Annual Report 2023 Melbana Energy Limited ABN 43 066 447 952
2 Our Compass 4 Chairman’s Letter 6 At a Glance 7 Highlights 8 Operating Review 11 Board of Directors 12 Directors’ Report 32 Governance and Risk 35 Auditor’s Independence Declaration 36 Consolidated Statement of Profit or Loss and Other Comprehensive Income 37 Consolidated Statement of Financial Position 38 Consolidated Statement of Changes in Equity 39 Consolidated Statement of Cash Flows 40 Notes to the Consolidated Financial Statements 65 Directors’ Declaration 66 Independent Auditor’s Report 71 Shareholder Information 73 Corporate Directory Highlights 7 Chairman’s Letter 4 At a Glance 6 Directors’ Report 12 Contents
1 Melbana Energy Limited Annual Report 2023 Melbana Energy is an Australian ASX listed, independent oil and gas company that has a portfolio of attractive exploration, appraisal and development stage opportunities in Cuba and Australia.
Growth: Australian High Impact Exploration Growth: Apply extensive experience to find deals 2 Melbana Energy Limited Annual Report 2023 Our Compass Who we are. We are an Australian Energy Company that specialises in high impact oil and gas exploration. We are an experienced team of incredible technical specialists who have a track record of finding and drilling large oil and gas prospects. We are ethical, have high integrity and are recognised as a good partner by the many major oil companies who join our projects. Where we are going. We are fully funded and aim to develop our high-impact Cuban oil discovery to increase the company value. We will continue to look for high impact exploration opportunities to grow our opportunity base for our shareholders. We will continue to build our team by bringing in highly skilled specialists to make our ambitious plans a reality. How we will get there. We will deploy our capital wisely; we will work our extensive networks and bring in partners to fund our activities when we need to. We will build on our technical and commercial capability; we will reward our stakeholders’ support by creating value for our shareholders and the countries we operate in. We will always be true to our values and continue to make our company a fantastic place to work.
Our Vision Our Vision is to reward our shareholders by becoming a billion dollar company in the next three years. How we will achieve our vision We will explore, appraise develop, produce and/or acquire to become a successful oil and gas production company in Cuba; we will replicate this success in other non-OECD countries. Our Mission Our Mission is to discover and produce oil and gas in countries that need and support the hydrocarbon industry. “Affordable, reliable energy is a fundamental human right. Without this most basic requirement many parts of the world will not actualise the potential of their people. We will bring energy to the regions of the world that need it most.” Growth: Cuba Block 9 Development Growth: Cuba High Impact Exploration 3 Melbana Energy Limited Annual Report 2023
It’s my pleasure to present the 2023 Annual Report for Melbana Energy Limited, which marked another exciting period of development for our worldclass portfolio of oil & gas assets. Operations during the reporting period focussed on advancing our understanding of our Block 9 contract area in Cuba and our offshore permit areas in Australia. Highlights included completing our second exploration well in Cuba, Zapato-1, advancing our assessment of our offshore permit areas in Australia and commencing the Alameda-2 appraisal well in Cuba. Zapato-1 successfully reached its planned total depth after a longer than planned drilling program, primarily due to some challenging down hole conditions. Although it was disappointing to not reach the target formation, we gained valuable operational experience and increased our knowledge of the subsurface. These data have allowed us to review our geological models and improve our work practices. Following completion of Zapato-1, efforts turned to preparing for the commencement Associates Consultants Ltd. of Canada, estimated may contain 5.0 billion barrels of oil in place. Their best estimate was that 267 million barrels of this may be recoverable, a number they arrived at by applying average Cuban recovery rates. Typical Cuban production is from the upper sheet and is therefore typically heavy, leading to lower than average recovery rates. If our exploration thesis is correct that the oil gets lighter with depth, our actual recovery rates should be higher which could lead to an upward revision of the above recoverable resource estimate. The current two well appraisal program is designed to give us all the data we and our independent experts needs to better understand the production characteristics of these reservoirs in order to make this assessment. Following the end of the reporting period, the first result from the Alameda-2 appraisal well that gave support to this thesis was obtained when the oil freely recovered at surface from Unit 1B of the Amistad Formation was shown to be considerably lighter and of lower viscosity than what is typically encountered in Cuba. That it flowed at a rate much higher than previous vertical wells in Cuba at this depth gave us sufficient information to declare a discovery – something that received wide media attention in Cuba and generated renewed excitement among our management team, our technical leads and project development partners. Your Company is now positioned with a broader range of short-term production options to complement the ongoing appraisal program at Block 9. As a result, we have commenced the new financial year with a sound framework for both commercial production pathways and longer-term exploration at Block 9. As clearly stated to the Melbana investor base, the Company’s Board and management team continue to maintain high conviction in the project’s long-term potential, and our efforts over the past 12 months have further enforced that view. of the Alameda-2 appraisal well, which started drilling late in the reporting period. The purpose of this year’s appraisal program (Alameda-2 will be followed by Alameda-3) is to undertake detailed analysis of the three geologically independent oil-bearing Formations encountered by our Alameda-1 exploration well; designated Amistad, Alameda and Marti, respectively. All three of these Formations demonstrated a working hydrocarbon system with moveable oil often accompanied by high formation pressures that our independent resources certifier, McDaniel & 4 Melbana Energy Limited Annual Report 2023 Chairman’s Letter
