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Morningstar Inc | TG:MRS | Tradegate | Ordinary Share |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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2.00 | 0.67% | 300.00 | 300.00 | 302.00 | 300.00 | 300.00 | 300.00 | 1 | 18:43:34 |
RNS Number:0849J Melrose Resources PLC 24 March 2003 FOR IMMEDIATE RELEASE 24 March 2003 Melrose Resources plc Preliminary Announcement of Results for the year ended 31 December 2002 Melrose Resources plc, the oil and gas exploration and production company with interests in Bulgaria, Egypt and USA, today announces its preliminary results for the year ended 31 December 2002: HIGHLIGHTS Significant developments * Significant exploration success on El Mansoura Concession; * First production from South Bilqas development; * Galata development finance contracts signed and development underway; * Disposal of Wyoming Ethanol; Financial summary * Turnover of #7.1 million (2001 - #14.2 million); * EBITDA of #0.5 million (2001 - #3.4 million); * Loss on ordinary activities after taxation of #2,232,000 (2001 - #415,000 profit); * Rights Issue to raise up to #14 million to reduce borrowings and provide additional working capital; * Pro-forma net asset value per share of #2.88 (2001 - #2.56). Commenting on this, Robert Adair, Chairman, said: "During the last year we have made significant progress both in Bulgaria and in Egypt. Commencement of development of the Galata Gas Field is a major step forward which will transform the Group's earnings profile from 2004 onwards and, in Egypt, we have now established two significant exploration plays which should start to contribute significantly to earnings this year. The South Batra discovery is particularly exciting and of great significance. The current share price represents a very substantial discount to the appraised net asset value of the Company and, in my view, does not yet reflect any of the upside value from these discoveries in Egypt. I am looking to the future with great confidence and excitement." For further information please contact Melrose Resources plc Robert Adair, Chairman 0131 225 6678 David Curry, Chief Executive 0131 225 6678 Chris Thomas, Corporate Development Director 0207 462 1600 Binns & Co PR Limited Judith Parry/Sophie Morton 0113 242 1171 CHAIRMAN'S STATEMENT Over the last 18 months we have achieved some major milestones in our objective to firmly establish Melrose as an exploration and production company and the future for the Group looks very exciting. Egypt We now have two successful exploration plays on the El Mansoura Concession. The South Bilqas Field discovery well was drilled and tested in January 2002 and was brought onto production in December 2002 at a rate of 12 MMcfpd. This is the first production from the El Mansoura Concession and established the multi-prospect shallow Pliocene "bright spot" play. The prospects that have been identified are individually relatively small in the context of the Nile Delta, but they can be developed and brought onto production quickly and for a relatively low cost. The South Mansoura No. 1 well was drilled in March 2003 and encountered a good pay zone in the Kafr El Sheikh, Pliocene formation, which confirms our interpretation of this type of seismic anomaly. Total gross reserves from these two discoveries are estimated to be 60 Bcf. Another 22 Pliocene prospects with significant cumulative reserve potential are now being re-evaluated. Perhaps even more importantly, the success of the South Batra No.1 well which was drilled in January 2003 has now established that the prolific Abu Madi channel sand extends into the El Mansoura Concession. The well encountered approximately 75 ft (net) of good quality reservoir in Level III of the Abu Madi formation and confirmed the presence of gas and condensate. The Level III reservoir section has been tested and flowed at rates of up to 31.2 MMcfpd and 560 bcpd. Approximately 110 ft (gross) of poorer gas-bearing reservoir was also logged in Level II of the Abu Madi but this was not tested as reservoir quality is believed to be better developed at other locations on the structure. Well data from this discovery is now being re-integrated into the prospect evaluation in order to establish a more precise reserve volume, but further drilling will be required to better evaluate the full upside potential of this accumulation. Initial estimates indicated potential of 215 Bcf GIIP, but the Level II and Level III sands have now been mapped over much larger areas. If further drilling confirms these areas, GIIP in the two zones combined could exceed 600 Bcf. The South Mansoura No.1 well, currently drilling, is now being deepened to test this formation. A number of prospects within the Abu Madi channel system, offsetting South Batra and elsewhere on the concession, are also being re-evaluated. In Qantara, we have a much better understanding of the deep Tineh and Qantara sands following recent work and the Qantara No.7 well should be drilled this year. This well will also test the new mid-Pliocene play established successfully on the El Mansoura Concession. Bulgaria In November 2001 we entered into a gas sales contract for the Galata Gas Field and, in November 2002, the final hurdle in the commercialisation of this discovery was cleared when we secured project financing of $54 million for the development of the field and for transportation infrastructure. Development of the field is now underway