Guess which ASX All Ords share just crashed 33%

This energy share is sinking deep into the red on Tuesday. But why?

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The Melbana Energy Ltd (ASX: MAY) share price is having a day to forget on Tuesday.

At the time of writing, the ASX All Ords share is down 33% to 7 cents.

Why is this ASX All Ords share crashing?

Investors have been selling down this energy explorer's shares today after it released an update on its appraisal well Alameda-2 onshore in Cuba.

According to the release, the appraisal found the presence of moveable oil in Unit 3 and testing indicates the potential to flow at about 750 barrels of oil per day.

That's great news, right? Well, perhaps not as great as you might think on the face of it.

Firstly, the quality of the oil is not the same as what companies like Woodside Energy Group Ltd (ASX: WDS) are pulling up.

The estimated oil gradient derived from the static gradient survey was 1.47-1.49 psi/metre, which indicates that it is a heavy oil.

Light crude oil is primarily used to create fuels such as gasoline, diesel and aviation fuels. Whereas heavy crude oil provides feedstock for plastics, petrochemicals, other fuels and road surfacing. Lighter oils will generally receive higher prices than heavier oils and are both easier and cheaper to process in refineries.

In addition, ASX All Ords share revealed that it was a battle to get its oil up from under the sea. It explained:

The initial inflow of the DST displaced a 63-barrel water cushion over a 2-hour period, equating to an approximate flow rate of 750 bopd. Oil did not flow to surface as the weight of the fluid column naturally killed the well. A static gradient survey confirmed that 8.2 cubic metres of fluid had flowed into the string (of a potential string volume of 10 cubic metres). The column of fluid in the string comprised minor solution gas, predominantly viscous oil and some drilling mud.

In light of this, management suspects that this oil could be produced in the future with the utilisation of artificial lift mechanisms. While not the end of the world, it isn't ideal.

Management commentary

The ASX All Ords share's executive chairman, Andrew Purcell, remains positive:

Results from Unit 3 have again demonstrated the presence of moveable hydrocarbons in the Amistad interval – adding to what was already found in Unit 1A. Also similar to Unit 1A, the good quality logs obtained have allowed us to identify natural fracturing that enhance the productive qualities of the reservoir.

That Unit 3 was intercepted some 500 metres away and 200 metres updip from where the same unit was intercepted in Alameda-1 means we have a significant oil bearing formation typical of what is normally produced in Cuba. We still need to test the last two units, but from the results obtained to date we now have the potential for a project in this upper sheet Amistad formation.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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