Melbana’s Australian assets overlooked
Towards the end of April, Melbana Energy Ltd (ASX:MAY) informed the market that it had elected to terminate the farm-in agreement for the Cuba Block 9 Production Sharing Contract.
This decision was taken in light of prospective farm-in partner Anhui Modestinner Energy Co., Ltd. (AMEC) not satisfying the conditions precedent to an agreement within the time allowed.
While management indicated it will pursue an alternative farm-out transaction with a number of other potential parties who have continued to express an interest in the world class potential of Block 9, there are other assets in play that appear to have been overlooked.
Melbana’s share price came off approximately 20% in response to the Cuba Block 9 news, seemingly an overreaction given the potential worth of the group’s Beehive Prospect offshore Western Australia.
Option period commenced at Beehive
During the March quarter Melbana, Total (NYSE:TOT) and Santos (ASX: STO) accepted the Beehive 3D Seismic Survey data set, confirming it as the contractual Final Data Set.
From a contractual perspective, the acceptance of the processed survey data as the Final Data Set has triggered the contractual commencement of a six month “option period” from April to 2019 whereby Total and Santos each have an option, exercisable together or individually, to acquire a direct 80% participating interest in the permit and drill an exploration well, which is planned to be the Beehive-1 exploration well.
If the option is exercised, Melbana will be fully carried on all costs incurred from the time the option is exercised until 90 days after the rig is released after drilling the well.
Drilling is anticipated in the second half of 2020, with Melbana estimating the cost of the Beehive-1 exploration well to be in a range between US$40 million and US$60 million.
Hartleys sees 70% share price upside
While Hartleys industrials and energy analyst, Aiden Bradley, acknowledged that the Block 9 news was disappointing, he noted the opportunities that could stem from the company’s other prospects in Cuba, as well as the positive news that has emerged regarding the Beehive Prospect, WA-488-P.
Bradley highlighted the fact that Santos had already expressed its upbeat opinion on Beehive, in saying, “STO have highlighted previously that the Beehive Prospect is a Multi-TCF gas / large light oil prospect in a new play, so depending on the outcome of the seismic evaluation, there is a reasonable chance that this well gets drilled.”
Bradley added that “as time goes by, Beehive is looking more and more like the jewel in the crown”, and he has increased his valuation of the asset from US$16.5 million to US$20 million.
A decision by Santos and/or Total to drill the prospect would see that valuation increase.
However, even based on current metrics Bradley’s numbers imply a valuation of 2.2 cents per share, representing upside of approximately 70% to its current price.