Melrose Completes Two Black Sea Production Wells

Melrose Resources has completed two production wells on the Galata Gas Field development in the Black Sea, offshore Bulgaria. Both the GP No. 1 and GP No. 2 wells tested at rates of approximately 30 MMcfpd and flowing wellhead pressures of 1,500 psi.

The GP No. 2 production well confirmed an extension to the gas reservoir in the northern fault block of the Galata structure. This has resulted in a significant increase in the proven reservoir volume and field reserves. Based on the original production test and the new pressure data, proved reserves are now estimated to be 65 Bcf, compared with 49 Bcf carried previously and proved plus probable reserves are estimated to have increased from 80 Bcf to 90 Bcf. Melrose owns a 100% working interest in the field.

A storm on December 24, 2003 caused damage to the barge which was laying the offshore pipeline. The barge has returned to port in Varna for repair. It is expected to resume operations before the end of January and to complete the remaining 5.3 km of pipeline in early February. The additional costs, some of which will be recovered from project insurance, are still being assessed. First production on the development has now been delayed until the end of February 2004. The offshore platform (and its production facilities) and the onshore pipeline are now effectively complete. Construction of the onshore gas process plant is well advanced and is expected to be completed well ahead of the revised first production date.

The processing of 470 km of infill seismic over the southern part of Block 91-III which was acquired in 2003 has now been completed. The initial interpretation has identified seven structures in the same producing horizon as the Galata Gas Field. The prospectivity of the deeper Oligocene channel play has also been confirmed. Enhanced seismic processing will be carried out on these structures prior to selecting a drilling location.

Commenting on this, Robert Adair, Chairman, said: 'The results of the two Galata wells and the resultant increase in reserves are extremely good news as this significantly enhances our net asset value and future revenues.

Further confirmation of the exploration prospects, both in the Galata trend and in the Oligocene channel, is also very encouraging. We will be selecting a location for an exploration well to be drilled in the third quarter of 2004 and a further well is now being planned for 2005.

The Galata 'look-alike' prospects each have potential reserves of the same order of magnitude as Galata and, with the platform and infrastructure already in place, the economics of further developments would be very attractive. However, I am most excited by the structure identified in the Oligocene channel as the potential reserves here could be in excess of 1 Tcf.'