Melbana Energy Limited (MAY.AX) Earnings Call Transcript & Summary

Ladies and gentlemen, it is 10:30. I now call the meeting to order. On behalf of the Board and management team, I would like to welcome you to Melbana's Annual General Meeting for 2021. We hope that you and your families are staying safe and well. Due to the pandemic, we are facilitating our AGM very differently again this year. I extend our thanks to each of you for attending virtually. I'm advised that a quorum is present, and I officially declare the meeting open. My name is Andrew Purcell, and I'm the Chairman of today's meeting. Joining me with physical attendance is Nonexecutive Director, Michael Sandy; and our Company Secretary, Theo Renard. Also attending the meeting via telephone is Nonexecutive Director, Peter Stickland; and our company auditor, Mr. Allan Facey. I have recorded no apologies. Today's meeting is being held virtually via the online meeting platform. We believe that in the current circumstances, this is in the best interest of everyone's health and safety. Details about how shareholders can participate have been sent out in the Notice of Meeting and online guide. Both documents are available to view and download at the bottom of your screen. The Notice of Meeting was made available in accordance with the company's constitution, and I will take the notice as read. Before moving to the resolutions to be considered today, I will now briefly outline the procedures for today's meeting. To vote, you simply click on the Get a Voting Card button at the top or bottom of your screen. This will display the list of resolutions and present you with voting options. Voting on all resolutions will remain open until 5 minutes after the meeting to provide eligible shareholders with sufficient time to cast their vote. The final outcome will be posted to our website after the meeting. I confirm that where undirected proxies have been given to me as Chair, I will vote in favor of the resolution to the extent permitted. At the start of the meeting, we will display on the presentation slides the number of proxy votes received prior to the meeting on each resolution. Link Market Services will act as returning officer for this meeting. [Operator Instructions] You can submit questions at any time. We will seek to address your questions during the discussion on the item of business and endeavor to answer as many questions as we can. [Operator Instructions] If you experience any difficulties using the online platform, a helpline number is displayed at the top of the page. Please ring 1 (800) 990-363. Before we commence the formal aspects of today's AGM, I would like to say a few words that I have prepared and will be displayed for you on the screen in front of you. The company's performance for the last year since we met in general meeting has been a good one. We've had a strong increase in our share price, and I'd like to take this opportunity to thank my fellow Board and management for the hard work that they've contributed in helping the team that we have on the ground and who particularly delivered the results that we will talk more to in the presentation ahead. The corporate summary on the screen before you gives the names and details of the offices of your company. And if we could go to Page 3, please. You can see we've had a number of key individuals and long experience at the Board, and management has been a great contributor to the success of the company over the last year. And I would ask for the next slide, please. The highlights of the last 12 months before you, I would go back to the end of last year where we had 2 new acreages awarded to us up in Northern Australia, adjacent to our permit WA-488-P. These permits contain the Turtle and Barnett oil discovery, the undeveloped discoveries. And we're doing our assessment work of the prospectivity of those areas at the moment. Following closely on the award of those blocks, the adjacent Block 488-P, we sold to a Houston-based oil and gas company in April of this year. That has been a very satisfying development for the company. The Beehive prospect that is within WA-488-P has been a prospect that has been identified and championed by Melbana Energy for many years. We think it's an exciting new play type for Australia. And to have an organization of the scale and experience of EOG making a country entry into Australia to drill that prospect in the near future is something that we have been looking forward to for many years. And I know a number of other industry observers feel the same. I'll talk to that a little bit more in the presentation ahead. Following on from that, we were successful in benefiting from a sale of some acreages up in the Ashmore Cartier region that we had sold to our partner Rouge Rock some years ago but on which we had a trailing royalty. They sold the permit AC/P51 to a consortium comprised of Santos and SapuraOMV but earning us a cash payment but also a contingent royalty in the event that the well Santos and Sapura are going to drill in that block, which we understand is progressing and scheduled for the middle of next year, if that is successful, then we will also benefit from a royalty payment there. Similarly, the adjacent block AC/P51 is under option to Santos and Sapura. And if they exercise that option, we will similarly get paid a cash consideration and earn a contingent royalty if it's drilled and is successful. Beyond that, we have spent the lion's share of the year in preparation for the drilling program in Cuba. That has been a challenging environment given the global pandemic and logistics are strained and movement of people similarly complicated by border closures and quarantine requirements. I'm very pleased and happy to report that we were able to maintain momentum through all of that and deliver the beginning of drilling in September of this year. Our current position is that almost immediately upon commencement of drilling of the Alameda well in our Block 9 area in Cuba, we encountered a continuous and significant oil interval and in a section where we had not previously anticipated a prospect being defined. So that's interesting and exciting already, and we still have the main prospects ahead that remain to be tested. The 2 wells that we're drilling in Cuba are the main focus of your company at the moment. And as we proceed through that and as we complete that