• Appraisal results at Patardzueli-Samgori, including flow tests and data to progress resources to reserves.

My take: a strategically sensible, capital-light step

On balance, I view this as a positive milestone. It secures a path to fund near-term appraisal and early monetisation without issuing equity or loading on debt, keeps Block in the driving seat operationally, and sets up a partnership that could scale if the rocks cooperate.

The flip side is timing – investors will need patience while paperwork and approvals grind through, and the subsurface has to deliver. Gas quality and infrastructure proximity help, and the dilution safeguard on Sanning’s interest is shareholder-friendly. If the team can hit the 1H 2027 start-line and early wells flow to plan, Project III’s 2.77 TCF prize starts to look a lot more tangible.