Melrose Resources Sees Excellent Results from Two Egyptian Wells

The West Khilala No.2 well has been drilled to a depth of 10,400 feet using the PD-104 Rig. The Abu Madi Level II reservoir section was encountered high to prognosis and was cored. A single sand interval was encountered from 9,925 ft to 10,090 ft and the gas/water contact established at 10,053 ft giving a gross hydrocarbon column of 128 ft (122 ft net). Wireline sampling and pressures have confirmed the fluid contact. The log data are being incorporated into a re-evaluation of the field and four further appraisal drilling locations will be identified as a matter of priority. The gas reserve estimate will be updated following testing and it is very likely that the reserves will be increased as a result of this well. Questions over the sizing of the production facilities, required to produce the increasing estimates of reserves, have delayed the development but we have now committed to an 80 MMcfpd process start up facility and capacity can be increased in units of 40 MMcfpd as required.

The West Dikirnis No.2 well has been drilled to a depth of 8,570 ft using the EDC-09 rig. The whole of the Qawasim reservoir section was cored and a single sand unit was encountered from 8,266 ft to 8,415 ft (149 ft gross). The interval from 8,266 ft to 8,398 ft (138 ft) is a hydrocarbon charged reservoir with the water contact interpreted at 8,398 ft. The West Dikirnis No.1 discovery well encountered three reservoir units with total net pay of 101 ft. The high liquid hydrocarbon yields expected from this field make the planning of production facilities more complicated and the test results from the No.2 well will provide important information for the sizing of the process plant.

The ECDC-1 rig has been moved to the SW Tamad No.1 location and is expected to spud the well shortly. The well is targeting an anomaly in a fault block adjacent to the producing El Tamad structure.

Commenting on this, Robert Adair, Chairman, said:

"The West Dikirnis and West Khilala appraisal wells have both delivered excellent results. In both wells we have encountered thicker and better reservoir sections than the original discovery wells which should work through to sizable reserves additions. In both cases, the identification of further seismic anomalies on trend with these discoveries is well advanced. In the short term we will be putting effort into the evaluation of further appraisal/development locations for these fields.

It is very significant that the initial interpretation of the new 3-D seismic data acquired over the last fifteen months is now being reflected in our recent exploration success. We are now able to target prospects which are deeper and larger than the more obvious but relatively small Pliocene anomalies on which we had previously largely concentrated. We will now be extending our interpretation of the new 3-D seismic over the east of the concession where a large area is still relatively unexplored. I expect our exploration program to gain further momentum and I am confident of continuing exploration success in 2006.

Following completion of the proposed acquisition of Merlon Petroleum and the assumption of operatorship of our Egyptian interests a key objective for Melrose will be to access higher gas prices. With the increased reserve and production potential on our concessions our goal will be to obtain pricing for new discoveries based on a netback of LNG prices which will give a significant premium over our current gas sales price in Egypt which is $2.50-$2.65 per Mcf."