Melrose Issues Ops Update, Revises Production Forecast

Melrose Resources plc, the oil and gas exploration, development and production company, on Friday provided an update on its exploration, development and production operations in Turkey, Bulgaria and Egypt and a revised 2011 production forecast.


Drilling operations have commenced on the South West Kanun-1 exploration well, which is located in southern Turkey on the South Mardin concessions in which Melrose holds 66.7 percent working interest. The well is expected to take approximately 75 days to drill and will test a four-way dip closed structure with oil potential in two geologic formations, namely, the Ordovician and the Cretaceous. The Ordovician has estimated gross unrisked P50 prospective resources of 27 MMbbl with a chance of success of 21 percent and the Cretaceous has prospective resources of 28 MMbbl with a chance of success of 17 percent. In the event of success, the well has the potential to open a new exploration play with significant follow-on drilling potential in the Company's licenses.


The Kaliakra and Kavarna gas fields have been on stream for six months and during this period the Company has monitored the production performance and reservoir pressure trends closely in order to update the field reserves estimates. Both fields continue to exhibit good production characteristics and are producing at a combined rate of 46 MMcfpd.

On the Kavarna field, the pressure data indicate that the production well (Kavarna-2) is in good communication with the entire reservoir and the ultimate proved plus probable reserves estimate has been increased to 27 Bcf, compared to the pre-production estimate of 25 Bcf. The reserves estimate for the adjacent Kavarna East field, which is scheduled for development in 2012, remains unchanged at 10 Bcf.

On the Kaliakra field, the pressure data suggest that the existing production well (Kaliakra-2) is in communication with gas contained in the central and eastern areas of the field. It appears that any gas contained in the western area of the field is either poorly connected to the wellbore or that the western area is structurally deeper than previously thought and may contain only minor gas volumes.

Further performance data and technical studies will be required to resolve the Kaliakra reservoir uncertainties and, in particular, additional modeling work is planned to re-evaluate the direct hydrocarbon indicators which are present on the seismic data over both the western and central areas of the field. Once this work is completed, the Company will be able to judge whether further reservoir appraisal drilling may be justified on the western flank of the structure. In the interim, a preliminary view of the ultimate reserves which may be recovered by the Kaliakra-2 production well alone is approximately 33 Bcf, compared to the pre-production full field reserves estimate of 49 Bcf.

The Kaliakra pressure data have no impact on the Company's exploration plans for the Galata concession which include drilling the Kaliakra East prospect, targeting unrisked prospective resources of 59 Bcf with a 34 percent chance of success, and the acquisition of 500 square kilometers of 3D seismic data in the central area of the license.


In late 2010, the Company acquired new 2D and 3D seismic data over the South East Mansoura concession to improve the definition of the Cretaceous oil play potential. The data quality is excellent and the preliminary interpretation has confirmed the presence of a number of robust structural prospects in the main play fairway. The Company is currently finalizing the seismic interpretation with a view to providing an update on the play potential and further details on the prospect selected for drilling in the third quarter.

The 2D seismic survey over the Mesaha exploration concession in southern Egypt is continuing and the data acquired so far (approximately 750 kilometers) has significantly improved the sedimentary basin definition. Based on the encouraging results, the size of the planned survey has been increased to around 1,600 kilometers and the acquisition program should complete in late June.

As previously reported, the North East Abu Zahra-1 gas production well experienced water breakthrough in December and subsequently the well rate declined rapidly until it ceased to flow in April. The Company now plans to drill a replacement production well in the field at the crest of the structure (the original well was located down-dip on the flank of the reservoir) after completing the current West Dikirnis horizontal well. This will result in the deferral of production but has no implications with respect to the field reserves.

Production Outlook

Based on operational considerations, the Company is reducing its 2011 production guidance from 44.0 Mboepd to 40.5 Mboepd on a working interest basis. This is primarily due to the recent North East Abu Zahra-1 well performance and the impact of the decision to initially complete the latest West Dikirnis horizontal producer as a vertical well coupled with other minor production variances.

Commenting on the update, David Thomas, Melrose's Chief Executive said:

"The results of the Kaliakra reservoir pressure surveys will require further technical analysis before we fully understand their implications but in the interim we remain encouraged by the strong production performance from both the new fields. We are also pleased to have spudded the South West Kanun-1 well in Turkey, which has the potential to open up an important new exploration play, and are looking forward to progressing our other exploration initiatives in Egypt, Bulgaria, Romania and France."