Management Resource Solutions Regulatory News (MRS)

18 Nov 2009 07:00



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 1 July 2009 to 30 September 2009 ("the third quarter") and an operations update. This information is provisional and unaudited and may be subject to further review. 

Exploration

In August 2009 Melrose announced the results of the successful Kaliakra No.2 well which was drilled to appraise the Kaliakra field located approximately 15 kilometres to the east of the Galata field offshore Bulgaria. The well encountered a net gas pay interval substantially thicker than that found in the original discovery well and, as a result, the field's P50 reserves estimate has increased to 57 Bcf. 

The well results also helped to confirm the Kavarna field reserves estimate of 24 Bcf and upgrade the prospectivity on the Galata/Kaliakra geologic trend. The undrilled Kavarna East prospect has been largely de-risked and holds estimated reserves of 19 Bcf with a chance of success ("COS") of over 80 percent. Also, recently completed studies indicate that the Kaliakra East prospect is larger than previously thought with a reserves estimate of 59 Bcf and a COS of 34 percent. These prospects are candidates for drilling after the Kavarna and Kaliakra fields have been developed. 

In Egypt, over recent months the EDC-9 drilling rig has been primarily deployed on development activity. It will shortly, however, re-commence an exploration drilling programme in the Nile Delta to test three exploration prospects, namely, North West Nabourah, Tall Rak and South Damas which have total unrisked reserves of 282 Bcfe with an averaged COS of 39 percent. One of these prospects, Tall Rak, is located on the same fault trend as the Tamad oil field and has oil and gas potential. Thereafter, the drilling rig will be mobilised to the Mesaha frontier exploration concession in Upper Egypt in order to spud an exploration well there in late 2010. This will be the first well drilled on the block which contains a major untested sedimentary basin.

During the third quarter, the Company has also been completing planning activities for its 2010 seismic acquisition programme which will include 2-D surveys on the Mesaha concession and South Mardin blocks in Turkey and 3-D surveys on the South East El Mansoura concession in Egypt and the Galata block in Bulgaria. 

Field developments

Melrose is continuing with its active development programme in Egypt where the West Dikirnis Phase II project has made considerable progress. The Liquid Petroleum Gas ("LPG") plant fractionation towers and vapour recovery unit were commissioned during October and construction activity on the gas reinjection facilities is now expected to be completed in early January 2010. This is some three months later than scheduled and will result in the production of additional sales gas volumes from the field of approximately 30 MMcfpd during the period before gas reinjection commences.

Since mid year, Melrose has brought two new fields on stream in the Nile Delta. The first of these was the Damas field in South East Mansoura which came on production on 7 July and is currently producing at a rate of 5.0 MMcfepd. The second was South Khilala, which came on stream on 16 October and is flowing at a rate of 13 MMcfepd.

In Bulgaria, as announced on 6 November, Melrose has received a Certificate of Commerciality for the Kavarna field from the Bulgarian Government. This effectively commences the field development and first gas production is expected by 1 July 2010. An application for a similar Certificate of Commerciality for the Kaliakra field has recently been submitted and this field is expected on stream by 1 October 2010. 

In the USA, Melrose is continuing with its long term project to increase production levels in the Permian Basin through an infill drilling and waterflood programme. The key activities during the third quarter were aimed at increasing the water injection rates at the Jalmat field and once this is complete the focus will turn to the central area of the Turner Gregory field. 

New Business Initiatives

Melrose continues to gather the required regulatory approvals in order for it to formally complete the farm-in transaction to acquire a 32.5 percent interest in the Midia XV and Pelican XIII blocks, offshore Romania. As part of this process, in October the Company received formal approval from the Romanian National Agency of Mineral Resources to conduct petroleum operations in the country under new administrative guidelines.

Production and Product Prices 

Melrose's production in the third quarter 2009 was approximately 25% higher than achieved during the same period in 2008 due to strong performance from the Company's existing Egyptian fields and the contribution from new field developments including South Zarqa, North East Abu Zahra, East Abu Khadra and Damas. Production totalled 18.2 Bcf of gas and 949 Mbbls of oil and condensate on a working interest basis, equating to an average daily rate of 43.4 Mboepd. On a net entitlement basis, third quarter production totalled 7.8 Bcf of gas and 420 Mbbls of oil and condensate, giving an average daily rate of 18.7 Mboepd. 

A summary of the Company's working interest and net entitlement production by country in the third quarter is as follows:

Working Interest

Net Entitlement

The average product prices realised by the Company in the third quarter were as follows: 

Financial Position

Total capital expenditure in the third quarter amounted to $46.4 million, of which the majority (approximately 71 percent) was dedicated to Egyptian development activities.

Melrose remains in a well funded position and there have been no major changes in its balance sheet since the publication of the 2009 Half-Yearly Results. Group net debt at 30 September was $457.8 million.  The Company has a senior debt facility of $450 million and a subordinated debt facility of $70 million and both facilities are committed until 2014. The margin on the facilities is competitive and would equate to 3.3 percent above US$ LIBOR assuming the loans were to be fully drawn.

In July, the Company raised £11.2 million before expenses through an equity placing. The funds were used to accelerate the drilling of the Kaliakra No.2 appraisal well and to support the capital work programme.

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 a substantial proportion of Melrose's revenues (approximately 43 percent in the third quarter) are generated from fixed price gas sales contracts. 

Business Outlook

In August 2009, the Company announced a working interest production forecast for 2009 of 37.5 Mboepd. This forecast has now been raised to 38.5 Mboepd to reflect the additional gas production expected from West Dikirnis in the last quarter of the year. On a net entitlement basis the forecast has been raised to 16.8 Mboepd, assuming that the Brent oil price during 2009 will average less than $60 per barrel. 

The 2009 capital expenditure forecast remains unchanged at $165 million, of which 81 percent is dedicated to field development activity and the remainder to exploration and new business initiatives. Approximately 73 percent of the capital expenditure will be spent in Egypt with the remainder split relatively evenly between Bulgaria and the US.

In summary, the main components of the Company's short to medium term work plans include: in Egypt, completing the West Dikirnis gas reinjection facilities, drilling the NW Nabourah, Tall Rak, South Damas and Mesaha exploration wells; in Bulgaria, implementing the Kavarna and Kaliakra developments and finalising the Galata gas storage agreements; in the USA, increasing the Jalmat and Turner Gregory water injection volumes; in Romania, completing the farm-in government approvals process and then advancing the Ana and Doina pre-development plans. In addition, seismic acquisition programmes are planned in Egypt (South East El Mansoura and Mesaha), Bulgaria (Block Galata) and Turkey (South Mardin). 

Commenting on this report, David Thomas, Chief Executive, said:

"Melrose continued to deliver strong production performance during the third quarter and a 25% volume increase over the equivalent period last year demonstrates our ability to bring new discoveries on stream quickly and efficiently. Significant progress has been made across all our development projects during the quarter and we now look forward to augmenting this activity with an exciting exploration programme over the forthcoming months. This will include a number of seismic surveys, the drilling of three high graded prospects in the Nile Delta followed by our first well in the Mesaha frontier exploration concession in Upper Egypt in late 2010." 

For further information please contact:

or visit www.melroseresources.com

Glossary:

Bcf - billion cubic feet of gas

Bcfe - billion cubic feet of gas equivalent

COS - chance of success

Mbbls - thousand barrels

Mbopd - thousand barrels of oil 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.