Galata Gas Development Project On Track

Melrose Resources has almost completed all of the detailed design work on both the onshore pipeline and the offshore platform on the Galata gas field development project. Contracts for the individual elements of the development project have been put in place pending final confirmation of the financing arrangements. Rights of way and environmental issues have been dealt with for all pipelines and it remains only to commit to the arrangements which have been set up with contractors for major materials acquisition and construction. All environmental matters have been fully addressed and the environmental program has been approved by the prospective lenders. The revised target for the first gas delivery to Bulgargaz is January 2004.

The terms for senior debt finance of up to $34 million from the Black Sea Trade and Development Bank and the International Finance Corporation for the development of the Galata gas field are close to being finalized. Provision of the funds will be conditional on meeting certain pre-conditions and the satisfactory completion of all of the loan documentation but it is hoped that this facility will be available for drawdown before the end of the year. In addition, terms are being finalized, subject to final approval, with the AIG Emerging Europe Infrastructure Fund for up to $22 million of mezzanine finance for the Galata development.

The exploration well on the Bogdanov North prospect on Block 91-III is now ready to drill and the drilling rig is expected to be on location in late October or soon thereafter. Should the well be successful, the 'most likely' reserves are expected to be of the order of 50 Bcf. A discovery of this size would create significant value for the Company and would greatly enhance the prospectivity of the remainder of Block 91-III. In addition to the existing prospects which offset the Bogdanov North structure, some of the leads in the north of the block have now been upgraded to prospect status with several prospective horizons in each.

All work obligations for the first exploration period of the Block Kaliakra 99 have been satisfied with eighteen months remaining. A need for the acquisition of new seismic over certain areas of the Concession has been identified and this will be commissioned in due course.