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West Dikirnis Phase II Development Completed

Source: www.gulfoilandgas.com 8/17/2010, Location: Africa

During the first half of 2010, Melrose continued its active exploration and development work programme on its Egyptian acreage comprising the Mansoura, South East Mansoura and Qantara concessions onshore in the Nile Delta and the frontier Mesaha exploration concession in southern Egypt.

Production performance remained strong and during the first half averaged 39.2 Mboepd on a working interest basis, comprising 188.6 MMcfpd of gas and 6.6 Mbpd of oil, condensate and LPG. Net entitlement production averaged 15.4 Mboepd. The production was underpinned by contributions from our two main fields in the Mansoura concession, namely, West Khilala and West Dikirnis which had a combined average production rate of 24.0 Mboepd. The remainder of the production was obtained from eleven smaller fields, seven of which are in the Mansoura concession, three in South East Mansoura and one in Qantara.

Development activity focused on the implementation of Phase II of the West Dikirnis development plan which consists of drilling a number of horizontal wells and installing Liquefied Petroleum Gas ("LPG") recovery and Gas Re-injection ("GRI") facilities in order to maximize the recovery of hydrocarbon liquids from the field before ultimately converting it to gas production. The LPG fractionation plant was completed and commissioned in the first quarter 2010 and is currently producing around 43 tonnes of LPG per day and an incremental 550 bpd of condensate. Given the success of the plant to date, the Company is considering expanding the facilities to incorporate a refrigeration unit to maximize LPG recovery. The GRI facilities are now complete and around 20 MMcfpd of gas is currently being re-injected in to the reservoir. These two projects are designed to maximize the recovery of hydrocarbon liquids from the field but they also have a very significant positive impact on the environment since they have eliminated the need to flare gas at the West Dikirnis plant.

The Company is continuing to pursue a very active reservoir management programme in both the West Khilala and West Dikirnis fields and is planning to install compression facilities at West Khilala during 2011 to maximize the gas recovery. At West Dikirnis, it is planned to drill additional horizontal wells in the field in 2011 and 2012 based on the results of geologic and reservoir modeling studies.

Two new fields have been brought on stream in Egypt during the first half of the year. The first of these was South Damas, which was discovered in the South East Mansoura concession in February 2010. The discovery well encountered some 76 feet of net gas pay and the preliminary reserve estimate is 30 Bcf. The well has been tied back to the South Batra production facilities via the Damas field manifold and commenced production in June 2010. This represents a good illustration of the Company's ability to fast track discoveries onto production in Egypt utilizing the existing facilities and pipeline infrastructure at minimal cost (the unit development cost was an attractive 11 US cents per Mcf). In addition, in April 2010 a shut-in production well in the Salaka field was recompleted into a new untapped reservoir interval in the Kafr El Sheik formation with a net gas pay of 27 feet and estimated reserves of approximately 3 Bcf.

In parallel with this development activity, Melrose is pursuing an exploration strategy designed to produce a strong inventory of drilling prospects to sustain production and reserves in future years. In contrast to the Mansoura concession, the South East Mansoura concession is relatively under-explored and contains both Tertiary deltaic prospects in its northern area and Cretaceous prospectivity in the central area of the block. In the second half of 2010, Melrose plans to acquire a further 360 km2 of 3D seismic data and 160 km of 2D seismic data over this concession, increasing the 3D seismic coverage to almost 50 percent of the block area. The seismic campaign will focus on a geologic trend containing a number of Cretaceous oil leads which have been partially defined by previous seismic surveys and have unrisked resource potential of 70 MMbbl.

A 1,047 kilometre 2D seismic survey has also been acquired over the Mesaha frontier exploration concession in southern Egypt and the data has been processed and interpreted. Although the initial survey results were slightly disappointing, as the data analysis progressed the results became more encouraging and the overall basin architecture now appears consistent with the findings of earlier gravity and aeromagnetic surveys. In light of this, the work program in Mesaha in 2011 will include an infill 2D seismic program over the most promising area of the basin.

We are currently planning to recommence our exploration drilling program in the Nile Delta in the fourth quarter of 2010 and expect to complete one well on both the Mansoura and South East Mansoura concessions by year end. The first of these will test the Sakr prospect which has prospective resources of 32 Bcfe and a chance of success of 61 percent. The second well will target the South East Dikirnis prospect which is located close to the East Dikirnis field which was discovered in 2009 and is pending development. South East Dikirnis has prospective resources of 16 Bcf of gas and 1 MMbbl of oil and a chance of success of 32 percent. In the event of success, the discovery would be developed at the same time as East Dikirnis using a common flow line to tie both accumulations back to the South Batra plant.

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