and many of the major procurement and construction contracts have been awarded. First gas production is scheduled for January 2004. Bringing this field onto production will transform the Group as we have a 100% working interest in this field and average daily production is expected to be in excess of 40 MMcfpd. Our exploration efforts on Exploration Block 91-III to identify additional gas reserves to produce through the Galata facilities are ongoing. The Bogdanov North exploration well drilled in January 2003 encountered a thicker reservoir section than that encountered in the Galata Gas Field, but there were no gas shows and the well was plugged and abandoned. There is clear evidence of an active hydrocarbon system in this area of the Black Sea and the remaining Galata "look-a-like" prospects are now being re-evaluated in the light of the thicker than expected reservoir encountered. In the northern area of the Block, seven shallow prospects have been identified on seismic with up to four zones on each structure and these are being evaluated. On Exploration Block Kaliakra 99 a number of promising structures have been identified and the acquisition of additional seismic data is currently being considered. USA Development activity in the USA during 2002 was restricted to workovers, with the emphasis on improving field operations and reducing operating costs. No new wells were drilled during the year, but the workover programme generated incremental reserves at a low replacement cost and operating costs also reduced by 10% compared to 2001. A further drilling programme is being scheduled for 2003. The non-core ethanol production and distribution business was disposed of during the year for a deferred consideration of $3.625 million. Rights Issue With funding for the Galata project secured, in January 2003 we announced a discounted rights issue at 50 pence per share to raise up to #14 million. My family trusts agreed to take up their entitlement of approximately #9.3 million and, as at 21 March 2003, a further #2.0 million of rights had been taken up by other shareholders. Outlook for 2003 and beyond I am looking to the future with great confidence and excitement. Development of the Galata Gas Field is a major step forward for the Company and it will transform the Group's earnings profile from 2004 onwards. Surplus cash flow generated from this project will be available to continue to develop the Group's other core assets. We expect that the South Batra No.1 and South Mansoura No.1 wells can be brought onto production during 2003 and our efforts in Egypt will concentrate on these established Pliocene and Abu Madi plays. As indicated in the Rights Issue document we hope to commence payment of dividends in 2005 based on the results for the 2004 financial year. The current share price represents a very substantial discount to the appraised net asset value of the Company and, in my view, does not reflect any of the upside value from exploration potential, especially the two significant exploration plays recently established in Egypt. Once the rights issue has closed, I would hope that the increase in underlying asset value and our further upside potential will start to be reflected in the share price, but in the meantime we will continue with our efforts to enhance shareholder value. R F M Adair Chairman 24 March 2003 REVIEW OF OPERATIONS Egypt The Group's interests in Egypt are located onshore in the Nile Delta area, which is emerging as a highly productive and prospective hydrocarbon province. El Mansoura Concession The exploration focus on this concession has been on the multi-prospect shallow Pliocene play and the extension of the late-Miocene, Abu Madi channel sand system from the north. Significant progress has been made on both fronts over the last 12 months. South Bilqas Field development The South Bilqas Field was discovered in January 2002 by the El Mansoura No.3 exploration well which was drilled to test a Pliocene seismic "bright spot". The well reached a total depth of 6,497 ft and encountered 37 ft of good quality reservoir sand in the Kafr El Sheikh formation. The well was successfully tested and flowed dry gas at a rate of 22.8 MMcfpd on a 48/64ths fixed choke with a surface flowing pressure of 1,580 psi. A Development Lease was approved by EGPC in October 2002 and production commenced in December 2002 at a rate of approximately 12 MMcfpd. The gas is transported to a valve station on the nearby national trunk line by a newly constructed 22 inch, 2.5 km pipeline. The Field is currently producing at a rate of 11.3 MMcfpd (2.7 MMcfpd net to Melrose). The structure will be depleted by the El Mansoura No.3 well and no further appraisal drilling will be necessary. . Pliocene prospectivity The South Bilqas Field has confirmed the existence and commerciality of the Pliocene "bright spot" play on this concession and seismic reprocessing, in association with the calibration of the seismic interpretation following the drilling of the North Talkha No.1 and Dikirnis No.1 wells in 2002, has further enhanced the understanding of this play. The North Talkha No.1 well, which encountered significant gas shows, was drilled on a saddle between two structural highs and it is believed that these highs may be separate gas accumulations. There is also a deeper structure at 7,000 ft analogous to the South Bilqas discovery, which could not be tested by the shallow drilling unit being used. The well has been suspended pending