Melrose Ups Ante in Texas, New Mexico


Permian Basin: Basins of Texas
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Melrose Resources plc announced the following update on its operations in the USA.

Permian Basin Infill Drilling and Waterflood Program

In late 2007, the Company announced its intention to implement a major infill drilling and waterflood development program in its three principal fields in the Permian Basin, the Jalmat, Turner Gregory and Artesia fields. The objective of the program is to access 9.0 MMbbls and 7 Bcf of proved undeveloped oil and gas reserves and to increase the Company's production in the Permian Basin from 750 bopd to in excess of 3,000 bopd over the next two years. The project will involve drilling approximately 120 new wells and converting around 50 wells to water injection and the capital investment is expected to be approximately $55 million.

Development drilling activity commenced in the Jalmat field in Lea County, New Mexico in late February 2008. Ten wells have been drilled to date and the eleventh well will spud shortly. Drilling operations are going smoothly and the time spent on location for each well is averaging 7 days. Six of the new wells have already been completed, four as permanent producers and two as temporary producers. The latter two wells will eventually be converted to water injection but will be flowed in the short to medium term to take advantage of the better than expected reservoir pressure and quality which they encountered. The four other new wells will be completed as injectors shortly.

In the Turner Gregory field in Mitchell County, Texas, larger pump units have been fitted on ten wells and surface facilities have been upgraded to accommodate the planned water injection program. A second drilling rig is being contracted to commence the infill drilling operations in this field in the third quarter 2008.

In the Artesia field in Eddy County, New Mexico, work is progressing on the installation of water injection facilities. A new tank battery has been completed in the southern area of the field and the building pad for a new injection water pumping station is being prepared. Development plans for this field are now being finalised with a view to accelerating the work program and commencing drilling operations with a third rig in the fourth quarter of the year.

The combined field production rate is currently averaging just over 1,000 bopd, representing an increase of approximately 35% over the pre-investment program production rate.

In parallel with the development activity, detailed reservoir evaluation work is continuing on all three fields with a view to better quantifying their probable reserves which Melrose has not previously booked. These additional reserves may be material since the assumed waterflood recoveries appear conservative by comparison with local field analogues. In addition, there is potential to increase reserves further through a follow-on infill drilling campaign to decrease the well spacing from the 20 acre patterns being targeted by the current investment program to 10 acre spacing. The economics of this are particularly attractive at current oil prices. In the longer term, possible tertiary recovery projects involving CO2 injection will be studied for the fields.

East Texas Exploration

On the Company's properties in East Texas, the Holmes No.4 appraisal well in Harris County will spud later this week. The well, which will test an extension of the Holmes field, has unrisked incremental reserves of 9 Bcf with a chance of success of 44%. In the event that the well is a success, a number of similar appraisal well locations may subsequently be drilled as follow-on targets.

Also in Harris County, two further deep gas exploration prospects are being brought forward for drilling in the third and fourth quarters of 2008, respectively. Each of these wells will target unrisked reserves of over 25 Bcf, with a chance of success of over 50%, and has significant upside potential.

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