Melbana heads into FY24 at a particularly exciting juncture. We have reached this point with the ongoing support of a broad, diverse and loyal shareholder base, and I’d like to sincerely thank our shareholders for their continued engagement with our development strategy and value proposition. In closing, I look forward to continuing to provide many updates in FY24 and beyond as we reach the numerous milestones ahead of us as we seek to capitalise on this unique exploration opportunity in Cuba. Andrew Purcell Chairman What was also pleasing throughout the reporting period was that in the course of our extensive work in planning and development, we further strengthened and developed our relationships with key stakeholders including Sonangol – the national oil company of Angola which maintains a 70% interest in the Block 9 PSC, as well as with the Cuban government. These partnerships have formed a core part of Melbana’s value proposition. Since inception, the Company – alongside its project development partners – has been committed to developing their stated exploration and commercialisation strategy in alignment with the objectives of government representatives and industry regulators in Cuba. In turn, the ongoing potential of the project and the strength of the regulatory framework in which we operate is a testament to the consistent dialogue and strong relationships in Cuba which have been developed over a period of years now. We look forward to maintaining this strong working relationship with all stakeholders into the future as the long-term commercial potential of Block 9 PSC continues to emerge. It was also my pleasure during the year to welcome a number of new colleagues to our team to help us realise our vision for the future. These included Mr. Uno Makotsvana as Chief Financial Officer, Ms. Cate Friedlander as General Counsel and Company Secretary, Dr. Duncan Lockhart, as Exploration Manager, Dr. Chris McKeown as our Chief Commercial Officer and, more recently, Mr. Chris Thompson as Chief Operating Officer. The experience and capability of these individuals have greatly contributed to our business, and we have the benefit now of leveraging their respective skills and experience in pursuit of the Company’s stated development strategy in the months and years ahead. Along with our highly-skilled team of geoscientists and engineers, I’d also like to take this opportunity to again thank my fellow Board members for their ongoing commitment to Melbana’s strategic vision, and the work that will be required to get there. With the hard work carried out to-date and the operational milestones already achieved, 5 Melbana Energy Limited Annual Report 2023
6 Melbana Energy Limited Annual Report 2023 At a Glance Cuba Block 9 Cuba Tassie Shoal Methanol LNG Projects AC/P70 AC/P50 AC/P51 WA-488-P NT/P87 WA-544-P Australia
7 Melbana Energy Limited Annual Report 2023 Highlights Australia Cuba – During the period, Melbana’s application for a suspension and extension of its 100%-owned AC/ P70 exploration permit was approved by the National Offshore Petroleum Titles Administrator. – The agreement extends the primary term, during which the drilling of one exploration well must take place, by 2.5 years to August 2027. Located offshore northern Australia, the project remains an attractive opportunity for Melbana to leverage its expertise with modern exploration technologies to unlock potential value at AC/P70, where an appraisal well in 2007 identified a gas cap. – Melbana also advanced its two fully-owned Petroleum Exploration Permits, NT/P87 and WA-544-P, (both located offshore northern Australia) where it carried out initial studies to reprocess and reinterpret legacy 2D seismic data. – Post balance-date, Melbana announced it had identified a new conceptual target within these permit areas. The Company has now commenced a process to farmout some of its 100% interest in the permit areas to fund the acquisition of a 3D seismic survey which will further de-risk the project. Strong execution on a detailed planning works program led to the successful commencement of the Alameda-2 well appraisal program. The program was designed to further assess the oil quality and reservoir characteristics of the three formations containing moveable hydrocarbons encountered by the Alameda-1 program (6.4 billion barrels of oil in place for a Prospective Resource of 362 million barrels of oil). – The defined objectives of the Alameda-2 program were to recover oil to surface from each of the three units of the Amistad reservoir; evaluate the quality of the recovered oil to assess production characteristics of each reservoirs and increase the overall reported net oil and gas pay estimate. – Flow testing operations for Unit 1A were successfully completed during the period; a total volume of 40 barrels of oil were recovered at surface and samples sent for laboratory analysis. – Post balance-date, flow testing for Unit 1B was completed which confirmed the presence of moveable that was oil considerably lighter than that observed in Unit 1A. The fluid produced to surface was close to 100% oil with almost zero comingled water. – As at the date of this report, further laboratory testing of the oil’s properties is in progress to better understand its commercial and production characteristics. To-date, over 1,000 barrels of oil have flowed naturally to surface during the testing program. – The Unit 1B section has now been completed for future production. The field development plan for Block 9 is now being reviewed, given the 1B results support the management team’s decision to investigate accelerated production pathways earlier than previously planned. – The next appraisal well, Alameda-3, will test the lower two geologically independent oil-bearing formations intercepted by Alameda-1 – designated Alameda and Marti, respectively. Extensions at key exploration sites Advanced Exploration at Block 9
