Melrose Resources announced that it was the successful bidder for two offshore exploration blocks, EX-27 and EX-28, in the Romanian 10th Licensing Round and that it is making preparations for the potential divestment of its Permian Basin assets in the United States. An update is also provided for the Company's ongoing exploration activities in Bulgaria and Turkey.
On June 30, 2010, the Romanian authorities announced the results of the Romanian 10th Licensing Round and the Company has been notified that it was the successful bidder for two shallow water blocks EX-27 and EX-28. Melrose bid for the blocks in partnership with Petromar Resources S.A. and will hold an 80 percent working interest in the concessions.
The blocks lie to the north-west of the Midia and Pelican concessions in an under-explored area of the Black Sea, which became re-accessible for exploration in February 2009 following the resolution of a maritime boundary dispute between Romania and the Ukraine.
The blocks have a combined area of 2,000 square kilometers and contain the same oil and gas exploration plays as the Midia and Pelican concessions. Initial analysis indicates that the blocks could be highly prospective and may contain significant oil and gas potential. Block EX-27 contains an existing oil discovery, Olimpiskiyi, which was drilled in 2001 but on which there is limited available data.
The concession agreements for the new blocks are expected to be signed towards the end of the year and will have a firm three year initial term followed by an optional three year extension. The firm work program bid for each block comprises 2D and 3D seismic acquisition in Year 1, one well in Year 2 and two wells in Year 3. In due course, the Company may consider reducing its working interest in the blocks and expects to spend a minimum of $60 million on exploration activities during the initial term of the concessions.
The government approvals process for the assignment of the Company's interests in the Midia and Pelican blocks continues to progress forward.
Over recent years, Melrose has been selectively investing in infill drilling and waterflood developments in its Permian Basin oil fields in Texas and New Mexico. As a result, 20 acre waterflood patterns have been established across the Jalmat field and central area of the Turner Gregory field. The rest of the Turner Gregory, Artesia and Cone field areas require further drilling and completion investment to put in place similar regular waterflood patterns. Additional investment would also be required to pursue the tertiary recovery potential which may exist in the Jalmat field.
It is anticipated that Melrose will wish to limit capital expenditures in the Permian Basin over the next few years since the Company has more strategic investment opportunities elsewhere in its portfolio. This has led the Company to consider accelerating its divestment plans for the assets and advisers are being engaged to investigate the market potential.
In the event that the Company opts to divest the assets, it is believed that the process could take six to nine months to complete given the volume of historic data available on the fields and the extensive lease position. It is anticipated that any proceeds received from the potential divestment would primarily be used by the Company to reduce debt and any balance for its capital work program.
The Jupiter jack-up rig has been mobilized to the Galata block, offshore Bulgaria, and commenced drilling operations on the Kavarna East No.1 exploration well. The well will test a low risk prospect located in between the Kavarna and Kaliakra fields and which contains gross recoverable prospective resources of 12 Bcf and a chance of success of 80 percent. In the event of success, the discovery would be developed at minimal cost via the Kavarna field flow line.
Following the Kavarna East No.1 well, the drill rig will be used to install the sub-sea tree for the Kaliakra field development well. Subsequently, it may be used to drill a well to test the Kaliakra East prospect which contains recoverable prospective resources of 59 Bcf with a 34 percent chance of success. This well remains contingent, however, on confirmation that the seabed conditions at the well site will allow the jack-up rig to operate at the required water depth.
The Bigfoot pipe laying barge is now expected to arrive on the Galata block in early August to install the flow lines for the Kavarna and Kaliakra gas field developments.
The Company has completed the processing and interpretation of 247 kilometers of 2-D seismic data recently acquired over the South West Kanun exploration lead in the eastern area of its South Mardin licenses.
The seismic results are encouraging and indicate the presence of a structure with oil potential in the Cretaceous and Ordovician formations, with gross recoverable prospective resources of 85 MMbbl of oil and an averaged chance of success of 20 percent. An exploration well is being planned for 2011 to test the prospect.
A successful discovery at South West Kanun would open a new exploration play in Southern Turkey and three other prospects have been identified on the new 2-D data set with combined recoverable prospective resources of 53 MMbbl of oil. Additional exploration leads have been identified on old regional 2-D seismic lines in the western area of the South Mardin licenses.
Chief Executive David Thomas commented, "We are delighted to have been the successful bidder for two high quality exploration blocks offshore Romania and this represents an important milestone for the Company as we seek to establish the country as a long term core investment area. We are also pleased with progress on our exploration work programs in Bulgaria and Turkey and to be starting the Permian Basin divestment process."
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