Melrose has signed a Heads of Agreement with Sterling Resources under which it will farm-into the Pelican XIII and Midia XV Blocks in the Black Sea, offshore Romania.
Midia XV contains the undeveloped Ana and Doina gas fields, which the Company estimates to contain gross combined probable reserves of 288 Bcf and which are expected to be sanctioned for development in late 2009 or early 2010. The Blocks also contain a significant number of exploration prospects and leads which are candidates for drilling in the short to medium term.
Under the terms of the farm-in, Melrose will earn a 32.5% interest in the Blocks in return for a cash payment of $12 million ("m") to be made to Sterling when the transaction completes in the first quarter of 2009. A further cash payment of $12m will be made at the time of the first development project sanction, or one year after completion whichever is the earlier, and Melrose will also carry Sterling for a proportion of their future development costs. The amount of the cost carry will be between $58.0m and $72.7m, depending on the gas price achieved for the development projects.
The majority of the costs associated with the farm-in will not be committed or incurred until 2010 and 2011 and only after the first field development is sanctioned and project financing secured against the new development assets.
On a net basis, the farm-in will add 15.6 MMboe of probable reserves, which is equivalent to 29% of the Company's proved plus probable reserves base at year end 2007. The exploration acreage has net unrisked reserves potential estimated to be in excess of 300 Bcf and 20 MMbbls.
The transaction completion is subject to the finalization of a fully termed agreement, the appropriate government, partner and regulatory approvals and financing.
Commenting on the above, David Thomas, Chief Executive, said, "This exciting farm-in opportunity is consistent with Melrose's plans to identify new business opportunities in the current market cycle and with our strategy of operating and holding material working interests in our assets. It provides the Company with an opportunity to build its portfolio in a core area by acquiring interests in two high quality concessions with near term production and exploration upside. We look forward to working with Sterling and the block partners to progress the work programme together over future months and years."
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