19 May 2009 07:00
| FOR IMMEDIATE RELEASE | 19 May 2009 |
MELROSE RESOURCES PLC
Interim Management Statement
Melrose Resources plc (LSE: MRS) ("Melrose" or "the Company") the oil and gas exploration, development and production company today issues its Interim Management Statement to cover the period 1st January 2009 to 31st March 2009 ("the first quarter") and an operations update. This information is provisional and unaudited and may be subject to further review.
Exploration
Earlier this month, the Company announced the success of the South Khilala No.1 exploration well, which was drilled to test a Qawasim prospect located approximately 10 kilometres to the south of the West Khilala field in the El Mansoura concession. The well was flow tested at 17.6 MMcfpd of gas with small amounts of condensate with the mid-case reserves estimate for the discovery being 36 Bcfe (on a working interest basis).
The well will now be tied-back for production via the West Khilala field facilities using a 6 inch flow line at a cost of $2.5 million and is expected to come on stream early in the fourth quarter 2009. This will raise the facilities throughput to approximately 115 MMcfpd of gas and defer the requirement to install compression facilities at the West Khilala field until at least 2011.
Another similar Qawasim prospect, Al Hamul No.1, is scheduled to be drilled 6 kilometres to the west of West Khilala in the fourth quarter 2009. This prospect has mean reserves of 63 Bcfe and a 30% chance of success.
In East Texas, a fracture stimulation treatment has been completed on the Reklaw formation in the Nunan No.1 exploration well and flow test operations will commence shortly.
Field Developments
Melrose is continuing with its active development programme in Egypt. The West Dikirnis Phase II development project is progressing well and the Liquid Petroleum Gas ("LPG") plant should commence propane and butane production in July 2009 with gas reinjection starting shortly thereafter. These projects, coupled with the ongoing horizontal drilling programme, will maximise hydrocarbon liquid recoveries from the field. Elsewhere, as previously announced, the North East Abu Zahra and South Zarqa field developments have recently been completed and the Damas development is expected to be brought on stream in July 2009.
In Bulgaria, the Galata field gas storage project is progressing well and the piping and gas filtering facilities modifications required to commence gas injection have been completed. This will allow the gas storage scheme to be initiated immediately after finalisation of the commercial agreements with the Government, which is expected early in the third quarter 2009. Meanwhile, the declaration of commerciality for the nearby Kavarna gas field has been submitted to the Government for approval and final planning for the Kaliakra No.1 gas field appraisal well to be drilled later this year is also underway.
In the USA, during the first quarter Melrose completed the first phase of the infill drilling programme on the Jalmat and Turner Gregory leases and is now expediting its plans to increase field water injection rates and hence increase oil production rates. This will require the use of two, low cost pulling units during the first half of the year to perform well workovers, recompletions and injection conversions as well as some minor facilities enhancements.
New Business Initiatives
In early March 2009 Melrose announced that it had entered into a Farm-in Agreement with Sterling Resources to acquire a 32.5% working interest in two blocks in the Romanian Black Sea, namely, Midia XV and Pelican XIII. The transaction is moving ahead and, subject to Government and Bank approval, is expected to complete early in the third quarter 2009.
Production and Product Prices
Melrose's production in the first quarter totalled 12.8 Bcf of gas and 819 Mbbls of oil and condensate on a working interest basis, which represents a 13% decrease compared with the same period in 2008. The reduction is primarily due to the cessation of gas production from the Galata field in Bulgaria at the end of January 2009 in order to prepare the field for gas storage. Average daily production in the quarter was 32,661boepd on a working interest basis. On a net entitlement basis, first quarter production totalled 6.4 Bcf of gas and 420 Mbbls of oil and condensate giving an average daily rate of 16,552 boepd.