Cuba We are fully funded and aim to appraise our high-impact Cuban oil discovery to increase the company value and will continue to look for high impact exploration opportunities and deals to grow our opportunity base for our shareholders. Operating Review We are often asked “Why Cuba?” to which we reply, why not Cuba? Given we have been active in Cuba for over a decade it is pertinent to review what brought us to explore for oil and gas here. Cuba is a country that needs energy to fuel its 11 million population. Cuba is crying out for energy: it currently produces about 45,000 barrels oil per day of heavy (10° API), viscous (~3,000 cP) crude oil that is used almost entirely for generating electricity. As there is a shortage of domestic production, Cuba imports crude to maintain its electricity grid. 8 Melbana Energy Limited Annual Report 2023
As a result of drilling Alameda-1, net pay areas totalling approximately 300 mMD were defined across gross reservoir intervals totalling circa 2,155mMD. In August 2022, on the back of the Alameda discovery, the Company’s Independent Experts, McDaniel and Associates, released updated estimates for Oil in Place and Prospective Resources for the three reservoirs intersected by the Alameda-1 well. The Alameda-1 exploration well (2022) discovered three geologically separate and vertically stacked oilbearing formations accompanied by high formation pressure that each flowed oil to surface. This resulted in independently certified oil in place and prospective resources, of over 5 billion barrels of oil in place and a gross unrisked best estimate prospective resource of 267 million barrels as per table below. In Australia we often talk about the energy trilemma: Sustainability (low carbon), Affordability and Security of supply. We also routinely focus on Sustainability and there is a huge push away from fossil fuels to alternative sources of energy. Unfortunately for less affluent nations, the de-emphasis of affordability and security of supply comes at a huge cost to society. It has been said that these two key limbs of the energy trilemma are essentially the lowest rungs on Maslow’s hierarchy of needs. Without these, societies will labour to rise up the ladder: with self-actualisation a somewhat distant goal. It has also been said that we all want to breathe clear clean air, just not in the pitch black of a power cut. Our technical people were drawn to Cuba as it was underexplored, underdeveloped and overlooked by the wider oil and gas industry. We had the thesis that there were untapped billions of barrels of oil in the onshore geological formations, with a significant proportion of that potential in the deeper unexplored rocks. Cuba - Block 9 (Melbana 30%) Melbana were awarded the Block 9 PSC (100%) in 2015 for 25 years on internationally attractive terms. This is a large onshore block (2,344km2), prolific hydrocarbon zone: close to a multibillion-barrel field, with welldeveloped oil field infrastructure, service providers and international airports. Melbana then set about integrating all the gravity, magnetic seismic, well production data we could find to build a complete model of the genesis of the structures that the Cuban industry had been producing from before we got there. Our team identified nineteen leads and two drillable prospects and set about a farmout campaign to try and attract co-investment. Melbana were successful in attracting Sonangol (National Oil Company of Angola – Africa’s largest oil producer) in 2021 to fund 85% of the cost of drilling two exploration wells for a 70% working interest (completed 2022) but crucially Melbana retained Operatorship. In 2021, Melbana spudded the Alameda-1 well to test 4 separate target zones. The well intersected oil starting at 454 metres and continued to intersect reservoirs through to total depth of 3,916 metres when drilling stopped due to a highly pressured influx of oil and gas into the well bore. The Company then elected to shut in the well and designed a 2 well appraisal program. Gross (100%) Unrisked Prospective Resources1 (MMbbl) Zone Low (1U) Best (2U) Mean High (3U) Amistad 30 88 119 240 Alameda 34 109 148 297 Marti 21 70 95 197 Total 85 267 362 734 Table 1 – Independently estimated Prospective Resources following completion of Alameda-1 1 This estimate should be read with reference to the footnote “Notes regarding Contingent and Prospective resource estimates” on page 34 9 Melbana Energy Limited Annual Report 2023
Analyses of performance of hundreds of wells in the region indicate that the flow rates observed in Unit 1B are around the high case rates expected for a shallow vertical well and are closer to the average of a shallow horizontal well through this Formation. These upper formations in Cuba are typically drilled close to horizontal with the goal of intersecting the dominant fracture systems at an optimal angle which can result in flow rates around three times that achieved by vertical wells. Logged Net Pay for the entire Amistad Formation has been increased from 109 metres to 346 metres TVD – further increasing to 615 metres when the highly fractured limestones are incorporated (45% of the gross interval). The Unit 1B section was completed for future production, whilst Units 1A and 3 (also productive) were suspended for potential future development and production. After analysing all options for re-entering the Alameda-1 well and undertaking a risk / reward assessment, the decision was made to plug and abandon Alameda-1 as per the original plan. Abandonment of Alameda-1 was underway during the preparation of the Annual Report, with casing removal and final cementing of the well bore completed during September 2023. Once abandonment operations were completed the rig was put on standby on the Alameda pad to enable essential maintenance and equipment upgrades to be undertaken in preparation for The objective of the second exploration well of the two well program (designated Zapato-1) was to test whether the Zapato structure, identified by studying gravity and magnetic data sets, could be the source of the very light oil (50 – 64.5° API) present in the historic Motembo oil field. The well successfully reached planned total depth of 3,150 metres measured depth but did not reach the target formation given the greater than expected thickness of the ophiolitic sequence that existed above it. Activity post reporting period Alameda-2 was spudded in June 2023 and reached total depth of 1975m on 31 July 2023. This well was focused on logging, coring and flow testing the Amistad 1A, 1B, 2 & 3 units. Unit 1A recovered 11.7° API oil with 3,783 cP viscosity at surface from a 63 metre MD interval starting from 445 metres MD. Flow rates at surface were not established but 40 barrels of oil flowed unassisted