Melrose Resources Increases Exploration Budget for 2004

Melrose Resources gives the following update of production and exploration activity in Bulgaria.

Galata Field production

As previously announced, the Galata field commenced production on 5 June 2004. Total production for the month of June was 536 MMcf and for July was 1,342 MMcf. The average price received for production in June and July was $2.75 per Mcf. Each of the two production wells has been flowed individually at the full required winter production rate of 60 MMcfpd. Current production from the field is 60 MMcfpd which compares with the expected summer delivery rate of 21 MMcfpd. This higher rate is expected to be maintained for the rest of this year and budgeted sales volumes for 2004 are now approximately 10.5 Bcf. Contracted sales volumes for 2005 are not less than 14.1 Bcf.

2004 exploration program

Melrose has increased its exploration budget for 2004 by committing to acquire over 1,450 km(2) of new 3-D seismic over parts of Block 91-III and Block Kaliakra 99 at a cost of around $6 million. The main focus of the 3-D survey is the area of the Oligocene channel which extends from Block 91-III into Block Kaliakra 99 and in which some interesting structures have already been identified from 2-D seismic. Following interpretation of the new seismic, it is expected that a well to test a structure in the Oligocene will be drilled in the second quarter of 2005. The trend may also have potential in the Eocene and Palaeocene as identified on 2-D seismic. The 3-D seismic will also cover the Galata trend and the area of Block Kaliakra 99 around the Samotino More well, which was drilled in 1986 and tested gas and condensate in the Eocene.

The Varna West exploration well on the Galata trend in Block 91-III is expected to commence drilling in the first half of September. A second exploration well, which will be drilled immediately after Varna West, will be either a second well on the Galata trend or a multi-horizon prospect in the northern part of Block 91-III.

The Block Kaliakra 99 license has recently been extended for a two-year period to May 2006 and an application has been submitted for a one-year extension of the Block 91-III license to October 2005.

Commenting on this, Robert Adair, Chairman, said:

'I am very pleased that we have managed to get production up to the maximum required rate so quickly and that we have secured additional gas sales in the summer months through a second offtake agreement.

The forthcoming exploration program is very exciting. Because of the availability of a suitable 3-D seismic vessel in the Black Sea, we have decided to acquire 3-D seismic before drilling a well to test the larger, deeper structures which we have identified in the Oligocene channel. If we are fortunate enough to have success in the Varna West exploration well, the immediate impact would be material. In addition, the prospectivity of further structures in the Galata trend would be enhanced.'