Melrose Reviews Operations in Egypt and Turkey and Updates Bulgaria Gas Storage Plans
Melrose Resources plc provides an update on the results of its Egyptian exploration program, new concession awards, a potential Bulgarian gas storage project and the Company’s oil and gas reserves.
Egypt Exploration
Following completion of the development drilling activity on the West Khilala and West Dikirnis fields, Melrose has recommenced its exploration drilling program in the Nile Delta. The near term program contains 9 wells and a further 22 leads and prospects have been identified for drilling in 2008 and 2009. The risk-adjusted reserves being targeted by this program are 440 Bcf and 77 Mbbls (note: all reserves quoted herein are on a working interest basis unless otherwise stated).
The first two exploration wells in the program have now been drilled on a structural trend, north of the West Dikirnis field, and have resulted in two successful gas discoveries with high condensate yields.
The South Zarqa No.1 well penetrated 56 feet of net pay in the Qawasim sandstone formation and has been flow tested at rate of 17.1 MMcfpd of gas and 660 bpd of condensate on a 36/64” choke. The post-drill reserves estimate for the discovery is approximately 50 Bcfe, however, an appraisal well will be required on the structure to further refine the volumetric estimate.
The North East Abu Zahra No.1 well encountered 73 feet of net pay, also in the Qawasim formation, and has been flow tested at a rate of 20.0 MMcfpd of gas and 640 bpd of condensate on a 36/64” choke. The post-drill reserves estimate for this discovery is approximately 20 Bcfe and follow-on exploration potential exists in two other prospects located in the immediate vicinity.
The EDC-9 drilling rig is now moving from the North East Abu Zahra No.1 location to drill an Abu Madi prospect, East Abu Kahdra, with unrisked reserves potential of 50 Bcf. After completing South Zarqa No.1, the EDC-53 drilling rig will move to drill a Qawasim prospect, Buhut, which has unrisked reserves of 30 Bcf and which, if successful, will open a new Qawasim play system in the west of the Mansoura concession. Site preparation activities are also underway to expedite the drilling of two other Qawasim prospects in the east of the concession, South Tarif and West Zahira. These are material and have combined unrisked reserves approaching 250 Bcf, plus hydrocarbon liquids potential.
The Company has recently received new and reprocessed 3-D seismic data covering a large part of the Mansoura concession and it is anticipated that this will lead to a further expansion in Melrose’s prospect inventory.
The development of the West Dikirnis field is proceeding well and the Company expects to announce first production in late October/early November following final hook-up activities.
New Concession Awards – Egypt and Turkey
On 9 October 2007, the Egyptian Mesaha concession was officially assigned to Melrose and its joint venture partners, Hellenic and Oil Search, at a ceremony attended by his Excellency the Minister of Petroleum, Eng. Sameh Fahmy. The concession, which covers an unexplored sedimentary basin, is bounded by the Sudanese border in Upper Egypt and has an area of 57,000 km². The initial exploration period is 4 years and the licence can be extended to cover a maximum of 9 years. The gross financial commitment is $14.3 million and Melrose holds a 40% operated working interest in the block.
On 3 September 2007, Melrose and its joint-venture partner, GYP, were awarded eight exploration concessions in the South Mardin basin in south-east Turkey on the border with Syria. These concessions cover a combined area of 3,910 km² and the initial exploration period is 4 years, with two optional 2 year extensions. The gross financial commitment is $5 million and Melrose holds a 75% operated working interest in the concessions.
These new frontier exploration initiatives have limited capital commitments and are consistent with Melrose’s strategy of maintaining a balanced portfolio which includes geologically diversified, high potential exploration assets.
Bulgaria Gas Storage
The requirement for gas storage facilities in Europe is continuing to increase due to gas supply uncertainties and legislative changes. In recognition of this, Melrose and Bulgargaz Holdings, the Bulgarian state-owned gas utility company, are finalising an agreement under which the two parties will conduct a joint feasibility study to evaluate the conversion of the Galata field to a gas storage facility.
Company Reserves
In its 2007 Interim Report, Melrose incorporated a downward revision to the proved plus probable net entitlement reserves on the material West Khilala, West Dikirnis and South Batra fields in Egypt of 37.6 Bcfe (equivalent to 10.2% of the Company’s net reserves). The Company has now completed a comprehensive review of the reserves on all its remaining assets and does not expect to make any further downward net reserves revisions on its US or Egyptian assets. However, based on pressure data obtained during a one-month field shut-down in July the Galata gas field reserves are likely to be reduced by 11 Bcf.
Commenting on the above, David Thomas, Chief Executive, said:
“The results from the first two exploration wells in our new Egyptian drilling campaign are highly encouraging and we are particularly pleased by the high condensate yields. The well results demonstrate the value of using sophisticated 3-D seismic data analysis techniques to identify prospects in the onshore Nile Delta setting. Using this technology, we are confident that we can achieve world class exploration success rates going forward and will continue to focus our exploration efforts on this region on the near to medium term.
We are also encouraged by the ongoing dialogue with the Bulgarian authorities regarding the potential use of the Galata field for gas storage and look forward to delivering additional shareholder value from this project.”