Melbana lands heavyweight partner for Cuban oil hunt
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Special Report: It is rare to see a National Oil Company partner with an ASX-listed junior explorer. But that is exactly the coup that Melbana Energy (ASX: MAY) pulled off in the week before Christmas when it lured Angola’s National Oil Company Sonangol to farm in to its Cuban acreage.
Angola is one of Africa’s largest oil producers, churning out approximately 1.4 million barrels per day.
Sonangol speaks for a significant proportion of this – in the range of 10-20% – and has a heavyweight balance sheet to match.
It is understood to be keen to increase oil production outside Angola, which would explain on a fundamental level the interest in Melbana’s Block 9 Production Sharing Contract (PSC), onshore northern Cuba.
Under the binding heads of agreement announced on December 23, Sonangol will acquire a 70% interest in the Block 9 PSC by funding 85% of the costs of drilling two wells within the block.
Sonangol will also immediately pay $5 million to Melbana for past costs incurred in Cuba, with this amount expected to largely cover Melbana’s 15% funding commitment for the two wells.
Melbana will remain operator of the Block 9 PSC until at least the completion of the two-well drilling program, at which point Sonangol will have the option to assume operatorship.
“We appreciate the opportunity to be the operator of this two-well drilling program as this will allow us to monitor costs and seek to drive the agenda,” Melbana chairman Andrew Purcell said.
“Maintaining a 30% interest in this very prospective area is a great result for our company as it will give our shareholders a significant interest in any discovery that may be made.”
The prize on offer in Block 9 is suitably large to warrant Sonangol’s attention, with a best estimate of 236 million barrels of oil to be tested over four separate targets.
Three of these targets are in the first well, Alameda -1, which is the highest ranked prospect in Block 9. It lies in a similar structural position to the largest oil field in Cuba, Varadero, approximately 35km away.
Independent expert McDaniel & Associates has ascribed a 32% chance of success to the primary target at Alameda, which is higher than usual in oil and gas exploration as the well will “twin” a previous discovery that flowed considerably lighter oil to surface than what is typical in Cuba.
The second well to be drilled, Zapato -1, also carries a relatively high chance of success at 23%, according to McDaniel & Associates, as it is seeking the source of an existing oil field.
Melbana anticipates starting the drilling program in the September quarter this year, and is in the process of refreshing tenders for rigs and services after initially conducting them last year.
The company previously had in place all permits, environmental approvals and land access agreements and is extending these where necessary.
The breakthrough in landing a farm-in partner for Cuba comes as Melbana waits on final word from Santos in regards to WA-488-P, the permit containing the Beehive Prospect, in the Bonaparte Basin offshore northern Western Australia.
In early December, Santos informed Melbana it would exercise its option to acquire an 80% interest in WA-488-P provided it could find another party to farm-in to the permit by 4 March 2020.
Santos paid $US1.39 billion in October for ConocoPhilips’ northern Australian business, and the company has spoken publicly about intending to farm down the assets acquired in that transaction.
There is a view that Santos may roll WA-488-P into that process. Meanwhile, Melbana also has a live takeover offer for fellow oil and gas junior Metgasco Limited on the table.
Earlier this week, Melbana extended the offer, which has seen just over 20% acceptances, to 31 January.
The company’s shares have been trading around the 1c mark, giving it a market capitalisation of close to $20 million.
But with plenty of potential catalysts looming as a result of a busy back half of 2019, it is not hard to see the stock moving significantly higher in the near future.