to surface (through a 32/64” choke), exceeding expectations. Unit 3 was intercepted 200 metres up dip and 500 metres to the south of where Alameda-1 intercepted it. Moveable oil of a similar quality to Unit 1A was confirmed and testing indicated the potential to flow at about 750 bopd. The DST run on the pre-drill prognosed Unit 2 did not demonstrate moveable hydrocarbons to surface at the location tested. The Unit 1B recovered 18.7° API oil with 30 cP viscosity at surface from a 70 metre TVD perforated section – less than 20% of the total Net Pay for Unit 1B (when incorporating fractures). This is a higher API (thus lighter) and considerably lower viscosity than oil commonly produced in Cuba. Such an improvement in oil quality is an important factor for the value of this oil, as is the lack of sulphur normally present in Cuban production but absent here. Stabilised unassisted flow to surface was measured at 1,235 barrels of oil per day over 12 hours on a 36/64” choke, peaking at 1,903 barrels of oil per day. drilling the deeper Alameda-3 well. During this standby period deliveries of all necessary inventory and equipment will be made to site to enable spud of Alameda-3 in November 2023. Alameda-3 will test the lower two geologically independent oil-bearing Formations intercepted by Alameda-1 – designated Alameda and Marti, respectively. The goal of the well is to prove up the nearly 179 million barrels of best estimate prospective resource certified for these lower Formations. Ahead of the commencement of drilling of Alameda-3, the Company is working on plans to take advantage of the opportunity to obtain early production from the Amistad Formation Unit 1B reservoir given the excellent results obtained in Alameda-2. Obtaining early oil production data will also provide the Company with important information on reservoir management, transport, and sales processes for finalisation of next year’s field development work plan and budget. To date 1,500 barrels of initial test production has been trucked to a nearby oil storage facility which also acts as the custody transfer sales point. Melbana is currently working through the work programme and budget process with the Joint Venture and the Cuban regulator. Going forward Melbana aims to drill as many wells as possible and as quickly as possible to unlock the massive potential of this truly world class discovery. Operating Review continued 10 Melbana Energy Limited Annual Report 2023
11 Melbana Energy Limited Annual Report 2023 Andrew Purcell Executive Chairman Andrew Purcell founded the Lawndale Group (formerly Teknix Capital) in Hong Kong over 15 years ago, a company specialising in the development and management of projects in emerging markets across heavy engineering, petrochemical, resources and infrastructure sectors. Prior to this, Mr Purcell spent 12 years working in investment banking across the region for Macquarie Bank and then for Credit Suisse. Mr Purcell also has significant experience as a public company director, both in Australia and across Asia. Peter Stickland Non-Executive Director Peter Stickland has over 30 years’ global experience in oil and gas exploration. Mr Stickland was CEO and subsequently Managing Director of the Company from 2014 until January 2018 and then became a non-executive director. Previously, Mr Stickland was CEO and subsequently Managing Director of Tap Oil Limited (ASX: TAP) from 2008 until late 2010 during which time he oversaw the evolution of the company into a Southeast Asia/Australia focused E&P company. Prior to joining Tap Oil, Mr Stickland had a successful career with BHP Billiton including a range of technical and management roles. Mr Stickland is also a life member of the Australian Petroleum Production and Exploration Association Limited (APPEA). Michael Sandy Non-Executive Director Michael Sandy is a geologist with over 40 years’ experience in the resources industry – mostly focused on oil and gas. In the early 1990s he was Technical Manager of Oil Search Limited, based in, PNG. He was involved in establishing Novus Petroleum Ltd and preparing that company for its $186m IPO in April 1995 and over 10 years, he held various senior management roles with the Company. Subsequently Mr Sandy has been the principal of energy consultancy company Sandy Associates P/L, has set up and taken companies to IPO and has built extensive experience on the boards of listed and unlisted companies, including Tap Oil, Burleson Energy and Hot Rock. Board of Directors See pages 19 to 20 for further information.
Directors’ Report The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘Consolidated Entity’) consisting of Melbana Energy Limited (referred to hereafter as ‘Melbana’, the ‘Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2023. Directors The following persons were Directors of Melbana Energy Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Andrew Purcell (Executive Chairman) Michael Sandy (Non-Executive Director) Peter Stickland (Non-Executive Director) Principal activities The principal activities of the Consolidated Entity during the year were oil and gas exploration in Cuba and Australia together with development concepts for the Tassie Shoal Methanol and LNG Project. Dividends There were no dividends paid or declared during the current or previous financial year. Review of operations International Operations Cuba - Block 9 (Melbana 30%) The Alameda-1 exploration well, completed during the prior reporting period, encountered three geologically independent formations each containing moveable hydrocarbons (accompanied at times by significant formation pressures). These formations (designated Amistad, Alameda and Marti from shallowest to deepest - see Figure 2 on page 13) had a predrill combined Prospective Resource (Best Estimate, 100% basis)1 of 141 million barrels of oil. During the reporting period and using the data gathered by Alameda-1, an independent expert estimated the volumes within these formations to be 5.0 billion barrels of oil in place with a Prospective Resource of 267 million barrels of oil (Best Estimate, 100% basis)1 – a 90% increase to the Company’s predrill estimate. It is noteworthy that the latter estimate was informed by actual drilling of the formations which encountered oil and gas shows and flows confirmed by electric logging whereas the predrill estimate was based on desktop work only yet both estimates are characterised as prospective resources due to ASX and industry guidelines. The figures in Table 1 are therefore more derisked than the predrill estimates. Following these results, planning commenced to drill an appraisal well to test the oil quality and reservoir characteristics of each of the three formations. Table 1 – Independently estimated Prospective Resources following completion of Alameda-1 Gross (100%) Unrisked Prospective Resources1 (MMbbl) Zone Low (1U) Best (2U) Mean High (3U) Amistad 30 88 119 240 Alameda 34 109 148 297 Marti 21 70 95 197 Total 85 267 362 734 1 This estimate should be read with reference to the footnote “Notes regarding Contingent and Prospective resource estimates” on page 34 12 Melbana Energy Limited Annual Report 2023
