Melrose Deepens, Sidetracks Egyptian Well After Gas Shows

Melrose Resources reported that the EDC-53 rig is currently drilling the West Zahira No.1 well, which was designed to test an exploration prospect located to the north-west of the West Dikirnis oil field. The well encountered gas shows in the Qawasim formation at a measured depth of 10,070 feet and a 90 foot core was taken within the reservoir section. The well was subsequently deepened and, after penetrating a high pressure sand interval, had to be sidetracked due to well control issues. Similar to the original wellbore, the sidetrack also encountered gas shows in the Qawasim and the core and open hole logs indicate a gross gas column of 35 feet overlying a water leg.

The well data suggest that the well has penetrated the flank of a structure which may contain reserves of approximately 60 billion cubic feet ("Bcf") in the Qawasim formation. The 3D seismic data also indicate that there is further exploration potential in the deeper, underlying Sidi Salim formation and in the Qawasim on a geologic trend to the north-east of the well location.

An appraisal well is now being planned to prove up the Qawasim reserves in the up-dip area of the West Zahira structure and to test the deeper Sidi Salim potential. The West Zahira No.1 well will be temporarily suspended pending the results of the appraisal well.

The replacement draw works for the EDC-9 drilling rig have been installed ahead of schedule and the rig has spudded the East Abu Khadra No.1 well to test an Abu Madi prospect with unrisked reserves potential of 50 Bcf and a chance of success of 50%.

After concluding operations on the West Zahira No.1 well, the EDC-53 rig will move to drill the South Tarif No.1 exploration well on a Qawasim prospect which has unrisked reserves potential of 140 Bcf plus condensate and a chance of success of 45%.

Two other exploration wells are expected to be spudded in the first quarter of 2008, using the newly contracted EDC-54 rig and a shallow drilling unit.

In total, Melrose's planned 2008 drilling program in Egypt contains 14 exploration wells to be drilled on the El Mansoura and SE El Mansoura concessions to test 2 Abu Madi, 6 Qawasin, 1 Tineh and 5 Sidi Salim prospects. The combined unrisked reserves potential of these prospects is estimated at 1,200 Bcf of gas and 22 million barrels ("MMbbls") of condensate with an average chance of success of 34%. These figures assume that the prospects contain gas and condensate only and there is value upside in the prospect portfolio in the event that oil discoveries are made.

The planned expenditure required to pursue the 2008 exploration drilling program in Egypt is $62 million and a further $28 million is budgeted during the year to acquire 2D and 3D seismic data over the two concessions. These data will be used to identify and high grade additional prospects which will be drilled over the following years. A further $1 million will be used for aeromagnetic data acquisition and geologic studies on the frontier Mesaha block located near the Sudanese border.

Commenting on the above, David Thomas, Chief Executive, said, "The results from West Zahira No.1 provide encouragement for our exploration and appraisal campaign in the area around the well and the appraisal well will be part of a very active 2008 drilling program which contains several material exploration prospects in a diverse number of exploration plays. We are stepping up the pace of our exploration drilling with three deep rigs operating in the first half of 2008."


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