Melrose Reports Egyptian Discovery

Melrose Resources plc, the exploration and production company with interests in Egypt, Bulgaria, France and the US, on Monday issued the following update of exploration and development activity on the El Mansoura Concession located in the Nile Delta in Egypt. Melrose has a 100% working interest in the El Mansoura Concession.

Drilling activity

The West Dikirnis No.4 appraisal well was drilled to prove the presence of oil downdip to the north of the proven West Dikirnis structure. Around 52 ft of oil bearing reservoir was successfully encountered: this was above expectations and will confirm a large increase in the proven reserves volume and, possibly, total reserves. The well has now been successfully tested. Four flow periods of increasing choke sizes were carried out and a maximum oil rate of 1,930 bopd was achieved on a 32/64th choke at a well head pressure of 1,550 psi. The well holds further potential: the top section of the reservoir, which exhibited excellent characteristics, was not perforated in order to avoid premature gas cap coning but perforations can be added in the future to increase production. The well has been temporarily shut-in as a planned producer and the rig will be released to move on to the West Dikirnis No.7 step-out appraisal well.

The West Dikirnis No.2 well has been retested as the initial test of 2,200 bopd through a 24/64th choke at a well head pressure of 1,960 psi was limited by the test facilities. The well flowed 5,075 bopd on a 51/64th choke at a well head pressure of 1,658 psi. This test confirmed the exceptional productivity of the well and the reservoir in this part of the field.

The West Khilala No.4 development well was drilled as a production well near the crest of the West Khilala structure in the Qawasim formation. The well reached TD at 10,400 ft and the target reservoir was encountered on prognosis with 92.5 ft of clean gas-bearing reservoir and with the gas/water contact in line with the two previous wells in the field. Reservoir qualities are very similar to the earlier wells drilled. The well is currently being completed and will then be tested and ready for production. The rig will then move to drill a further West Khilala appraisal well. A number of step-out appraisal well locations, away from the central part of the structure, are planned over the next few months with the objective of increasing the proven reserve volumes in the field.

On the El Tamad oil field, the El Tamad No.7 appraisal well was drilled to 7,100 ft and has been tested and completed as a producer. The target oil zone in the Sidi Salim formation was encountered on prognosis. The well was perforated and flowed at 860 bopd and 870 Mcfpd on an 18/64th choke with a well head pressure of 1,372 psi. The El Tamad No.4 appraisal well was then drilled. Two separate pay intervals were identified and this well has been perforated and tested. The well flowed at 866 bopd and 182 Mcfpd on an 18/64th choke at a well head pressure of 1,167 psi. These two wells extend the successful development of the Tamad field and will be put on production.

The SW Nabarouh No.1 exploration well, targeting the Qawasim formation, was drilled to a depth of 9,700 ft. Reservoir rock, which was found in a number of zones, contained only water and the well has been plugged and abandoned.

The Dimyarah No.1 exploration well was drilled with dual targets of an amplitude anomaly in the shallow Kafr El Sheik formation and a deeper structure in the Abu Madi. The Abu Madi objective was not successful but the well encountered around 41 ft of section in the Kafr El Sheik and was tested at 6.6 MMcfpd on a 24/64th choke and a well head pressure of 2,019 psi. Some of the remaining Kafr El Sheik section has been identified as having low-resistivity characteristics. A long-term production test is planned to provide further information about this reservoir. This unconventional reservoir is widely present on the concession and a successful test here would have favorable implications for reserve potential elsewhere.

Field development activity

On the West Khilala development project, the development site is complete and construction is underway. The main items of process equipment are now en route and the development is on schedule for first production in the first quarter of 2007. Initial gross production volumes are expected to be at least 40 MMcfpd but a production level of 80 MMcfpd is targeted by the second quarter of 2007.

Engineering design is well advanced on the West Dikirnis development project and the main construction contracts have now been awarded. The development is on schedule for first production in the third quarter of 2007 at a target gross field production rate of 10,000 bopd. The production facilities are being designed to accommodate the larger volumes that should result from continuing success in appraisal drilling over the next few months.

Development of the Salaka gas field is underway with first production expected in the first quarter of 2007 at a rate of around 9 MMcfpd. A further well may be drilled in this area in 2007.

The Turbay No.1 and Tummay No.1 wells have now been hooked up to the El Tamad facilities and will shortly start producing with combined potential of around 15 MMcfpd and 100 bcpd.

The Rawdah No.1 gas well has now been connected to the South Mansoura facilities and is expected to start production at around 10 MMcfpd after final approvals have been received.

On the South Batra field, remedial work on the South Batra No.14 well has reduced the water rate and restored gas production. This technique may be applicable to other wells in the field. In addition, a full geological and reservoir engineering study is underway to better understand the field reservoir extent and characteristics. The results of this will become available over the next few months and will influence drilling strategy and remedial works in this field in 2007.

Commenting on this, Robert Adair, Executive Chairman, said:

"Our drilling success rate continues to be very impressive. The successful exploration wells set up further plays and drilling locations for next year and the success of the West Dikirnis No.4 oil well is very significant in terms of adding to our proven reserve base. It is also important as it has added to our oil reserves. The successful West Khilala No.4 well has confirmed our confidence in this impressive field.

"Our explorationists are currently starting to interpret the recently-processed 3-D over the central and southern area of the El Mansoura concession and further 3-D acquisition is planned for 2007. I remain confident that there is significant exploration upside remaining on the concession, both in unexplored areas and in deeper horizons. I am encouraged that our development projects are on track - these are set to bring a major increase in production through 2007."