Commenting on this, Robert Adair, Chairman, said:
'2003 was a year of major achievement for Melrose with exploration success and development of the Galata Gas Field and I am delighted that these achievements are starting to bring financial benefits to the Company and its shareholders. We have an exciting drilling program scheduled for 2004 which I believe will deliver further excellent growth in production and which offers the potential to significantly increase shareholder value.'
In the last year Melrose has achieved some of its key objectives for the development of the Group and we are now seeing tangible benefits from the groundwork done in previous years. We are pleased that some of our achievements are starting to bring financial benefits to the Company and its shareholders.
In Egypt, the three successive exploration successes on the El Mansoura Concession in the first half of the year transformed the value and the perception of our interests. We have followed up this exploration success with the fast track development of these fields and we now enjoy production from six wells on five different fields. This success has established two highly prospective exploration plays in the shallower horizons down to 10,000 ft on the El Mansoura Concession. A further 15 drillable prospects with reserve potential of 20-100 Bcf each have now been confirmed in these horizons by new 2-D and 3-D seismic. In addition, large prospects and leads of Tcf potential have also been identified in the deeper horizons and these remain to be tested. Our strategy for the El Mansoura Concession is to establish early production from lower risk exploration drilling to maximize the area within the concession which can be converted to development leases prior to targeting the larger, higher risk targets that have been identified. We are now planning an aggressive drilling program over the remaining two and a half years of the El Mansoura exploration concession and we expect to have three drilling rigs continuously operational by the end of 2004. We have agreed a term sheet for debt finance for our expenditures in Egypt and expect that the facility will be in place later in the year.
Our main focus in Bulgaria has been on the Galata development project where first production is imminent. First production from this field will represent a significant achievement for Melrose and we are delighted to be playing an important role in the continuing development of the Bulgarian oil and gas industry. Evaluation of the new seismic which we have acquired over some of our Bulgarian acreage has yielded very interesting results. We plan to drill at least one low risk exploration well in the same trend as the Galata field early in the second half of this year. Deeper, but potentially very large, structures have been identified in a channel play to the south of Galata. Evaluation is continuing but the upside potential here is exciting with reserve potential of well over 1 Tcf.
In the USA, we have been able to commit additional funds to our program of development drilling and secondary recovery projects. This low risk drilling programme provides a good balance within our portfolio and the results of wells drilled in 2003 have been encouraging.
Over the last year we have made good progress towards balancing our portfolio of interests between exploration, development and production. During the course of 2003, production more than doubled to 2,600 boepd by year end and we look forward to seeing our production grow significantly over the coming year. In 2004 we plan to drill up to ten exploration wells - eight in Egypt and two in Bulgaria - and up to thirty one appraisal and development wells - six in Egypt, one in Bulgaria and twenty four in the USA. This drilling programme will shift more of our reserves into production and will expose the Company to very significant exploration upside. The exploration wells planned for 2004 have the potential to more than double the Group's net reserves in Bulgaria and Egypt.
I am pleased that the Group has returned to profit and also that the value in the Group's assets and the achievements of its management are being better recognized in the stock market. Over the last 12 months we have completed three share issues to provide funds for the Galata development project and to accelerate our drilling program in Egypt. These share issues have broadened the Company's shareholder base, increased the public float and, together with the appreciation in the share price, have brought a significant increase in the market capitalization of the Company. We now have an exciting drilling program scheduled for 2004 which I believe will deliver further excellent growth in production and which offers the potential to significantly increase shareholder value.
We intend shortly to propose to shareholders a scheme of capital reconstruction to eliminate the current deficit on the profit and loss account of the Company. This will allow the Company to commence payment of dividends out of future profits: we would hope to pay a first dividend in 2005 on the basis of results in 2004.
I welcome new shareholders who have joined us over the last year and thank all of our shareholders for their continuing support.
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