Figure 1 - Subsurface interpretation following completion of Alameda-1 exploration well The objective of the second exploration well of the two well program (designated Zapato-1) was to test whether the Zapato structure, identified by studying gravity and magnetic data sets, could be the source of the very light oil (50 – 64.5º API) present in the historic Motembo oil field. The well successfully reached planned total depth of 3,150 metres measured depth but did not reach the target formation given the greater than expected thickness of the ophiolitic sequence that existed above it (see Figure 1). The Company is reviewing the results of this well in conjunction with further desktop studies to incorporate these learnings into its interpretation of the subsurface lithology of this area of Block 9. Figure 2 - Subsurface interpretation near total depth for Zapato-1 13 Melbana Energy Limited Annual Report 2023
The first of two appraisal wells (designated Alameda-2), the objective of which was to test the shallowest (Amistad) of the three oil bearing formations encountered by Alameda-1, commenced drilling shortly before the end of the reporting period. Cuba - Santa Cruz (Melbana 100%, subject to receiving final regulatory approvals) No material progress was made during the reporting period towards the receipt of final regulatory approval for the binding contract Melbana has entered into for the Santa Cruz oil field given the activities occurring in Block 9. The Santa Cruz oil field has produced at least 7.4 million barrels from 18 wells since its discovery in 2004. The Company notes that Cuba is subject to various sanctions imposed on it unilaterally by the United States of America (US). Although these sanctions are intended to only apply to US citizens and corporations, their indirect scope is effectively larger thereby requiring the Company to allow for their impact on operations in Cuba. Australian Operations WA-488-P (Melbana contingent cash and royalty interest) The Company sold its 100% interest in permit area WA-488-P to the Australian subsidiary of US oil major EOG Resources, Inc. in November 2021. The purchaser is making a country entry to drill the giant Beehive Prospect located within the permit area. The Company has no exposure to the cost of this exploration well. Figure 3 – The location of WA-488-P relative to the Company’s other licence areas in the Joseph Bonaparte Gulf The Beehive Prospect was independently estimated to contain a Prospective Resource1 of 388 million barrels of oil equivalent (Best Estimate, 100% basis)2 and a high estimate of 1.6 billion boe. Melbana revised these estimates3 to a Prospective Resource1 of 416 million boe (Best Estimate, 100% basis) with a high estimate of 1.4 billion boe following its assessment of the 3D seismic data acquired across the prospect in 20184. The timing of the exploration well into the Beehive Prospect is subject to receipt of the necessary permits. The purchaser has indicated that it expects the drilling program to be undertaken between January 2024 and December 2025. Under the terms of the sale and purchase agreement, the Company is entitled to receive contingent future payments of USD5.0 million (subject to the purchaser making certain future elections with regards to the permit) and USD10.0 million for each 25 million barrels of oil equivalent in the event oil is produced from the permit area should the exploration well be a commercial success. Directors’ Report continued 2 See ASX announcement dated 7 August 2018 3 See ASX announcement dated 24 August 2020 4 See ASX announcement dated 14 August 2018 14 Melbana Energy Limited Annual Report 2023
WA-544-P and NT/P87 (Melbana 100%) These permit areas, containing the undeveloped Turtle and Barnett oil discoveries, were granted to the Company in 2020 under the Australian Government’s 2019 Offshore Petroleum Exploration Acreage Release. They are in shallow water (20 to 40 metres deep) and located about 300 kilometres southwest of Darwin, Australia. The Blacktip gas field lies to the northwest and its pipeline transects the northern boundary of NT/P87, allowing potential access to the Darwin LNG facility and/or the east coast gas market. The permit areas are also adjacent to WA-488-P, which the Company sold in 2021 to a US oil major that is planning a drilling campaign to test the Beehive Prospect therein. Figure 4 – Location of the Hudson Prospect within WA-544-P and NT/P87 During the reporting period the Company continued to study these permit areas, leveraging the experience it gained in studying the adjacent WA-488-P, with the goal of identifying suitable exploration prospects. AC/P70 (Melbana 100%) On 16 February 2022, the Company announced that it had been granted petroleum exploration permit AC/P70, located in the Territory of Ashmore and Cartier Islands, for an initial period of six years. Melbana made an application for this permit under the Australian Government’s 2020 Offshore Petroleum Exploration Acreage Release. Since being awarded the permit, the Company has licensed various datasets and undertaken considerable work to better understand what exploration opportunities might exist there. The undeveloped Vesta-1 oil discovery (drilled in 2005) lies within the permit area and an appraisal well drilled in 2007 identified a gas cap. During the reporting period the relevant regulator approved the Company’s application for a 24-month suspension and extension to the permit’s primary term. 15 Melbana Energy Limited Annual Report 2023
