Cuba Update: Block 9 farmout

Melbana Energy press release

Melbana Energy Limited (ASX: MAY) ("Melbana") is pleased to advise it has signed a non-binding Letter of Intent (LOI) with Anhui Guangda Mining Investment Co Ltd ("AGMI") with respect to its Block 9 Production Sharing Contract ("Block 9 PSC") in Cuba.

The terms of the LOI state that AGMI will:

1. Fully fund the drilling of a minimum of three exploration wells in Block 9, one on each of Melbana's three highest ranked and high impact targets (Alameda, Zapato and Piedra) prior to July 2020, with two exploration wells to be drilled prior to November 2019;

2. Replace the current cash backed bank guarantee for US$2.275Million provided by Melbana for the benefit of Cupet with an equivalent bank guarantee using its own banking facilities;

3. Fully fund 100% of all exploration, appraisal, development and production activity and costs and provide any required bank guarantees for Block 9 while AGMI remains a participant in the Block

9 PSC (20+ years remaining);

4. At its election, assume operatorship of Block 9.

In the event of a successful development, Melbana would recover its back costs of ~US$3.5million from the authorized cost recovery pool as well as 12.5% of the profit oil. Melbana and AGMI are targeting to complete a binding definitive agreement by 1 December 2018 with AGMI considering using the April 2018 drilling slot made available to Melbana by a local operator in addition to the other options available at their disposal.

The farmout follows from the recently released prospective resource assessment of Block 9 by independent expert McDaniel & Associates Consultants, who have significant Cuban experience certifying reserves for TSX listed Sherritt International. Their independent assessment identified a best estimate Oil in Place of 15.7 billion barrels1 and Prospective Resources of 718 million barrels1 of oil equivalent from three prospects and 16 leads. The assessment included a best estimate prospective resources of 270 million barrels1 of oil in the five targeted objectives contained within Melbana's preferred high impact exploration prospects Alameda (3 objectives in well), Zapato and Piedra.

An extract from the McDaniels & Associates report1 is attached.

Melbana Energy's CEO, Robert Zammit, said:

"We are very pleased to have agreed LOI terms for the Block 9 farmout with AGMI where the minimum commitment to fully fund the drilling of our three preferred high impact prospects occurs at no further cost to Melbana shareholders. As AGMI proceeds with further activity in the block, Melbana will also be fully carried for all further activity and costs, including any appraisal, development, production costs and bank guarantee obligations while earning a 12.5% share of the profit oil under the Block 9 PSC and recovering its back costs of approximately US$3.5Million in the event of a commercial development.

AGMI is prepared to commit significant resources to complete a drilling and development program in Cuba and has substantial experience operating onshore in multiple jurisdictions. We have a mutual understanding of the opportunity that Block 9 provides for significant oil discoveries and we look forward to finalizing a binding agreement late in the current quarter."

The full release is available here