'The prospects for the Group continue to look very encouraging. There have been some interesting new developments on the exploration front in Egypt which offer great promise and we are looking forward to our forthcoming drilling program in Bulgaria this summer.
The first anniversary of production from the Galata gas field has just passed with average daily production of 53 MMcfpd over this period. Current production is over 60 MMcfpd and the rate of pressure decline has been less than expected, which provides reassurance for field proved and probable reserves.
A drilling rig has been contracted to drill at least two wells later this summer, with an option on a third well, and the rig is due on location in mid-August. The Galata East appraisal well is the first well scheduled to be drilled. The Galata East structure is located close to the existing Galata gas field on the Galata Production Concession and has potential reserves estimated at 45 Bcf. If the well is successful these reserves can easily be produced through the existing Galata production facilities. The Galata East well will be followed by an exploration well on Block Kaliakra 99. Interpretation of the 3-D seismic acquired on Block Kaliakra 99 in 2004 is continuing: a number of material prospects have already been identified and these are being risk-graded before final selection of the target. A series of related large prospects, with reserve potential of up to 500 Bcf, has been identified close to the 1986 Samotino More gas discovery well and one of these prospects is the most likely exploration drilling target.
The Ministry of Energy has recently confirmed the transfer of ownership to Melrose of the Emine and Rezovska licenses. These licenses have a number of prospects and leads with the potential for both oil and gas.
Melrose and its partner currently have three rigs under contract in Egypt. Recent drilling results have been very encouraging with an exciting new exploration play with oil potential opening up.
The South Batra No.17 was a discovery well in the Kafr el Sheikh formation where two zones were identified and separately tested at 4.5 MMcfpd and 4.6 MMcfpd. This well has been completed and will be put on production. The South Batra No.21 well is currently drilling to test the eastern extent of the Abu Madi channel system. The well intersected a 60 ft gross gas/condensate column within the Abu Madi Level II reservoir and then took a gas-kick in a deeper, overpressured zone, possibly within the Sidi Salim formation. Drilling into this zone has restarted following the installation of a 10,000 psi blow-out preventer which is required for the higher pressures being encountered.
The El Tamad exploration well has been drilled to test a Sidi Salim objective in the southern area of the El Mansoura concession. Wireline logging has indicated a gross hydrocarbon column of 87 ft (67 ft of gas above 20 ft of oil confirmed by wireline fluid sampling) within the Sidi Salim between 6,363 ft to 6,450 ft. No oil/water contact has been encountered. The appraisal of the downdip extent of the oil column will now become a priority. This discovery is potentially very significant as it opens up a new exploration play with the benefit of offering higher-value oil production to complement our existing gas production.
The South Mansoura No.6 well is currently drilling to an Abu Madi Level III target and on the way down has encountered a 35 ft gross reservoir section with significant gas shows within the Kafr el Sheikh formation. The deeper Abu Madi section is currently being drilled and evaluated.
A further 14 wells are planned before the end of the year. These will include further appraisal and development wells on the South Batra field and a number of interesting exploration wells, including wells on the Zahayra and Khilala prospects which have reserve potential of 100 - 300 Bcf.
In the USA this year we have drilled 7 new wells on the Jalmat Unit with continuing good results and in total a further 22 new wells are currently scheduled for the second half of 2005. We are on target to achieve production of up to 1,500 boepd by the end of the year. We are benefiting from the strong oil price, with average realizations this year of $44.54/bbl and this should enable us to accelerate our drilling program over the next 12 months.
An additional 3,300 km of recently reprocessed seismic data has been purchased over the Rhone Maritime permit. This data will be incorporated into the seismic database and used to provide a more detailed interpretation of the prospectivity of the permit.'
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