Ann: Block 9 Alameda 2 Appraisal Update, page-684

Observations:

"Unit 3 penetrated 200 metres updip and 500 metres to the south of Alameda-1"
"No formation water observed during the flow tests or logs"
"Wireline logs confirmed the presence of natural fractures in the lower Unit 2 and Unit 3 basal sections"
"When fractures are incorporated into the calculations, Alameda-2 has a Net Pay of 615 metres TVD (45% net to gross)"
"By comparison, Alameda-1 logged a total of 109 metres TVD from a gross section of 1277.5 metres TVD (8.5% net to gross)"
"Like the oil from Unit 1A, this interval could be produced in the future with the utilisation of artificial lift mechanisms"

A few comments / thoughts:

1. Gross pay sections increased by 529% across Amistad upper intervals. Original OIP estimate was 1,939 mmbbl (ref: Evolution Capital 31/Jul/23). Possible OIP (ceteris parribas) 10,257 mmbbl. This is why AP again uses the words "significant oil bearing formation". It is significant. Regardless of what the SP currently is, or whether you hold another stock (*cough*cough*) , Amistad IS significant.
2. Note the comment re no water (in the updip). TBH, not expected in Unit 3, but goes to confirm the quality of the reservoir. You can't argue this: it is in black and white.
3. Not much discussion about porosity of Unit 3 at this stage, but noted the presence of natural fractures in the lower 2 units.
4. AP has made reference to horizontals. Combine this with the company announcement regarding the location and size of where A2 penetrated U3 (500 metres south). Assuming they do a 80/90 degree turn off the current pad, the turn distance off the kick-off point is 400 metres (simple trig, based on the rate of turn from other horizontals). I think that is a hint that Unit 3 is easily accessible from several wells that can be drilled on the current pad. AP has been thinking horizontals all along. It's as if he and his geos already expected low pressures and heavier oil (*DOH*!).
5. The artificial lift may not require additional fracking, based on the natural flow, but it is not overly onerous/expensive if it did. The extraction cost/bbl for other similar wells (Cuba and Venezuela) are under U$1/bbl; so throwing rocks at Melbana for having to go horizontal on Amistad and extract via artificial lift is just a childish argument.

Bottom line:

1. A3 is still the main game (it always has been!). Marti, to the left of the fault, has observed higher pressures. Assuming lighter oil, and given the depth, it should flow to the surface. At the very least, during the drill they will have oil present in Marti (based on A1) which should underpin / spike the SP at that point. Final flow rates will again determine method of extraction. Note the following comments from Evolution Capital:

"The Marti Sheet Play, which is a conventional fractured carbonate reservoir, similar to existing producing fields in Cuba, is located at depths typically between 2,000 and 3,500 metres. In offsetting Cuban fields, these reservoirs can be highly productive, with reported initial well rates of up to 4,000 barrels of oil per day. Oil recoveries to date suggest that the Marti Sheet Play has potential for higher quality crude oil than that produced from adjacent fields. It has demonstrated prospectivity in the western and central areas of Block 9 and is likely to be prospective in the east of Block 9, where an absence of seismic data limits the assessment."

2. A2 is commercial. For the naysayers (doomsdayers: yes, we know who you are!) the OIP is massive, the reservoirs are not water-logged, the field is accessible via horizontal wells, and the company has confirmed the probability that the oil can be recovered via artificial lift (similar to other nearby wells in Cuba). With regards to quality, the refinement cost to upgrade the oil is not inhibitive (have a look, for example, at similar fields in Venezuela and Canada, where similar quality, heavier oils have been recovered and refined). Certainly, for the domestic market A2 hits all the right notes.

3. The current market cap of Melbana is around A$222 million (U$ 144 million, or thereabouts). Using EvoCap's numbers, A2 alone has an NPV of around U$872 million (MAY share, using 75% discount and U$25/bbl, and using updated gross pay calculations above), equating to A$1.342 billion or A$0.398 per share (up from previous EvoCap estimate due to estimated field/resource upgrade: yet to be formally confirmed). So, in effect, the current share price is trading at an 83% discount to the value of Amistad alone! Absolutely nuts!

So. No lectures today. Do your own maths. A2 is your new "based income" for MAY, with A3 your upcoming "wildcat" (of sorts). At 6.6 cents this is an absolute screaming buy.

No point in arguing with the fools who have migrated to MAY from the other oilers. Those oils are wild-catting and are a whole different kettle of fish. Apples and Oranges.

Have a great day, a wonderful week, and a profitable year ahead!

Regards
Kit.