Puffin Oil Field Skua Oil Field Challis Oil Field Jabiru Oil Field Montara Oil Field Cash/Maple Gas Field Swan Gas Discovery 20 Km AC/P70 Vesta-1 Vesta-2 Gas Field Oil Field Well Figure 5 – Location of AC/P70 and existing well control in and around the permit area AC/P50, AC/P51 (Melbana contingent cash and royalty interest) Exploration permits AC/P50 and AC/P51 are in the Vulcan sub-basin, offshore northwestern Australia. The Company sold its 55% interest in these permits to joint venture partner Rouge Rock Pty Ltd (Rouge Rock) in 2018 in consideration for an interest in any future farmout or sale of these permits. The Company later received its share of the consideration Rouge Rock received when it on sold AC/P50. During the reporting period this permit was surrendered so no further entitlement is possible. The purchasers of AC/P50 also acquired an option to acquire AC/P51. Should this right be exercised, the Company would be entitled to receive similar cash consideration and contingent royalties. Tassie Shoals (Melbana 100%) The Company has Australian Government environmental approvals to construct, install and operate two stand-alone world scale 1.75 Mtpa methanol plants - collectively referred to as the Tassie Shoal Methanol Project - and a single 3 Mtpa LNG plant - known as the Tassie Shoal LNG Project - on Tassie Shoal, an area of shallow water in the Australian waters of the Timor Sea approximately 275 km northwest of Darwin, Australia. These environmental approvals are valid until 2052. These projects uniquely provide a development option for discovered but undeveloped gas resources in the region. Progress for these projects is dependent on securing access to proximate gas supply on suitable commercial terms. No material progress was made in this regard during the reporting period. Results for the year The net loss after tax of the Consolidated Entity for the financial year was $1,001,999 (2022: net profit after tax of $6,332,812). The loss for the year was mainly due to the administration costs of running the various exploration programs of $4,151,532 offset by a partial recovery of these administration costs on Block-9 in Cuba. During the year, the Consolidated Entity incurred net operating cash outflows of $3,126,076 (2022: outflows of $2,119,543), net investing cash outflows of $13,363,748 (2022: inflows of $3,264,709) and net financing cash inflows of $15,766,348 (2022: inflows of $23,830,840). The successful drilling and commercialisation of any oil and gas discoveries in Cuban and Australian exploration permits and/or the development/sale of the Consolidated Entity’s methanol and LNG Projects could ultimately lead to the establishment of a profitable business or result in a profit to the Company if an asset sale occurs. While the Consolidated Entity is in the exploration/appraisal stage of drilling for hydrocarbons in its offshore Australian exploration permit and overseas acreage and in the project development phase for its other offshore Australian interests, funding will be provided by asset sales, equity capital raised from the issue of new shares and/or farm out or joint development arrangements with other companies. Directors’ Report continued 16 Melbana Energy Limited Annual Report 2023
Review of financial position The net assets increased by $15,820,332 to $52,992,594 at 30 June 2023 (30 June 2022: $37,172,262). During the year, the Consolidated Entity capitalised $8,140,867 (2022: $9,532,768) on exploration, mainly in relation to Block 9 in Cuba. The main determinants of the Consolidated Entity’s financial condition were: – Loss after tax of $1,001,999 (2022: profit of $6,332,812); – Increase in share capital amounting to $17,295,207 (2022: $22,875,044). The working capital position as at 30 June 2023 of the Consolidated Entity results in an excess of current assets over current liabilities of $33,859,932 (30 June 2022: $26,450,132). The cash balances, including term deposits, as at 30 June 2023 were $34,976,625 (2022: $35,570,347). Corporate The Consolidated Entity’s future prospects are centred on its ability to secure quality exploration, development and producing opportunities and seeking to maximise the value to shareholders of its current portfolio, identifying and securing additional value-accretive projects, and/or undertaking a corporate transaction. Funding for the coming Financial Year is sufficient to meet the Company’s forecast exploration and field development commitments however the Consolidated Entity may raise additional funding either through farm-in/sale and/or capital injection to advance its projects. In the event that the Consolidated Entity cannot meet its share of work program commitments, permits may need to be surrendered. Significant changes in the state of affairs On 8 July 2022 the Company reported that independent reserves and resources expert McDaniel & Associates estimated the Alameda formation within Block 9, Cuba (encountered by the Alameda-1 exploration well) contained 1.9 billion barrels of oil in place and a Prospective Resource1 of 109 million barrels of oil (Best Estimate, 100% basis). On 1 August 2022 the Company reported that independent reserves and resources expert McDaniel & Associates estimated the Marti formation within Block 9, Cuba (encountered by the Alameda-1 exploration well) contained 1.2 billion barrels of oil in place and a Prospective Resource1 of 70 million barrels of oil (Best Estimate, 100% basis). On 10 September 2022, the Company’s listed call options (ASX: MAYO) with a strike of $0.035 expired. Of the 459,758,321 options outstanding at the start of the reporting period, 453,202,268 were exercised on or prior to the expiry date resulting in payments to the Company of $17,295,207. On 27 October 2022 the Company reported that its exploration well Zapato-1 being drilled in Block 9, Cuba, had reached planned total depth of 3,150 metres measured depth but had not reached the target formation. On 15 November 2022 the Company announced its plans to drill two appraisal wells in Block 9, Cuba, to better understand the oil qualities and reservoir characteristics of the three geologically independent formations containing moveable hydrocarbons encountered whilst drilling Alameda-1. On 7 December 2022 the Company announced it had appointed an Exploration Manager, a General Counsel and a new Chief Financial Officer. On 20 February 2023 the Company announced a small holding share facility to about 2,100 eligible holders with small parcels of shares the opportunity to sell their shareholding without incurring brokerage or handling costs. On 3 March 2023 it was announced that the Company’s ordinary shares listed on the ASX were to be included in the All Ordinaries index, effective 10 March 2023. On 19 April 2023 the Company received the approval of the National Offshore Petroleum Titles Administrator for a 24-month suspension of the permit conditions in respect of the Permit Year 1 - 3 work program (with a corresponding 24-month extension of the permit term) for its exploration permit AC/P70. On 6 June 2023 the Company announced it had appointed a Chief Commercial Officer. On 20 June 2023 the Company announced the start of drilling of its Alameda-2 appraisal well, the first of two appraisal wells planned to better understand the multiple significant hydrocarbon bearing zones intercepted during the drilling of Alameda-1 in its Block 9 PSC onshore Cuba. As at 30 June 2023, the Company had no outstanding granted options. 17 Melbana Energy Limited Annual Report 2023
