Energy

Cuba-based Melbana Energy gearing up for second Alameda well

Tue 24 Jan 23, 3:00pm (AEST)
A pink convertible is photographed parked in an alleyway located somewhere in an urbanised area of Cuba. The Cuban flag is visible hanging off a flagpole protruding from a building in the midground of the photograph
Source: Unsplash

Key Points

  • Melbana Energy expects to commence drilling the first of two appraisal wells at its Alameda target once permits are granted in March
  • The Alameda-1 well hit oil in what the company calls the Amistad Formation, but appraisal wells are needed to test size of oil deposit
  • The company has had trouble sourcing modernised drilling equipment in Cuba, and a new economic crisis is unfolding in the background

ASX energy smallcap Melbana Energy (ASX:MAY) is gearing up to drill the second of its Alameda wells onshore Cuba, the company revealed on Tuesday. 

Alameda-2 will be an appraisal well testing the Amistad structure, a geological formation underpinning the company’s acreage which was perforated successfully by the first Alameda well. 

It will be followed by Alameda-3, but neither appraisal well can be drilled until permits are granted which the company expects to see by March 2023. 

“The pace of preparations is increasing as we move closer to commencing our first appraisal well,” Melbana Energy CEO Andrew Purcell said.

Amistad structure explainer 

The Amistad structure exhibited oil shows over a total interval of 1,426m depth with mud samples showing high gas contents. 

Fluorescence in samples taken from underground was also detected, a trait often coincident with oil deposits.

Melbana is yet to complete flow-tests and prove the viability of commercial-scale oil production.

“Alameda-1 demonstrated a working hydrocarbon system at multiple depths and at different pressures,” the company wrote in its December quarterly. 

“To fully evaluate these many different reservoirs properly, it is necessary to drill two separate wells to both test each of these reservoirs whilst also retaining the flexibility to allow simultaneous production from more than one reservoir.” 

There is little publicly available research or similar open report information for Cuban oil and gas geology. 

Cuba, you say? 

Alameda-1 is located on the north coast of Cuba inside an oil and gas permit called Block 9. While the permit boundaries extend into shallow waters, Melbana isn’t drilling offshore. 

Melbana holds a 30% interest in Block 9. Back in 2020, the company transferred a 70% interest to Sonangol, the government-owned National Oil Corporation (NOC) of the African country of Angola.

Sonangol posted a US$4bn loss in the first year of Covid. 

The NOC funded 85% of Melbana’s first two exploration wells in return for the 70% interest. So far, the Angolan energy heavyweight has not made any money back off that purchase, but Melbana has had success in hitting movable hydrocarbons (read: oil and gas deposits). 

Block 9 is estimated to contain up to 1.9bn barrels of oil based on an independent report published last year in 2022. That 1.9bn barrel figure is a best estimate on a gross unrisked basis, indicating a low level of certainty. 

Trouble in paradise 

Cuba is a challenging environment to operate in. Over 2% of the population left for the USA in the last year as a result of Cuba's economic crisis. Further to this, the US maintains sanctions against Cuba which would make it difficult to source readily available modern drilling equipment within the country.

Melbana has had a range of issues in Cuba. 

Its Alameda-1 well, spud in 2021, saw issues when cement lining downhole failed to set in a satisfactory manner. 

Shipping delays in the second year of COVID borne from the international supply chain crisis saw the company’s expected completion schedule delayed numerous times

Mud systems which remove unwanted sludge in drilling also caused headaches for the company in December of 2021.

Zapato suspended for now 

In its December quarterly, Melbana also revealed it has temporarily suspended its operations at the unrelated Zapato play, after the well was drilled to over 2,000m depth and came up dry. 

In oil and gas lingo, it appears that the first run at Zapato is a “duster,” though, this isn’t particularly unusual for energy exploration. 

Despite these setbacks, Melbana remains a market darling. Its one year returns are up over 300%. 

Want to know more? 

Using freely available company information on Market Index’s company page for Melbana, investors can make a number of early-stage observations about the company’s performance including but not limited to: 

  • Share price of 8.5c*

  • Market cap of $286.4m* 

  • 3.37bn shares on issue 

  • One year returns up 304%

  • Year to date performance up 34.9% 

  • Ranked 30 of 174 energy sector companies 

  • Average 4 week volume of 28.5m shares 

  • Company finished December quarter with $39m in cash 

  • It spent $4.1m over the period 

*As at 1400AEST Tuesday 24 January 2023 

Melbana Energy's one year charts
Melbana Energy's one year charts

 

Written By

Jonathon Davidson

Finance Writer

Jonathon is a journalism graduate and avid market watcher with exposure to governance, NGO and mining environments. He was most recently hired as an oil and gas specialist for a trade publication.

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