A summary of the Company's working interest and net entitlement production by country in the first quarter is as follows:
Working Interest
| Egypt | Bulgaria | US | Total | |
| Total Volume | ||||
| Gas (Bcf) | 12.072 | 0.307 | 0.377 | 12.756 |
| Liquids (MMbbls) | 0.748 | - | 0.066 | 0.814 |
| Average Daily Rate | ||||
| Gas (MMcfpd) | 134.135 | 3.415 | 4.187 | 141.737 |
| Liquids (bpd) | 8,309 | - | 729 | 9,038 |
| Oil equivalent (boepd) | 30,665 | 569 | 1,427 | 32,661 |
Net Entitlement
| Egypt | Bulgaria | US | Total | |
| Total Volume | ||||
| Gas (Bcf) | 5.734 | 0.307 | 0.377 | 6.418 |
| Liquids (MMbbls) | 0.354 | - | 0.066 | 0.420 |
| Average Daily Rate | ||||
| Gas (MMcfpd) | 63.710 | 3.415 | 4.187 | 71.312 |
| Liquids (bpd) | 3,938 | - | 729 | 4,667 |
| Oil equivalent (boepd) | 14,556 | 569 | 1,427 | 16,552 |
The average product prices realised by the Company in the first quarter were as follows:
| Egypt | Bulgaria | US | Group | |
| Gas ($ per Mcf) | 2.75 | 5.66 | 5.03 | 3.02 |
| Oil and condensate ($ per bbl) | 41.48 | - | 35.41 | 40.53 |
Financial Position
Total capital expenditure in the first quarter amounted to $54.6 million, of which $48.9 million was spent on development and $5.7 million on exploration activities.
Melrose remains in a well funded position and there have been no major changes in its balance sheet since the publication of the 2008 Annual Results. Group net debt at 31 March was $443.8 million. The Company has a senior debt facility of $440 million and a subordinated debt facility of $70 million. Both facilities are fully committed until 2012 and then amortize with final repayment in December 2014. The Company's reserves base supports an increase to the size of the senior debt facility and Melrose is in constructive discussions with its existing syndicate banks and HSBC, which has internal approval to join the syndicate, to increase the senior facility amount by up to $40 million.
The Company's loan facilities, coupled with secure cash generation from the business, provide a level of capital headroom which will ensure that the Company is able to finance its planned investment programme. This would remain the case even if the oil price falls again to approach the lows of earlier this year since the majority (some 64% in the first quarter) of Melrose's net production is gas sold under fixed price contracts.
During the first quarter, the Company proposed a final dividend to Shareholders of 1.6 pence per share which would raise the total dividend for 2008 to 2.8 pence per share. Assuming the final dividend is approved at the Annual General Meeting on 11 June 2009, it will be paid on 26 June 2009.
Business Outlook
In December 2008, the Company published a net entitlement production forecast for 2009 of 15.0 Mboepd. This forecast has now been raised by approximately 5% to 15.7 Mboepd to reflect the continued strong performance from existing Egyptian fields and the fact that the South Zarqa and North East Abu Zahra developments were brought on-stream earlier than planned. For clarity, the revised net entitlement forecast assumes that the Brent oil price during 2009 will average less than $55 per barrel.
The 2009 capital expenditure forecast remains unchanged at $170 million, of which some 69% is dedicated to field development activity and the remainder to exploration and new business initiatives. The majority of the capital expenditure, approximately 60%, will be spent in Egypt with the remainder split relatively evenly between Bulgaria, the US and Romania.
In summary, the main components of the Company's short to medium term work plans include: in Egypt, completing the West Dikirnis Phase II, Damas and South Khilala developments and drilling the Al Hamul exploration well; in Bulgaria, finalising the Galata Gas Storage Agreements, implementing the Kavarna development and drilling the Kaliakra appraisal well; in the USA, increasing the Jalmat and Turner Gregory water injection volumes and evaluating the Nunan-1 fracture treatment; and in Romania, completing the Farm-in Agreements and advancing the Ana and Doina pre-development plans.
Commenting on this report, David Thomas, Chief Executive, said:
"Melrose has started the year well and our increased production expectation, coupled with the recent improvement in oil prices, should help to boost our annual revenues. Notwithstanding the challenging economic climate, the Company is pursuing a very active work programme as we seek to progress a range of investment projects which collectively have the potential to add significant value for our shareholders."
For further information please contact:
| Melrose Resources plc David Thomas, Chief Executive Robert Adair, Executive Chairman Diane Fraser, Finance Director | 0131 221 3360 |
| Buchanan Communications Ben Willey Ben Romney | 0207 466 5000 |
or visit www.melroseresources.com
Glossary:
bbl - barrel of oil or condensate or natural gas liquids
Bcf - billion cubic feet of gas
Bcfe - billion cubic feet of gas equivalent
boepd - barrels of oil equivalent per day
bpd - barrels of oil or condensate per day
Mboepd - thousand barrels of oil equivalent per day
Mcf -thousand cubic feet
MMcfpd - million cubic feet per day
MMcfepd - million cubic feet of gas equivalent per day
Disclaimer
This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. While Melrose believes the expectations reflected herein to be reasonable, the actual outcome may be materially different owing to factors either within or beyond Melrose's control, and accordingly no reliance may be placed on the figures contained in such forward looking statements.