Resource upgrades During the reporting period the Company made significant announcements pertaining to the three oil-bearing formations encountered by the Alameda-1 exploration well in its Block 9 PSC onshore Cuba. The combined resource estimate for these three formations was independently assessed5 to contain 5.0 billion barrels of oil in place for a Prospective Resource1 of 267 million barrels of oil (Best Estimate, 100% basis). There were no other significant changes in the state of affairs of the Consolidated Entity during the financial year. Matters subsequent to the end of the financial year On 4 July 2023 the Company announced it had identified a carbonate buildup, named the Hudson Prospect, within its permit areas NT/P87 and WA-544-P. The Company’s maiden prospective resource estimates for this prospect are shown in Table 2. A farmout process was also commenced to seek a partner to fund the acquisition of a 3D seismic survey to further derisk the exploration opportunity. Table 2 – Maiden Resource Estimates for the Hudson Prospect GROSS PROSPECTIVE RESOURCES1 COS P90 P50 Mean P10 Oil Only (mmbbl) STOOIP 9 371 1,573 4,845 Recoverable 12% 2 90 395 1,184 Gas Only (BCF) GIIF 16 700 3,070 10,097 Recoverable 12% 11 466 2,034 6,741 On 5 July 2023 the Company announced the first results from its Alameda-2 appraisal well in its Block 9 PSC onshore Cuba. Unit 1A of the Amistad interval demonstrated recovery at surface of about 40 barrels of moveable hydrocarbons from a productive interval of 63 metres measured depth. API was 11.7° and viscosity was 3,783 cP. On 14 July 2023 the Company announced that the Alameda-2 appraisal well had reached total depth for Unit 1B, with strong oil and gas shows between 700 and 1,110 metres measured depth with a core taken and preparations underway to wireline log the unit. On 4 August 2023, the Company announced that the Alameda-2 appraisal well had reached total depth ahead of schedule and that logged Net Pay for Units 1A, 1B and 2 had been increased from 84 metres previously to 243 metres (using conservative cutoffs and without allowing for the highly fractured limestones identified there. On 15 August 2023, the Company announced that the Alameda-2 appraisal well had confirmed moveable oil in Unit 3 of the Amistad interval, about 500 metres to the south and 200 metres updip from where Alameda-1 penetrated the same unit. The quality of the oil was like that which had been recovered from Unit 1A and it demonstrated the potential to flow at about 750 barrels per day. No formation water was observed. Incorporating the logged Net Pay for Unit 3 increased the total Net Pay for the Amistad interval to 346 metres total vertical depth (increasing to 615 metres total vertical depth if natural fracturing is incorporated). On 28 August 2023, the Company announced significantly lighter (19° API) and lower viscosity (30 cP) oil had flowed to surface from Unit 1B of the Amistad interval at a stabilised rate of 1,235 barrels of oil per day (peaking at 1,903 barrels of oil per day. No formation water was observed, either during the flow test or from logs, and 1,000 barrels of oil had been trucked away to storage. On 20 September 2023, the Company announced that the Alameda-3 appraisal well is to commence in November 2023, prior to which it was planned to commence early production from Unit 1B in Alameda-2. No other matter or circumstance have arisen since 30 June 2023 that has significantly affected, or may significantly affect the Consolidated Entity’s operations, the results of those operations, or the Consolidated Entity’s state of affairs in future financial years. Directors’ Report continued 5 Independent certifier McDaniel and Associates, see ASX announcement dated 1 August 2022 18 Melbana Energy Limited Annual Report 2023
Likely developments and expected results of operations The Consolidated Entity will continue to pursue its interests in: – Block 9 PSC in Cuba in partnership with Sonangol. Appraisal drilling results from Alameda-2 have demonstrated the presence of significant intervals of moveable hydrocarbons in the shallowest Amistad formation and these are being studied to inform a field development proposal for the exploitation of the resource therein. The next appraisal well, Alameda-3, will test the two deeper formations (called Alameda and Marti). Successful appraisal results from either or both deeper formations should be able to be exploited independently of Amistad and of each other given they are geologically independent; – EOG Australia is making preparations for the drilling of its Beehive-1 exploration well in WA-488-P in the Joseph Bonaparte Gulf in northern Australia which may begin in the following reporting period. The Consolidated Entity has no exposure to the cost of the drilling of this well or to the permit but is entitled to receive cash and royalty interests contingent on future elections made by EOG Australia in WA-488-P and commercial success from the drilling of the exploration well; – Permit areas NT/P87 and WA-544-P by seeking a farmout partner to fund the acquisition of a 3D seismic survey to further derisk the Hudson Prospect; and – Its other permit areas and licences. Health Safety and Environmental regulation The Consolidated Entity holds participating interests in a number of oil and gas areas. The various authorities granting such tenements require the licence holder to comply with the terms of the grant of the licence and all directions given to it under those terms of the licence. Your