Junior oil explorer Melbana Energy (ASX: MAY) is a step closer to being a Caribbean oil producer after signing a farm-out agreement with Anhui Modestinner Energy to drill at its Alameda-1 exploration well in north Cuba.
The binding definitive farm-out agreement between the companies follows on from a non-binding letter of intent inked back in October and the receipt of key regulatory approvals to proceed with drilling.
Anhui Modestinner Energy is a subsidiary of Anhui Guangda Mining Investment, a Chinese company providing oilfield services and equipment both in China and internationally.
Melbana Energy chief executive officer Robert Zammit said the company was looking forward to drilling the high impact oil prospects contained in the Alameda-1 exploration well.
“Alameda and Zapato are significant multi-million-barrel targets that will be drilled this year at zero cost to Melbana,” he said.
“Coupled with our recently announced Santa Cruz incremental oil recovery project and our world class Beehive prospect in Australia, we see huge potential in our portfolio and look forward to an exciting year ahead.”
Key farm-out terms
Under the terms of the farm-out, Anhui Modestinner Energy has agreed to fund all costs associated with the Block 9 production sharing contract, which includes the drilling of at least three wells.
Two wells at the preferred Alameda and Zapato exploration targets are set to be drilled before November 2019, with Anhui Modestinner Energy looking to bring its own rig into Cuba early in the year to undertake the drilling program.
The third exploration well needs to be drilled before July 2020.
The Chinese group is also responsible for providing any required guarantees and will furnish Melbana with 12.5% of any profit oil.
Melbana will also recoup its Block 9 back costs totalling about US$3.5 million provided a successful development ensues.
The farm-out terms have several conditions, including securing Cuban and Chinese regulatory approvals, milestone related obligations and finalisation of a joint operating agreement.
High hopes for Block 9
Melbana has expressed confidence in the prospectivity contained within the underexplored Block 9 onshore acreage.
The block covers 2,380 square kilometres and is located within a proven hydrocarbon system.
According to Melbana, drilling of the three exploration wells will provide multiple opportunities for a significant discovery.
Currently, Melbana has its sights set on the Alameda prospect which is the highest ranked exploration target in Block 9.
Alameda is in a similar structural position to the Varadero field, the largest oil field in Cuba, approximately 35km away.
The proposed Alameda-1 well will test a target of 140 million barrels of recoverable on a best estimate basis.
Melbana shares gained ground on the farm-out agreement, climbing 7.1% to $0.015.