Melrose Commences Drilling at Bulgaria Block

- Melrose Commences Drilling at Bulgaria Block

Thursday, July 21, 2011
Melrose Resources plc

Melrose provided an update on its exploration activities.

Highlights 

• the Company is pursuing a number of high potential exploration initiatives and plans to allocate approximately 40 percent of its capital expenditure to drilling and seismic work programs over the next three years.
• the exploration program includes projects in proven hydrocarbon basins offshore Bulgaria and Romania, as well as new frontier exploration plays in northern and southern Egypt, Turkey and offshore France.
• the Company expects to complete three exploration wells in the second half of 2011, in Turkey (on its South Mardin acreage), Bulgaria (on the Galata block) and Egypt (on the South East Mansoura concession).
• the 2011 drilling program is targeting net unrisked prospective resources of 43 MMbbl of oil and 59 Bcf of gas and two of the wells are potentially new exploration play openers with significant follow-on opportunities.
• seismic surveys acquired in early 2011 on the Mesaha concession in southern Egypt and the Rhône Maritime block offshore France will help define the longer term exploration potential in these untested frontier areas.
• seismic data will be acquired later in the year offshore Bulgaria, where the Company hopes to extend the existing proven gas play to the north of the Galata-Kaliakra field trend.

Exploration Update

Bulgaria

In Bulgaria, the Company has received formal Government notification that the Galata block exploration permit has been extended to 4 February 2013 with a work program commitment including 3D seismic acquisition and one firm well.

Following receipt of the notification, the Kaliakra East exploration well was spudded on July 20 in the Galata block. The well is targeting a structure containing net prospective resources of 59 Bcf (P50 basis) with a chance of success of 34 percent and should take approximately one month to complete.

The Company is also moving forward with its plans to acquire 500 square kilometers of 3D seismic data within the Galata block to the north of the Galata-Kaliakra field trend. This area of the concession is thought to be on the gas migration path and contains a number of leads identified on the existing 2D seismic data. The 3D acquisition contract has been tendered and the survey is expected to commence in September this year.

Turkey

Drilling operations continue on the South West Kanun well on the Company's South Mardin acreage in southern Turkey. This well has dual objectives in the Cretaceous and Ordovician formations and is targeting net prospective resources of 37 MMbbl of oil with an average chance of success of 19 percent. Intermediate casing has been set at 3,814 feet and the well is currently drilling ahead at a depth of 5,910 feet. The well has experienced some minor operational delays associated with equipment procurement and is expected to complete in mid to late August.

Egypt

The processing and interpretation of the 3D seismic data recently acquired over the Cretaceous oil play in the South East Mansoura concession has been completed. The interpretation has confirmed the presence of multiple prospects and leads with combined unrisked prospective resources of 54 MMbbl. One prospect, called Al Hajarisah, has been selected for drilling in the fourth quarter 2011 and this has prospective resources of 6 MMbbl (working interest basis) and a chance of success of 21 percent.

On the Mesaha frontier exploration concession, the 2011 2D seismic survey has been completed with a total of 1844 kilometers of data acquired. The quality of the new seismic data is superior to the 2010 2D survey and has significantly improved the definition of the sedimentary basin. Based on this encouragement, the scope of the 2011 survey was expanded as compared to the original plan (which was to acquire 700 kilometers of data) and the processing and interpretation will complete around year end. The first well is expected to be drilled on the block in the second half of 2012.

Well flow testing operations have recently been completed on the West Zahayra-1 well which was a Qawasim formation discovery made in 2008, seven kilometers west of the West Dikirnis field. Prior to testing the original well was sidetracked by approximately 114 feet and the new wellbore encountered 39 feet of net oil pay with an average porosity of 16 percent.

During testing the well flowed good quality black oil (44 degree gravity) with only small amounts of gas. The well was produced for a period of 4 days but had an unstable flow regime with oil rates fluctuating between 80 and 280 bopd. The Company is currently evaluating whether, with an improved completion design, the well may be placed on commercial production and in parallel is reviewing the field appraisal options.

France

Preliminary interpretation of the 7,500 kilometers of 2D seismic data acquired on the Rhône Maritime block earlier this year has confirmed the presence of some significant structures on the block and detailed analysis is ongoing to ascertain whether the data exhibit any direct hydrocarbon indicators. The interpretation is due to be completed late in the fourth quarter.

Romania

Melrose is planning to acquire seismic data over the Muridava and East Cobalcescu blocks offshore Romania in 2012 during the summer. A provision of $17.8 million for these surveys was included as a contingent item in the Company's 2011 capital budget and this will be rephrased in the Company's next financial forecast.

Commenting on today's announcement, David Thomas, Chief Executive, said, "This is a key period in the Company's evolution as we transition from predominantly production and development related investments to place more emphasis on our exploration portfolio. We are looking forward to seeing the results from our exploration wells in Turkey and Bulgaria, both of which represent an important part of the Company's broader exploration program. The results of the West Zahayra flow test in Egypt are also encouraging since they have extended the oil productive area of the Mansoura concession and we will be reviewing the geologic interpretation of this region in parallel with our appraisal studies on the discovery."

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