drilling program, we do have the results also then later next year, possibly early in 2023, of the results of the Beehive well coming out that I've spoken to just recently. It provides the company with a very exciting runway of testing significant volumes of resource that are funded and through which we have exposure to a very large potential reward at a time of a very good oil price, which we believe to continue into next year. So I think it's fair to say that all the hard work has largely been done, the execution work still remains, but the timing of these projects couldn't be better. From a funding position, your company is in a good position. We did a recent raising, as you would know, to fund our share of the obligations of the Cuban drilling program. We have a 30% interest in Block 9 in Cuba, but we only have to fund 15% of this 2-well drilling program. We have been carried for the other 15% by our partner with the national oil company of Angola called Sonangol. And as operator, we have close oversight and control of the timing and expenditure of this drilling program. In addition, just in recent days, we have finally received all of the regulatory approvals for the sale of our permit WA-488-P to EOG Resources. That has resulted in us receiving the initial payment of USD 7.5 million into our bank account. So the company's position is a good one and for the year that has transpired has been a busy one that's delivered a lot of forward momentum in the opportunity space. The next slide, please. What I've just spoken about is best summarized on this slide that is before you now, just showing you the runway of what we have ahead. Between our interest in Cuba and interest in Beehive, there's over 650 million barrels of prospective resource that we have an interest in that is currently being tested and will be tested over the next year or year and a bit. Put a red line at the end of November, where we are now, to just put a stake and a stand of where we are relative to that time line. As you can see, we're somewhat between the end of the first target in the Alameda well and hopefully soon drilling ahead and the remaining interesting targets of Alameda-1 live before us. We then move up the end of Alameda-1 into the drilling of the Zapato well, which is proximate, following which, about that time, we should have news or information on the success or otherwise of the drilling of the wells at Ashmore Cartier by Santos. And then towards the back end of the year, early the following year, the EOG well into the Beehive prospect. Next slide, please. A visual summary of what we're doing is there. We are in Cuba and Australia, and the 2 offshore Australian projects are, as I said, the EOG prospect in the Bonaparte Basin, Southwest of Darwin in shallow water and the Ashmore Cartier indirect contingent royalty interest we have there from the Santos well. Next slide, please. There may be some amongst you that are new observers of our company. I would just briefly point out on this slide in the middle left-hand side is the map of the island of Cuba. And the top-left diagram, you can see on the extreme left the marking of Havana, La Habana, as written there in the Spanish. And along that northern coastline is where the majority of Cuban -- Cuba's existing oil production has occurred and is existing. Varadero on the right there is the most significant field. That was an 11 billion-barrel field when it was discovered and has been in operation for well over a decade now. We are immediately adjacent to that Varadero field and on trend. Block 9's onshore, just to the southeast of Varadero, as you can see by the dotted red box, where we're operating as an easy access on sealed roads from Havana. There's another international airport at Varadero, which is even closer. It's about 1.5-hour drive, 2-hour drive from Havana through to our drill site. So very flat country, good drainage, easy to operate, good fiscal terms in a country that has a very strong appetite and need for additional oil production given they have to import so much of it. Next slide, please. First well that we are drilling now, the Alameda-1 well. As you can see from the top left cartoon, we've designed to test 3 different prospects that our geoscience team has identified by the use of previous seismic data, offset wells, other geological information that they have had made available to them. And that well has the 3 objectives before we started drilling at about 132 million barrels prospective resource of best estimate. We started drilling -- next slide, please, on the drilling status update. We started drilling operations on the 13th of September. And almost immediately after setting the first casing point at 450 meters, we started to receive oil shows and elevate gas readings. And they continued for the next over 1,000 meters. So we have a gross thickness of some 670 meters of oil shows. And that, as I have already mentioned, was not anticipated in our drilling plan and is a very welcome addition to the prospectivity of this well and is something we're doing a lot of work on at the moment to update and extend our geological assessment and resource estimates of the Alameda-1 well and/or Block 9. The consequences for it, too, generally are quite encouraging. Drilling ahead, we then encountered another high-pressured zone, some 350 meters more shallow than anticipated. And this presented us with a number of challenges, with the challenges due to materials that are on hand. Are they coming out sooner than expected? But it is a very welcome challenge to have to manage to have a well of this pressure, which gives us a lot of reason for encouragement. We've had to shut the well in to conduct necessary maintenance and await for the arrival of new materials to be able to safely continue drilling ahead, but these arrangements have now been made. The materials have been secured, the maintenance work has been done, and the materials will start arriving in Cuba on this Monday, 29th November. So site operations for the preparation of resumption of drilling will commence next week. I think to take a moment, next slide, Alameda-1 results. So I would like to ask my fellow Director and Technical Director, Mr. Peter Stickland, to talk to this slide to give a summary of what it is we think we've found and what we're doing to better analyze it. Peter, are you there and able to take the talking stick?

