Melbana Energy Limited (ASX:MAY) Executive Chairman Andrew Purcell provides an update on the company's portfolio, focusing on its onshore Cuban project Block 9, the potential size of the field, drilling program and funding.
Rachael Jones: Hello. I'm Rachael Jones for the Finance News Network. Joining me from Melbana Energy (ASX:MAY) is Executive Chairman Andrew Purcell. Andrew, welcome to FNN.
Andrew Purcell: Thank you, Rachael. Very good morning to you as well.
Rachael Jones: Good morning. Now, first up, could you start with an introduction to the company?
Andrew Purcell: Melbana Energy (ASX:MAY), we're listed on the Australian Securities Exchange. We have been private for over 20 years. We're an oil and gas exploration company with a team that has had many decades of experience working for oil majors. So our motives and our operations are focused on finding world-class-size exploration opportunities that we can attract international partners to.
Rachael Jones: Thanks Andrew. Now, before we talk about your projects, what impact has COVID-19 had on business?
Andrew Purcell: The main impact it's had is a restriction on our senior executive team, myself included, being able to travel to our other offices. We've managed as well as we can. We have very competent people on the ground in Cuba, which is our main sphere of offshore operations at the moment. And it was through the planning stage for our upcoming drilling operation. So communication's good. Interviews can be done by video and meetings as such. So we've managed, but things seem to be returning to normal in Cuba, now that International flights have started to resume.
Rachael Jones: Now let's talk about your projects. Can you tell us more about Cuba?
Andrew Purcell: It's part of the Gulf of Mexico, a prolific hydrocarbon zone, of course, and it indeed has its own very well established and significant oil industry. It has suffered from underinvestment, however. As a result, there is large running room there, to take its extensive hydrocarbon resources and develop them, which is our opportunity that we identified and why we moved into Cuba.
From a political, fiscal point of view, it is a very competent jurisdiction. The national oil company has very experienced, well-educated, capable people. The black-letter law is very clear and properly administered. Their fiscal terms are competitive and it's a jurisdiction that we feel very comfortable operating in.
Rachael Jones: What is the operating environment in Cuba?
Andrew Purcell: From an infrastructure point of view, everything's proximate, there are a number of oil fields across that northern hydrocarbon zone. We have Varadero, which is an 11 billion barrel field, their principle operating area just an hour and a half to the east of Havana on all-weather blacktop roads. There's deep water ports nearby, oil terminals, pipelines, refineries. So there's good infrastructure to support their already quite developed oil industry. Our Block 9 is immediately to the right of that Varadero area that I've already mentioned. And so we're very close, particularly from Australian standards, being able to operate, move people in and out of the country easily, move them in and out of Havana, Varadero to site easily. And in the case of any success we may have, going into production would be a relatively minor consideration, as opposed to the big infrastructure spends that would be required in other jurisdictions, given the remoteness typically of opportunities of this size.
Rachael Jones: And what is the timeline for Block 9?
Andrew Purcell: Well, we started civil works last month. So we put the yellow machines on the ground and the people, and we started turning dirt and building roads and drainage areas. That will take a few months to complete that work for the first pad. And then we'll move onto the second pad immediately thereafter. We have recently completed an international tender for supply of materials, tubulars, casing pipes, if you like, that we need for the drilling program. They have a lead time of several months. So at this stage, we're anticipating that we will commence drilling by the end of first quarter next year.
Rachael Jones: And in Australia you have projects off the coast of the Northern Territory. What's taking place there?
Andrew Purcell: It is an opportunity that we developed using our very, very good technical team. We were successful in attracting partners for it, the French supermajor Total, and Australia's Santos. They jointly agreed to fund a 3D seismic acquisition over the block at a cost of five or $6 million a couple of years ago for which they received the right to take 80% of the block in return for funding an exploration well. Unfortunately that didn't occur earlier this year. And we're now looking for new partners to work with us, to drill that exploration well. And there's some very, very capable and very sizeable entities in our data room at the moment.
Rachael Jones: Now let's talk about your financials and strategy. Can you provide a snapshot of your funding position?
Andrew Purcell: Currently, as we've announced, we have, I think it's approximately $5 million in the bank. We have received our back costs from Sonangol, our partner in Block 9 in Cuba. We had spent about 5 million Australian dollars doing the work we did in Cuba, before we attracted them as a partner into the project. Part of our commercial terms were that they would repay us those costs when they came in. Of the 5 million that we've received back from Sonangol, we have a 30% interest in this block, but we only pay 15% of the cost. So that 5 million is roughly equivalent to that 15%. Plus out of the total well budget, there is an amount that is allocated to the operator for project management. So that's the other benefit. We receive some funding out of the budget, which we use to cover the cost of that project management team. So our funding position is good. And at this stage, we are well on track to getting this first well spudded, as I said, next quarter.
Rachael Jones: And to the last question now, Andrew, where would you like to see the company over the next couple of years?
Andrew Purcell: So a success at either of the wells in Cuba or in Beehive in Australia or in any of our other projects that we've got on foot that would allow us to start earning income, would be something our board rates very highly, as would our shareholders I'm sure.
The other thing is that there is to be an assessment made in the energy industry about the future of oil and gas companies. And the pivoting that most people are seeing with the majors towards renewable energies, it's something, we keep a very close eye on as well. My ambition is very much to add another arrow to our quiver along those lines, that gives our shareholders more diversity and more access to broader funding sources in the future.
Rachael Jones: Andrew Purcell, thanks so much for the introduction.
Andrew Purcell: Thank you very much for your time.