Melrose Resources plc: First Gas Production from Bulgarian Offshore Fields and Exploration Update

Melrose Resources plc , the oil and gas exploration, development and production company, announces first gas production from the Kavarna and Kaliakra gas fields offshore Bulgaria and to provide an update on its exploration operations in France, Egypt and Turkey.

Field Developments

Bulgaria

The Kavarna and Kaliakra fields contain combined reserves of 74 Bcf and are located in the Galata exploration concession in the Bulgarian sector of the Western Black Sea. Commissioning activities on the fields started on 1 November and the fields are today being officially opened to commercial production by the Bulgarian Minister for Economy, Energy and Tourism. The combined field production plateau rate is expected to be approximately 45 MMcfpd.

The fields were developed using single subsea wells tied back to the existing Galata field production platform, from where the gas is exported by pipeline to the Company’s onshore gas plant near Varna for processing. A similar development plan will be adopted for the recent 12 Bcf East Kavarna discovery which will supplement the production from the two new fields and has the potential to extend the combined field production plateau period to around three years.

In parallel with the development activity, gas sales agreements for the fields have been concluded with the majority of the gas being sold to Bulgargaz, the Bulgarian state-owned gas utility company, and the balance to a local industrial user. The agreed gas price is in excess of previous market guidance and the new sales contracts effectively replace an earlier provisional sales agreement which Melrose disclosed in the first quarter this year.

Exploration Initiatives

France

Melrose announced in July that it had entered into a Heads of Agreement with Samedan North Africa Inc. (“Noble”), a wholly owned subsidiary of Noble Energy Inc., under which Noble would farm-in to a 72.5 percent operated interest in the offshore Rhone Maritime concession with Melrose retaining a 27.5 percent interest. The Company is now pleased to announce that Melrose and Noble Energie France, a Noble subsidiary, have now signed a fully termed Farm-in Agreement and will complete the transaction upon receiving the appropriate regulatory approvals.

The joint venture has also sourced a seismic vessel to acquire an 8,000 kilometer 2-D seismic survey covering the entire concession area. The survey will commence in mid November and take approximately three months to complete. The acreage has both Pre-Messinian and Post-Messinian hydrocarbon potential. The cost of the seismic acquisition program will be funded by Noble under the terms of the Farm-in Agreement.

Turkey

The 2-D seismic survey acquired over the Company’s South Mardin concessions earlier this year yielded encouraging results and confirmed the South West Kanun structure as a drillable prospect with estimated gross mean reserves of 85 MMbbls and a chance of success of 20 percent. In order to advance its drilling plans, the Company has now secured a rig, GYP No.7, to drill the prospect and it is expected that the well will spud in March 2011 and take approximately three months to complete.

Egypt

The South East Mansoura seismic acquisition program is progressing on schedule and to date some 157 square kilometres of 3-D seismic data (43 percent of the planned survey) and 150 kilometres of 2-D seismic data (100 percent of the planned survey) have been obtained. The main objective of the program is to evaluate a geologic trend which contains a number of Cretaceous oil leads identified on old vintage seismic data as having significant resource potential.

The Company has also recommenced its exploration drilling operations in the Nile Delta and the EDC-9 drill rig has recently completed operations on the Sakr prospect in the South East Mansoura concession. The well penetrated 125 feet of good quality net sand but failed to encounter commercial gas volumes and is being plugged and abandoned.

Following the Sakr well operations, the rig will be used to drill the South East Dikirnis structure which has prospective resources of 16 Bcf of gas and 1 MMbbl of oil and a chance of success of 32 percent. This prospect is located in the Mansoura concession close to the East Dikirnis discovery made in 2009 and, in the event of success, it is envisaged that both fields would be developed together using a common flowline tied back to the South Batra facilities. Subsequently, it is planned that the rig will move back to the West Dikirnis field to drill two horizontal production wells prior to returning to the South East Mansoura concession to test the Cretaceous oil play.

Commenting on the above, David Thomas, Chief Executive, said:

“We are delighted to achieve first production from our two new Bulgarian gas fields. This represents an important milestone since the fields are expected to double the Company’s cash generation over the next few years and will diversify the production portfolio. We are also pleased to be advancing our exploration programs in France, Turkey and Egypt and these initiatives, coupled with our Western Black Sea exploration plans, have the potential to yield significant reserves additions in 2011 and beyond.

Notwithstanding the recent developments relating to our Romanian farm-in transaction, we remain firmly on track to increase production and cash flow again next year, accelerate our plans to reduce the Company’s financial gearing and refocus on shareholder value addition through exploration.”

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Source: Melrose Resources, November 5, 2010;