Melrose Ramps Up Reserves in 2010 Year-End
Melrose reported annual production figures for 2010 and a summary of the Company's oil and gas reserves as at December 31, 2010. This information is provisional and unaudited and may be subject to further review.
Melrose's working interest production in 2010 totaled 72.4 Bcf and 2.5 MMbbl of oil, condensate and LPG equating to an average daily production rate of 41.1 Mboepd. This is in line with the Company's latest market guidance figure of 40.7 Mboepd, contained in the quarterly Interim Management Statement released on 18 November 2010.
The annual production rate represents an increase of six percent compared to 2009. The increase is attributable to the new fields bought on stream in Egypt during 2009 and 2010, including South Damas which was placed on production on 2 June 2010, and from the Kaliakra and Kavarna fields in Bulgaria which came on stream on 4 November 2010.
On a net entitlement basis, Melrose's production in 2010 totaled 31.0 Bcf of gas and 1.2 MMbbl of oil, condensate and LPG and the average daily production rate was 17.9 Mboepd.
In Egypt, Melrose's working interest production totaled 69.2 Bcf and 2.3 MMbbl of oil, condensate and LPG, averaging 38.9 Mboepd. Net entitlement production was 27.8 Bcf and 0.9 MMbbl of oil, condensate and LPG giving an average rate of 15.7 Mboepd. Working interest production from the Kavarna and Kaliakra fields in Bulgaria totaled 2.4 Bcf, at an average rate of 1.1 Mboepd and, in the USA, totaled 0.8 Bcf of gas and 0.2 MMbbl of oil and condensate representing an average rate of 1.0 Mboepd.
Melrose is pleased to note the improving political situation in Egypt and the appointment of the new transitional government earlier this week. During the period of civil unrest in late January and early February, the Company experienced no disruptions to its production and drilling operations in the country but, as a precautionary measure, allowed Egyptian staff working in its Cairo office to stay at home for a 4 day period during the public demonstrations. The Company has no permanent expatriate management or staff in Egypt, consistent with its operating philosophy of maximizing national training and employment opportunities.
Regarding the 2011 drilling program on the Mansoura concession, the EDC-9 drill rig has finished drilling the vertical pilot hole for the fifth West Dikirnis horizontal development well. The pilot hole encountered 30 feet of net oil pay contained in two separate sand intervals and will be temporarily completed as a producer to maximize oil recovery from both sands prior to being sidetracked and completed as a horizontal well.
Following the temporary completion, the EDC-9 rig will be used to drill the next West Dikirnis horizontal development well and then a second gas producer in the North East Abu Zahra field. This field extends north from the Mansoura concession into the neighboring West Manzala concession and an additional well is required to balance gas withdrawals across the field.
It is then planned to relocate the rig to the South East Mansoura concession where it will be used to drill an exploration well on the Cretaceous oil play which contains a number of prospects and leads with combined mean unrisked prospective resources of 70 MMbbl (44 MMbbl on a P50 basis). The results of the recently acquired 3D seismic survey will be available in April to provide an update on the overall play potential and optimize the first well location.
The Company is also placing a light drilling rig, the ECDC-1, on a short term contract to complete and flow test the suspended West Zahayra-1 discovery well. This well, which was drilled in early 2008, encountered 35 feet of net gas pay in the Qawasim formation and is a candidate to be tied-back for production to the West Dikirnis field located 8.5 kilometres to the south east. The P50 reserves are estimated at 5 Bcf of gas and assuming a similar gas composition to the offset fields, the discovery may hold around 120 Mbbl of condensate. The incremental cost of completion, testing and tie-back cost is estimated at $2.0 million.
Elsewhere, the Western Geco seismic crew have mobilized to the frontier exploration Mesaha concession in southern Egypt and will shortly commence the acquisition of up to 1,500 kilometres of 2D infill seismic data primarily over the southern area of the identified basin.
In Bulgaria, the early field performance from the Kaliakra and Kavarna fields has confirmed high reservoir productivities and the fields are currently producing at the planned plateau rate of 45 MMcfpd.
During the first few weeks of the year, production from Kavarna was intermittently interrupted due to the failure of subsea connections on a small diameter flow line used to inject glycol into the main gas pipeline connecting the field to the Galata platform. This resulted in the formation of a hydrate blockage in the gas pipeline which temporarily restricted production. The operational issue was fully resolved on 14 February after the replacement of the suspect connections using the GSP Prince diver support vessel. The combined fields' production rate over the six week period averaged 35 MMcfpd.
As of mid February, approximately four percent of both the Kaliakra and Kavarna initial gas in place estimates had been produced. It is therefore too early to provide an update to the field reserves since the rate of reservoir pressure decline relative to the amount of production is still stabilizing. It is anticipated that an accurate update will be available by mid year.
In Romania, the Company has finalized the terms of the Concession Agreements for the offshore Blocks 27 and 28 (Muridava and East Cobalcescu) with the Romanian National Agency for Mineral Resources and the agreements are being prepared for signature. Subsequently, they will be passed to the relevant Government Ministries for ratification.
The 7,500 kilometer 2D seismic survey on the Rhone Maritime concession has been completed by the Bergen Surveyor seismic vessel with an average density of one line per 2.5 kilometres over the entire block. The data will now be processed and interpreted with preliminary results likely to be available in the third quarter this year. As per the terms of the farm-in agreement signed with a subsidiary of Noble Energy Inc ("Noble"), Noble have assumed responsibility for physical operations on the concession in which Melrose retains a 27.5 percent working interest.
The Company will announce its results for the year ended December 31, 2010 on Wednesday, March 23, 2011.
Commenting on this report, David Thomas, Chief Executive, said, "Melrose had another strong year of production in 2010, which will be supplemented in 2011 by a full year's contribution from the Kaliakra and Kavarna fields in Bulgaria. The cash flow being generated by these fields, coupled with the proceeds from the recent US Permian Basin divestment, provides the Company with the capacity to pursue an increasingly active exploration and business development program and reduce financial gearing."
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