Melrose 'Pleased' with Texas Exploration Projects

Melrose Resources' exploration and appraisal drilling program near Lake Houston, East Texas, has commenced with the successful drilling of the Johnson No.1 appraisal well on the Van Riet field.

The well was drilled into an untested fault compartment to the east of the main field area and encountered 48 feet of net gas pay in the main Van Riet formation. Open hole log and downhole sample data indicate that the formation is productive and the well will be tied back to the local gas transmission infrastructure for immediate production. The net proved plus probable reserves estimate for the well is approximately 4 billion cubic feet of gas ('Bcf').

The drilling program will continue in late January with the drilling of the Holmes No.4 appraisal well, which is located on the undrilled western flank of the Holmes structure, 1.4 kilometers west of the crestal production wells. The Holmes No.4 is targeting net unrisked reserves of 9 Bcf and has an estimated chance of success of 44%.

Plans are also being prepared to drill an exploration prospect in the Wilcox formation on the Company's acreage in the area around mid year. The prospect has estimated net reserves potential of approximately 30 Bcf and a chance of success of 20%.

Melrose is planning to invest approximately $50 million over the next two years to pursue infill drilling and waterflood projects in its Permian Basin fields which are located in West Texas and East New Mexico. The projects are initially targeting the development of 11 million barrels of net proved undeveloped oil reserves and are also expected to result in reserves increases.

Investment in the projects has already commenced with various facilities and flow line upgrades and a drilling rig is being contracted to start a continuous drilling programme on the Jalmat field in late January. A second rig will be contracted to commence work on the Turner Gregory field before mid year with drilling on the Artesia field planned to commence in late 2008.

The development projects will involve the drilling of approximately 120 new production or injection wells with around 40 well conversions. When the investment programme is complete, the average well spacing in all the fields will be approximately 20 acres with fully defined pattern waterfloods in place throughout out the development leases.

"We are very pleased with the results from the first well in the Company's drilling program in East Texas, where additional reserves have significant value due to the strong gas prices currently being experienced in the US," said Chief Executive Davif Thomas. "There is considerable upside potential in this area. "We are also looking forward to starting the infill drilling and secondary recovery program to further develop our Permian Basin oil reserves and Melrose will be pursuing this project with vigour."