Melrose Resources on Friday provided a review of its 2012 production outlook and capital expenditure programme.
The Company is forecasting an average daily production rate in 2012 of 15.4 Mboepd on a net entitlement basis and assuming a Brent oil price of $90 per barrel. On a working interest basis, the forecast equates to 28.0 Mboepd and comprises 88 percent gas and 12 percent liquids. The forecast reflects production from Melrose's existing fields in Egypt and Bulgaria which contribute 76 percent and 24 percent of the total, respectively.
Capital Work Programme
Melrose is planning an active exploration and development work programme during 2012 and the total capital expenditure is forecast at $83 million. Of this amount, approximately 45 percent is allocated to exploration drilling and seismic acquisition and the balance to development activities. On a country basis, Egypt, Romania and Bulgaria account for 73 percent, 14 percent and 11 percent of the forecast, respectively, with the remainder allocated to France and Turkey.
The capital budget has been set at a level which will allow Melrose to continue with its planned financial de-gearing process. The Company expects to deliver its year end 2011 target of reducing gearing to below 100 percent and it is forecast to continue to fall rapidly over the next 12 months reaching somewhere in the range of 50 percent to 60 percent by the end of 2012. In subsequent years, it is planned to achieve and maintain gearing levels below 30 percent, depending on the evolution of the Company's portfolio and market conditions.
Melrose's exploration programme in 2012 has a capital allocation of approximately $37 million and comprises three exploration wells, two in Egypt and one in Bulgaria, and seismic acquisition in Romania.
The first Egyptian well scheduled to be drilled is Al Hajarisah-1, which represents the Company's first test of the under-explored Cretaceous oil play in the South East Mansoura concession. This prospect has prospective resources of 6 MMbbl (working interest basis) and a chance of success of 21 percent and the well is expected to spud in the second quarter.
The Company is retaining operational flexibility on the Egyptian rig schedule and it is possible that the Al Hajarisah-1 well will be deferred to allow the drilling a small oil prospect called North West Zahayra in the Mansoura concession. This prospect has very recently been identified in the vicinity of the West Zahayra oil discovery and, subject to further technical review, may be introduced to the drilling programme. The West Zahayra discovery has been placed on a long term flow test and successfully produced at a stabilised oil rate of 100 bopd.
The second Egyptian exploration well will be drilled on the Mesaha frontier concession in southern Egypt and is scheduled to spud late in the third quarter. The concession covers an undrilled sedimentary basin which contains some major structural features including tilted fault block geometries and intra-basinal highs. The interpretation of the 2011 2D seismic data is nearing completion and will be used to optimise the exploration well location. Melrose and its joint venture partners were recently granted a three year extension on the concession, extending it to October 2014, and the work programme commitment includes the planned well and a seismic survey.
In Bulgaria, the work plan includes one well to be drilled in the central area of the Galata block, to the north of the Galata/Kaliakra discovery trend. The selection of the final well location is pending interpretation of the recent Galata block 3D seismic survey but at this stage is expected to be Chaika-1 which will target a structure with prospective resources of 80 Bcf and a chance of success of 26 percent.
The budget includes a provision of $12 million for seismic acquisition on the Muridava and Est Cobalcescu concessions offshore Romania. The seismic survey represents Melrose's first exploration activity in the country and the Company is planning to acquire 900 kilometres of 2D data and 1,300 square kilometres of 3D data over the blocks in the summer of 2012. The main focus of the Muridava acquisition programme will be Eocene and Cretaceous leads and prospects located in the same play as the existing Olimpiskiyi discovery and Lebada oil fields. The East Cobalcescu survey will target the Miocene and Pliocene gas plays on trend with the Cobalcescu, Ana and Doina discoveries.
The capital work programme also contains funds to perform technical studies on the Rhone Maritime block offshore Southern France, where the license operator, Noble Energy, is currently finalising the interpretation of the recent 2D seismic survey. Further details regarding the forward work programme on the block will be provided when the interpretation is complete. Studies are also ongoing on the South Mardin blocks in southern Turkey where the regional geologic model is being updated with the recent SW Kanun-1 well results.
The majority of the planned development expenditure, some $45.1 million, is allocated to the Company's main producing fields in Egypt. On the West Dikirnis field the existing Liquid Petroleum Gas plant will be expanded with a refrigeration unit to increase hydrocarbon liquids recoveries and on West Khilala, wellhead compression facilities are planned for installation during 2012. Also included in the 2012 work programme are two development wells, West Khilala-8 and South Khilala-2.
In order to maximise the economic return of the Kavarna East development project, the Company has opted for a low cost development scenario, whereby the new field will share the same subsea flow line as the existing Kavarna development. Recent technical studies have indicated that the optimum time to introduce the Kavarna East gas into the shared flow line to maximise the combined fields' withdrawal rate will be during 2013. On this basis, the Company has chosen to defer the Kavarna East development by one year to come on stream in the second half of 2013.
Commenting on the above, David Thomas, Chief Executive, said:
"We are looking forward to 2012 when we will continue to pursue our various exploration and development projects whilst maintaining a strong focus on delivering the Company's financial objectives. Based on our performance in 2011 we are now setting a new target to reduce financial gearing to below 60 percent within 12 months.
The exploration programme contains some potentially high impact wells, both in Egypt and Bulgaria, and we will be particularly pleased to commence the seismic acquisition programme on the Muridava and Est Cobalcescu blocks, offshore Romania."
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