I believe so. Can you hear me clearly?

Yes, we can.

Excellent. Thanks, Andrew. Now this slide talks to the geological results that we've seen from Alameda so far. The schematic on the right-hand side shows the level as we've seen it so far. That's what we have in front of us. So we set the 13 3/8 shoe, as you can see, up shallow. We then went through a significant section of hydrocarbon [ flows ] and down to where -- sorry, the 11 3/4 liner is noted. And then we took wireline logs through that section. And...

Peter?

Yes, Andrew?

Peter, I'm sorry to have to interrupt you, but it is a rather poor quality line. I'm sorry. I might ask Mike, who's with me here in the office, to take over if you don't mind.

Not at all.

Okay. I'm sure I won't do quite as good a job as you, Pete. But anyway, look, as Pete was saying, that schematic on the right shows where we are up to with the well. And the main takeouts from this slide are the fact that we encountered a significant section of oil shows and gas shows, including flowing oil into the shakers and gas flows, which you can see from the diagram previously, are a significant interval. Importantly, there were several zones, including a big chunk of rock in the upper and lower levels of this section, that the poor hole conditions meant we couldn't get viable logs and that some of those logs had good oil shows and they -- that may actually be related to reasonable porosity within those areas. But -- so that gives you a bit of a view of where we are in there. So we had 48 net meters of potential oil. Now if you see the serpentinite there, that's a rather odd mineral. It turns out to be mainly clay in this area, and it's that purple section. And when we drilled through that, we encountered the high-pressured gas line that was mentioned. We have also got elevated gas ratings and oil in Varadero as well. And that bodes well for the fact that, that serpentinite looks like it's acting as a seal given the high pressure below it. And we're looking forward very much to drilling ahead and getting into that Amistad level and then the 2 subsequent deeper targets that are the -- actually the main focus of this well.