Board of Directors believe that all workplace injuries are avoidable. Policies and procedures are in place to ensure employees and contractors conduct all activities in a safe manner. Melbana has adopted an environmental, health and safety policy and conducts its operations in accordance with international best practice, where reasonably practicable. There have been no known breaches of any tenement conditions, no lost time due to injury and no spills during the reporting period. Subsequent to the reporting period there was one recordable, but not reportable, minor spill. Information on Directors Name: Andrew Purcell Title: Executive Chairman Qualifications: B Eng; MBA Experience and expertise: Andrew Purcell founded the Lawndale Group (formerly Teknix Capital) in Hong Kong over 15 years ago, a company specialising in the development and management of projects in emerging markets across heavy engineering, petrochemical, resources and infrastructure sectors. Prior to this, Mr Purcell spent 12 years working in investment banking across the region for Macquarie Bank and then for Credit Suisse. Mr Purcell also has significant experience as a public company director, both in Australia and across Asia. Other current directorships: AJ Lucas Group Limited (ASX: AJL) Former directorships (last three years): None Special responsibilities: Member of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee Interests in securities: 234,626,097 Fully Paid Ordinary Shares 19 Melbana Energy Limited Annual Report 2023
Name: Peter Stickland Title: Non-Executive Director Qualifications: BSc, Hons (Geology), GDipAppFin (Finsia), GAICD Experience and expertise: Peter Stickland has over 30 years' global experience in oil and gas exploration. Mr Stickland was CEO and subsequently Managing Director of the Company from 2014 until January 2018 and then became a non-executive director. Previously, Mr Stickland was CEO and subsequently Managing Director of Tap Oil Limited (ASX: TAP) from 2008 until late 2010 during which time he oversaw the evolution of the company into a Southeast Asia/Australia focused E&P company. Prior to joining Tap Oil, Mr Stickland had a successful career with BHP Billiton including a range of technical and management roles. Mr Stickland is also a life member of the Australian Petroleum Production and Exploration Association Limited (APPEA). Other current directorships: None Former directorships (last three years): Talon Limited (ASX: TPD) (until October 2020) XCD Energy Limited (ASX: XCD) (until June 2020) Special responsibilities: Chairman of Reserves Committee, Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee Interests in securities: 13,827,419 fully paid ordinary shares Name: Michael Sandy Title: Non-Executive Director Qualifications: BSC Hons (Geology), MAICD Experience and expertise: Michael Sandy is a geologist with over 40 years’ experience in the resources industry – mostly focused on oil and gas. In the early 1990s he was Technical Manager of Oil Search Limited, based in, PNG. He was involved in establishing Novus Petroleum Ltd and preparing that company for its $186m IPO in April 1995 and over 10 years, he held various senior management roles with the Company. Subsequently Mr Sandy has been the principal of energy consultancy company Sandy Associates P/L, has set up and taken companies to IPO and has built extensive experience on the boards of listed and unlisted companies, including Tap Oil, Burleson Energy and Hot Rock. Other current directorships: Omega Oil and Gas Ltd (ASX:OMA) Former directorships (last three years): None Special responsibilities: Chairman of the Audit and Risk Committee, member of the Remuneration and Nomination Committee and a member of Reserves Committee Interests in securities: 6,300,000 fully paid ordinary shares Other current directorships quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Former directorships (last three years) quoted above are directorships held in the last three years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Directors’ Report continued 20 Melbana Energy Limited Annual Report 2023
Company Secretary Cate Friedlander, B.A/LLB GradDipACG AGIA – appointed 6 December 2022 Cate Friedlander is a well-known member of the Australian corporate legal community, with extensive experience in the upstream resources and energy sectors across Australasia, South-East Asia, Middle East and the US. This includes a number of years living and working in Asia. Cate has worked for significant listed and unlisted entities in the sector – Novus Petroleum (General Counsel and Company Secretary), Anzon Australia, Esso Australia and BP and more recently has consulted to Pilot Energy, Bridgeport Energy, Beach Energy. Cate’s experience extends to both asset/industry and corporate related work (M&A, IPO’s, contractual, corporate governance and risk and advisory). Her asset and industry related experience is extensive – covering oil, gas and LNG sale agreements, FEED and construction of production infrastructure, exploration and development joint venture related dealings, drilling and governmental negotiations. In addition to her corporate experience, Cate has previously worked in private practice with top tier firms, across a variety of commercial and resource matters. Cate also holds a Graduate Diploma in Applied Corporate Governance from, and is an Associate Member of, the Governance Institute of Australia. Meetings of Directors The number of meetings of the Company’s Board of Directors (Board) and of each Board committee held during the year ended 30 June 2023, and the number of meetings attended by each Director were: Full Board Reserves Committee Audit and Risk Committee Attended Held Attended Held Attended Held Andrew Purcell 9 9 - 2 2 2 Michael Sandy 9 9 2 2 2 2 Peter Stickland 9 9 2 2 2 2 Held: represents the number of meetings held during the time the Director held office or was a member of the relevant committee. The Remuneration and Nomination Committee held one meeting during the reporting period to review employee salaries, senior executive performance evaluations and the terms and participants of the Company’s LTI plan. The non-conflicted members of the Committee met alone prior to the meeting to propose amended remuneration terms to be offered to the Executive Chairman with effect from 1 July 2023. 21 Melbana Energy Limited Annual Report 2023
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