Cashed-up Melbana Energy is on the hunt for Cuban black gold
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With a massive acreage, significant exploration potential in a proven oil province and cash in the bank to fund a drilling campaign, Melbana Energy has certainly not been resting on its laurels in Cuba.
This week London-based merchant bank Brandon Hill Capital reported that Melbana had “the potential to become one of the most exciting emerging exploration plays in the market”.
“During the past few years Melbana Energy has undergone a significant transformation and is now prioritising its highly prospective Cuban exploration acreage,” Brandon Hill Capital reported.
“A new leadership team, brought in to oversee this change has lowered overheads, leaving the Company on a stronger foundation to pursue its growth strategy.”
Brandon Hill concluded Melbana had a net asset value of 6.21c compared to its current share price of around 1c.
Cuba — synonymous with cigars, a missile crisis and a 50- year trade embargo with the United States – is now becoming globally recognised for a wealth of energy resources which have largely remained untapped.
Melbourne-based Melbana (ASX:MAY) has been on the ground in Cuba for the past five or so years and holds the unique position of being the only ASX-listed company with exposure to Cuba’s significant potential for energy resources.
Back in 2012 (when the company was known as MEO Australia) the board focused on regions with unexplored potential that had been previously off-limits due to geopolitical reasons.
The search was initially narrowed to Kurdistan, Myanmar and Cuba, Melbana’s managing director and CEO Peter Stickland told Stockhead.
“From that screening, the one that stood tall was Cuba,” he said.
“The United States has had an embargo on Cuba for last 50 or so years. There have been few oil and gas companies looking at Cuba which is why there has been so many opportunities. Half the industry hasn’t been looking at it.”
Melbana quickly got to work. Around a year later, the company became one of the few western companies pre-qualified by the Cuban government to operate onshore and in shallow water in Cuba.
In 2015, Melbana signed a production-sharing contract for “Block 9” — a proven hydrocarbon system covering 2380 sq km onshore near the north coast of Cuba in the under-explored south-eastern margin of the Gulf of Mexico — one of the world’s great petroleum mega provinces.
“We knew there was oil in the block,” Mr Stickland said. “The earliest oil field in Cuba, the Motembo field, was found on our acreage on this block in the 1880s.
“Historically it has produced 5 million barrels. The oil system is proven. It’s now a matter of being able to identify where is the potential and characterise how big the potential might be,” he added.
Work carried out over past two years shows Block 9 is living up to if not exceeding expectations, Mr Stickland said.
Currently, it has 12.7 billion barrels of oil in-place with prospective resources of 637 million barrels.
Nearby oil field produces 14,500 barrels a day
Only 30 km away lies Cuba’s largest oil field Varadero. Owned by Toronto-listed Sherritt International, Varadero has 11 billion barrels in one structure and is producing some 14,500 barrels per day.
Sherritt has been successfully operating in Cuba for 25 years.
“I take some comfort in that Sherritt have shown you can invest with confidence and build a long term profitable business in Cuba,” Mr Stickland said.
Cuba has been encouraging foreign investment by setting a corporate tax rate between 15 per cent and 22.5 per cent, with a corporate tax holiday for first eight years.
“I think the Cubans recognise the importance of oil to their economy,” Mr Stickland said.
“Most of their electricity is from burning oil, they don’t have hydro and coal. They are reliant on oil and gas for most of their electricity.”
Block 9, which consists largely of low-lying farm land, is connected by sealed roads to Havana. A deep-water port with an oil terminal is within 75 km.
Melbana has identified priority drill targets at the Alameda prospect as well as the Zapato and Piedra prospects and is now gearing up to drill two wells from mid-2018.
Before then, Sherritt has begun drilling at adjacent Block 10 with a result due in the next few months.
“Block 10 lies along trend from our acreage so it’s always helpful when someone is drilling nearby and if they make a discovery then it’s something we should be paying close attention to,” Mr Stickland said.
In a vote of confidence in the company and its Cuban focus, Melbana recently raised $5.2 million through a placement and a partially underwritten entitlement issue.
While the focus is on Cuba, Melbana also holds a 30 per cent stake in the PEP51153 permit in the Taranaki Basin of New Zealand.
Melbana, along with its joint venture partner TAG Oil, is preparing for drilling at the Pukatea-1 exploration well in mid-January 2018.
This special report is brought to you by Melbana Energy.
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