On 26th April 2019, Melbana Energy Limited (ASX: MAY) announced that the Cuba Block 9 PSC (Block 9 Production Sharing Contract) farminee AMEC (Anhui Modestinner Energy Co.) failed to fulfil the Conditions Precedent in the Farmout Agreement within the given timeframe. AMEC is a wholly owned subsidiary of AGMI (Anhui Guangda Mining Investment Co. Ltd.), which operates through its subsidiaries over 13 exploration and exploitation blocks in Kyrgyzstan and other areas of the Americas. Approvals from Cuban and Chinese regulatory and a milestone related term, if any guarantees required were mentioned under the Conditions Precedent.
Melbana announced in its previous update as on 2 January 2019 that it had inked a binding definitive farmout contract with AMEC with regard to its Block nine Production Sharing Contract in Cuba. As per the agreement, performance of AMEC was guaranteed by AGMI, and AMEC was expected to bear 100% costs related to the Block 9 PSC from 1 January 2019, including the drilling of minimum three wells. The success of such a discovery was to decide about the third well exploration method but to be drilled prior to July 2020 timeline. Any further required guarantee was to be provided by AMEC with 12.5% of any Profit Oil to Melbana. The agreement contained Conditions Precedent, which was supposed to be satisfied to reach a Joint Operating Agreement.
Inability to fulfil the Conditions Precedent within the required timelines led Melbana to terminate the Farmout Agreement. Now such termination will enable Melbana to consider other potential farminees who are looking for exposure to Melbana’s portfolio of exploration and development opportunities in Cuba. However, considering the AGMI’s experience in drilling and operating oilfields, Melbana would like to take the opportunity to re-assess a partnership with them in Cuba, provided there is any change in the environment, which precluded AGMI from satisfying the Conditions Precedent. CubaPetroleo previously provided a waiver of the obligation until 30 April 2019, regarding the Block 9 guarantee obligation. Further continuation of such waiver has been sought from CubaPetroleo.
The management expressed its willingness to remain open to work with AGMI in the future, provided their circumstances change. Management also noted that they are maintaining an ongoing dialogue with CubaPetroleo to agree upon a mutually acceptable way forward for Block 9 that will allow the group to test the significant potential of this block.
Melbana also updated that it has received consent from New Zealand regulatory regarding the sale of its stake in New Zealand permit PEP51153 to a subsidiary of TAG Oil. The transaction amount due to Melbana derived from such stake sale has been received, and the transaction has now completed. The management said that the sale of interest in PEP51153 permit signals its exit from New Zealand. The rehabilitation requirements and future permit expenditure (includes upcoming fieldwork obligations) will be ignored by Melbana with this development that will lead the MAY management to utilise resources on high impact Beehive exploration prospect in Australia and key growth assets in Cuba.
The stock of MAY closed at a price of $0.014, down 6.667% (as on 26 April 2019) on the back of this new released.
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