Melrose Reports Completion of Egyptian Well

Melrose Resources plc on Monday said that the West Khilala No.2 well in the El Mansoura Concession in the Nile Delta, which was drilled to 10,400 feet using the PD-104 rig, has been tested and completed as a producer.

The Miocene sand interval was encountered from 9,925 to 10,090 feet, and the gas/water contact established at 10,053 feet gave a gross hydrocarbon column of 128 feet (122 feet net). The intervals perforated were from 9,925 to 9,959 feet and 9,969 to 9,983 feet (48 feet total). The well flowed at 25 MMcfpd and 75 bcpd on a 36/64th choke and at flowing well-head pressure of 3,700 psi.

Melrose said that the test data are being incorporated into a re-evaluation of the field, adding that four further appraisal drilling locations are being identified; two wells will be drilled as soon as possible.

Melrose has committed to an 80-MMcfpd start-up process facility, with the equipment to be delivered and installed and a 15-kilometer pipeline constructed over the next six months. Process capacity can be increased in units of 40 MMcfpd as required (contingent upon future appraisal drilling results). First production is targeted for January 2007.

Also, as previously announced, the West Dikirnis No.2 well was drilled to a depth of 8,570 feet using the EDC-09 rig and has also been tested and completed as a production well. A single sand unit was encountered from 8,266 to 8,415 feet (149 feet gross). The interval from 8,266 to 8,398 feet (138 feet) is a hydrocarbon-charged reservoir with an oil column from 8,325to 8,397.5 feet (72.5 feet net)--and with the water contact interpreted at 8,398 feet. The well was perforated from 8,357 to 8,377 feet and flowed at 2,234 bopd with 2.25 MMcfpd at on a 24/64th choke and flowing well-head pressure of 1,970 psi. It is estimated that the well could be produced at up to 9,000 bopd through the existing 31/2' tubing completion.

On the basis of the current most likely gas and oil in place estimates of 177 Bcf of gas and 70 MMbbls of oil and condensate, an outline fast track development plan has been adopted. Liquid recovery factors will be derived from modeling work still in progress; but, a minimum figure of 40% recovery for the oil should be expected. Gas and oil (two-phase) production will be flowed back to the existing South Batra process plant through a 20-kilometer, 10' pipeline. A 6' pipeline will also be constructed with the 10' line in order to provide options should separation facilities be required at the production site and separate gas/oil export lines be required in the future.

The existing South Batra plant will be modified to accept up to 30,000 barrels fluid per day (20,000 bopd and 10,000 bwpd) plus associated gas. Two firm plus two contingent development drilling locations have been identified and the firm locations will be drilled before the end of Q2 2007 as part of this plan. First production from the field is targeted for July 2007.

The development of the Salaka gas/condensate discovery is now well underway. Production will be processed at the nearby South Mansoura plant, with most of the equipment required coming from South Batra (where the plant is being modified to take West Dikirnis production) and Mansouriya (which is now tied directly to the South Batra gathering system). The development plan anticipates production from two wells at a combined rate of 25 MMcfpd and 300 bcpd. First production is targeted from the existing well for November 2006 at 13 MMcfpd and 150 bcpd.

The West Abu Khadra No.1 exploration well was drilled using the EDC-9 rig to a TD of 10,642 feet. A gas column was encountered in the target Abu Madi level II horizon at 9,785 to 9,870 feet in a fluvial channel reservoir section similar to the Abu Madi sections in the South Batra field. In light of the experience gained at the South Batra field, it is believed that drilling horizontal drainholes from the outset may significantly improve recoveries in this type of reservoir. The West Abu Khadra well was, therefore, suspended while this option is further evaluated. The West Abu structure will be re-mapped, integrating the West Abu Khadra well data, as will the much larger East Abu Khadra structure, which is scheduled to be drilled in October.

The ECDC-1 rig was used to drill two shallow Pliocene exploration wells in the south of the El Mansoura concession. Both the Shawa No.1 and the SW Tamad No.1 wells were plugged and abandoned. The rig has been moved to the Tamad No.3 location, and the well is currently drilling the surface hole at 3,000 feet. This is a development well being drilled from the Tamad No.1 location, where the existing production facilities are located. It is expected to add around 500 bopd production.

Field performance to date has been very encouraging, with only a 30-psi pressure drop for 80,000 barrels of oil (plus associated gas) recovered. A second drill pad is being prepared to the east of Tamad No.1. The Tamad No.4 development well will be the next well to be drilled from this pad, with the ability to drill the anticipated No.5 and No.6 wells from the same pad.

“Evaluation of the West Dikirnis and West Khilala appraisal well test results has confirmed the initial expectations for these fields,” said Robert Adair, Melrose’s chairman. “We will select further appraisal/development well locations for these fields as part of fast-track development programs. The equipment for West Khilala is already starting to be delivered, and first equipment orders for West Dikirnis will be issued in the coming weeks.”

Adair added that aggregate production from West Dikirnis and West Khilala on the initial evaluation is expected to be approximately 100 MMcfpd and 10,000 bopd by July 2007, with the potential to increase to 140 MMcfpd and 20,000 bopd by year’s end. “This represents a step change in the production profile from our Egyptian operations, and the contribution of significant liquids production is particularly meaningful for value and cash flow.”

“The Shawa and SW Tamad well results were disappointing, but these were low-impact Pliocene locations,” added Adair. “In (the) future we will be concentrating use of the shallow rig on the Sidi Salim oil trend. The exploration success rate may be lower than our average to date, but it is expected that we will make more Tamad-type oil discoveries. The performance of the Tamad Field has been solid and has provided the basis for a steady development/appraisal program planned for the next twelve months.

“The West Abu Khadra discovery is within the established Abu Madi trend and will bring with it some development challenges as the reservoir is apparently relatively low permeability and with a higher condensate yield: this is a combination which has caused difficulties at South Batra. The full potential of the Abu Khadra area will depend upon the outcome of the exploration well to be drilled on the much larger East Abu Khadra prospect. We will now push ahead with testing new production techniques on the existing South Batra wells and we will apply any lessons learned to the development of new discoveries in the Abu Madi play. Development of the Salaka discovery, announced earlier this year, should be more straightforward: the exploration well encountered relatively thick reservoir intervals with more modest condensate yields of 13 bbls/MMcf.

“The acquisition of Merlon Petroleum and the assumption of operatorship of our Egyptian interests has now been completed. We look forward to working with our new colleagues in Cairo and to embarking on further successful exploration and production operations with them.”