Thank you, Mike. Next slide, please. Once we complete the Alameda well, as I mentioned, we'll move, it's about 20 kilometers away to drill the Zapato well. That cartoon on the top left summarizes the reasoning and the objective of that well, which is to test a large structure called the Zapato structure, some 1,000 meters of vertical relief we anticipate from seismic. And given the proximity to the historic Motembo oil field, which was a very light crude for Cuba particularly but also generally, the source of that oil field has not yet been determined. And the Zapato structure is a great candidate for that, which is why we want to drill into what we anticipate will be the top of that. That's a one-objective prospect well, and this is a 95 million-barrel best estimate prospective resource. Next slide, please, Slide 12. Summary of the opportunity that then presents itself, the sale of our permit to the Houston-based oil and gas company that I've mentioned recently is to test our Beehive prospect or no longer our Beehive prospect, their Beehive prospect. But the opportunity to see what is there is -- a very intriguing play type, as I've mentioned already, for Australia. The bottom diagram is the -- is from the recent 3D seismic acquisition program that was funded by Santos and the French super major Total. And it can show you very clearly in relief the carbonate buildup that we are targeting in Beehive. These play types that haven't been tested in Australia before, but where they have been tested elsewhere in the world and when they have worked, they've tended to work big. And that's why it's so exciting. Yes, there's a best estimate on this of 416 million barrels of oil equivalent. But as I put with the dotted line to the right, if it works, it could be substantially larger, consistent with how these things have performed elsewhere in the world. So we've received USD 7.5 million as the upfront payment. That's now in the bank. We will receive another USD 5 million in time subject to EOG electing to stay in the permit. But the main game is the potential royalty of $10 million for every 25 million barrels they may discover in the success case. So this well will be drilled late next year, maybe early 2023. It has to be drilled before August 2023. And as you can see, there is 1 billion barrels of oil there, and we're entitled to $10 million for every 25 million barrels. It could be a very happy outcome for our shareholders and our company. But we have -- adjacent to it, we've retained 2 areas adjacent to 488-P. They're interesting in their own right. Not only do they have undeveloped existing oil discoveries there at Turtle and Barnett, but it has some similar features that we're studying at the moment that are potentially of interest. And if they can be proven up and good prospects identified and EOG has some success and appetite after drilling Beehive, it could provide running room for them to do similar things or for others who may wish to avail themselves of the same opportunities. Next slide, please. And finally, the last slide I put up is just a quick summary of the other interests and opportunities that we have in our company. I've already talked to the Ashmore Cartier projects that are being drilled next year by Santos and Sapura. We also have, as our longer-standing shareholders would well remember, interests in Northern Australia, north of Darwin for the Tassie Shoal projects. They have been long-stagnant projects that we keep in our bottom drawer but which remains with some interesting call option value, particularly because the environmental permits for constructing these offshore LNG and methanol plants, not floating plants but built on a shoal proximate to a number of stranded high-CO2 gas fields in Northern Australia, they're permitted after the 2050s and provide a perfect solution for taking those high-CO2 gas fields, particularly from Evans Shoal, and turning it into methanol, which is an important industrial feedstock with great value, and therefore remains a project that could at some stage in the future once again have value but which costs our shareholders and our company very little, nothing to maintain at this stage. So thank you for that patience. That's the end of the presentation. I would then return to the formal aspects of today's AGM if I may start by talking to item 1 on the agenda, which is the presentation of the financial statements. This is to allow shareholders to consider and receive the financial statements, the directors' report and the auditor's report for the company and its controlled entities for the year ended 30 June 2021. Please note, there is no formal resolution relating to the financial statements. Copies of the financial report, annual report are available on the company's website, and the annual report is also therefore taken as read. Representatives from our external auditor, MNSA, are present in today's meeting and available to respond to any questions relevant to the conduct of the audit, the preparation and content of the auditor's report, the accounting policies adopted by the company in relation to the preparation of the financial statements and the independence of the auditor in relation to the conduct of the audit. We will now turn to our formal resolutions for today's meeting. I will now hand over to Theo Renard to table the proxies, which have been received for the meeting.

Next slide, please. Thank you, Chairman. A summary of valid proxies and directed votes received prior to the AGM for all resolutions contained in this year's Notice of Meeting appear on the following slide. The total number of proxies in relation to each resolution is resolution 1, for, 326,172,997. You are able to view the proxy table, and we'll take that as read. I now hand back to the Chair, Mr. Andrew Purcell, to continue with the business of this meeting.

Thank you, Theo. Resolution 1, adoption of remuneration report. I will now take questions. Are there any telephone questions?

No, Chair, we do not have any audio questions.

Are there any further questions?

No online questions.

Are there any written questions?

None.

Thank you. Moving to resolution 2, reelection of Mr. Michael Sandy as a director of the company. I'll now take questions. Are there any telephone questions?

No questions on the audio, sir.

Any further questions written or otherwise?

No written questions, Mr. Chairman.

Okay. Thank you. I'll move to resolution 3. And as I have a conflict of interest in resolution 3, I will hand the chair over to Mr. Sandy.

Thank you. Thank you, Andrew. Resolution 3 is approval of issue of performance rights to Mr. Andrew Purcell who's our Executive Chairman. I'll now take questions. Are there any telephone questions?

No, Chair, we do not have any audio questions.

Do we have any other questions on...

No, there are no further questions online.

Yes. I'll move -- I'll hand back to Andrew and resolution 4.

Thank you, Michael. Resolution 4 is the ratification of the previous option issue. Are there any telephone questions?

No, Chair, we do not have any audio questions.

Are there any other questions written or otherwise?

There are no further questions.

Thank you. I'll move to resolution 5 as a confirmation of change in auditor appointments. Are there any telephone questions?

No, Chair, we do not have any questions.

Are there any other questions written or otherwise?

There are no further questions.

Thank you. I'll move to resolution 6, the approval of the 10% additional placement capacity. Are there any telephone questions?

No, Chair, no audio questions.

Are there any other questions written or otherwise?

There no further questions.

Well, thank you. Ladies and gentlemen, there being no further business, I ask you to complete your electronic voting card now and ensuring you select submit and remind you that the voting system will close 5 minutes after the conclusion of today's meeting. The results of the poll voting will be made available on the ASX announcement page later today. Thank you for your attendance and participation today at our Annual General Meeting for Melbana Energy. I look forward to meeting you again soon, and thank you for your ongoing and continued support. The meeting is now closed.