Melrose Reports First Gas from West Khilala

Melrose Resources plc, which has interests in Egypt, Bulgaria, the US, and France, on Friday issued the following trading update and reported on its 2006 production.

Development projects

First production on the West Khilala development project in Egypt was achieved on Monday 5th February. Production commenced at an initial rate of 34.1 MMcfpd but has increased steadily to a current level of 63.2 MMcfpd. Well performance is in line with expectations and is on track to achieve the target rate of 80.0 MMcfpd by the end of February. Further production equipment will be installed at the field over the next two months and a continuing appraisal and development drilling program of up to a further 4 wells is planned.

The West Dikirnis development project is now approximately one third complete and is still on schedule to achieve first production before the end of the third quarter of 2007.

Recent drilling activity

On the El Mansoura Concession in Egypt, the West Khilala No.3 development well was drilled as a production well on the northern flank of the West Khilala structure in the Qawasim formation. The well reached TD at 10,500 ft with the target reservoir encountered on prognosis with 82.5 ft of clean gas-bearing reservoir. The gas/water contact is in line with the three previous wells drilled on the West Khilala field and the reservoir quality, which is similar to the earlier wells drilled, is very good. The well is currently being completed and will be immediately placed on production. It will then be tested into the production facilities. The rig will then move to drill the West Khilala No.6 appraisal well, located down-dip of the structural crest. This well has been planned with the objective of increasing the calculated proved reserve volumes in the field.

Also on the El Mansoura Concession, the West Dikirnis No.7 appraisal well was drilled as a step-out well with the intention of proving additional oil reserves on the northern flank of the West Dikirnis structure. The well reached TD at 9,700 ft and encountered a gross vertical oil column of around 70 ft with up to 40 ft of net pay in high quality sand reservoir. The well is being completed and will be tested during the next week. The drilling rig will then move to the West Dikirnis No.3 development well location.

2006 production

Melrose's net production in 2006 totaled 25.4 Bcf of gas and 405.2 Mbbls of oil and condensate. Production from the Galata gas field in Bulgaria totaled 17.9 Bcf, an average production rate of 49.2 MMcfpd. The average realized gas price was $3.37 per Mcf. In Egypt, gross production from Melrose's properties totaled 16.8 Bcf and 362.9 Mbbls of oil and condensate. Average gross production rates were 46.0 MMcfpd and 994 bpd. Melrose's net production, which includes production of Merlon after the acquisition on 29th June, totaled 5.8 Bcf of gas and 137.4 Mbbls of oil and condensate, an average of 15.9 MMcfpd and 376 bpd. Average realized prices were $2.63 per Mcf and $58.10 per bbl. Melrose's production in the USA, which also includes production of Merlon from the acquisition date, totaled 1.7 Bcf of gas and 267.8 Mbbls of oil and condensate, an average of 4.7 MMcfpd and 734 bpd. Average realized prices in the USA were $6.30 per Mcf and $58.29 per bbl.

Current production

Current production in Bulgaria is approximately 33.0 MMcfpd, which reflects the production target for 2007 of 10.5 Bcf. Gross production in Egypt is currently approximately 92.8 MMcf of gas and 2,023 bbls of oil and condensate per day. Net entitlement production is approximately 41.7 MMcf and 910 bbls per day. In the US, current production is approximately 3.9 MMcf and 1,153 bbls per day.

Commenting on the recent drilling and production news, Robert Adair, Executive Chairman, said:

"First production at West Khilala has been achieved ahead of schedule and in line with budget, which is a great credit to the development team in Cairo. The West Dikirnis development project is now well underway with the major procurement orders placed. Our drilling focus in Egypt for the next few months will be on the continuing appraisal and development of the West Khilala, West Dikirnis and Salaka fields. We anticipate a very interesting exploration program in Egypt in the second half of the year. In Bulgaria we are finalizing arrangements for our exploration drilling program in the second quarter. In the US our explorationists are concluding a review of the US assets acquired with Merlon: our initial view is that there are several attractive drilling opportunities here also. 2007 promises to be an important year in Melrose's development."