further operations in the future. The Dikirnis No.1 well, which was drilled to define the hydrocarbon potential of a strong seismic anomaly within the Pliocene Kafr El Sheikh/El Wastani sequence, was plugged and abandoned as a dry hole. Analysis of the results of these two wells combined with the El Mansoura No.3 discovery well has provided the means to distinguish between gas-generated seismic anomalies and anomalies due to lithology and a complete re-interpretation of the Pliocene prospect inventory is being undertaken. The Pliocene play enjoys a high success rate in the basin, especially the deeper Kafr El Sheikh, with prospect reserve estimates similar to those of the South Bilqas Field. In addition to the South Bilqas discovery, nine El Wastani and five Kafr El Sheikh prospects have been mapped in the early-Pliocene within the concession and further geophysical evaluation is ongoing. Two prospects, the South Mansoura No.1 and the Mansouriya No.1 have been identified to the south of the South Bilqas Field. The South Mansoura No.1 well, located 10 km south of the South Bilqas discovery, spudded in February 2003 and has encountered a Kafr El Sheikh section. Wire-line logs indicate a gross mid-Pliocene reservoir interval of over 200 ft with 31 ft of excellent quality reservoir. The remaining section, comprising interbedded sands and shales is also expected to contribute to reserves and production. Most recent estimates indicate most likely reserves of 45 Bcfe gross. As many of these Pliocene prospects are located close to the main national gas trunk line, a low cost development plan can be employed to achieve early production. Two early-Pliocene prospects have been identified on the eastern part of the concession as a result of a "missed pay" evaluation on the old electric logs. The "K" prospect is penetrated by the Tarif-2A well drilled by Conoco in 1982 to investigate a deeper Tineh objective. The electric logs show two 50 ft gas bearing sand intervals in the Pliocene at around 2,800 ft and 3,050 ft depths. The "L" prospect (now named Mit Hadid) is penetrated by the East Delta-4 well. In this case the logs show a 23 ft gas sand interval in the Pliocene at 3,380 ft depth. The Abu Monkar and Sherbean discoveries in the El Manzala Concession to the east, where reserves of 110 Bcf have been proven, further enhance the prospectivity of the Pliocene "bright spot" play on the eastern side of the El Mansoura Concession. South Batra discovery The South Batra No.1 well was drilled in January 2003 to test a prospect in the late-Miocene, Abu Madi formation offsetting a recent discovery by Petrobel in the adjoining East Delta concession. The South Batra No.1 well reached a TD of 10,300 ft and wireline logs indicated 151 ft gross (74 ft net) of good quality reservoir in Level III of the Abu Madi formation and confirmed the presence of gas and condensate. The Level III reservoir section has been tested and flowed at three test rates from 17.8 to 31.2 MMcfpd and up to 560 bcpd (separator restricted). Approximately 110 ft (gross) of gas-bearing reservoir was also logged in Level II of the Abu Madi but it was decided not to test Level II in this well, as the better quality reservoir section is believed to be much thicker at other locations on the structure. The logs indicated up to 10 ft gross of clean sandstone reservoir at the bottom of this interval and an upper shaly section which is similar to the laminated shale/sand reservoir sections which produce in the offshore Nile Delta fields. Well data is being re-integrated into the prospect evaluation in order to establish a more precise reserve volume and also to evaluate further a number of offsetting prospects within the Abu Madi channel system. Further drilling will be required to better evaluate the full upside potential of the South Batra gas and condensate accumulation. Initial estimates indicated potential reserves of 150 Bcf gross (215 Bcf GIIP) with considerable upside potential which is currently being evaluated. The Level III sand has now been mapped over 20 sq km. and the Level II sand mapped over 40 sq km. If further drilling confirms the extent of these reservoirs, GIIP in the two zones combined could exceed 600 Bcf. An application has been made to EGAS to convert an area surrounding the South Batra discovery into a Production Lease and negotiations are currently in progress. Late-Miocene, Abu Madi prospectivity The Abu Madi channel sand reservoir is a regionally acknowledged play, established by the larger onshore Abu Madi field to the north and the East Delta Field in the central part of the concession. The South Batra discovery now confirms the extension of this play further south and there could be as many as another five Abu Madi prospects and leads on the El Mansoura concession of comparable size to South Batra. Further detailed evaluation will require the acquisition of 3-D seismic to further delineate the prospective channel sands. Following the South Batra discovery, the South Mansoura No.1 well is now being deepened to test the same Upper Miocene Abu Madi channel play. The well is programmed to reach a total depth of 9,800 ft in the Miocene Sidi Salim Formation with the top of the Abu Madi expected at around 8,300 ft. Late-Oligocene/Early-Miocene prospectivity Three leads have now been identified on this concession in the deeper Qantara formation, but these require additional seismic and geological evaluation. There is demonstrable potential in the deep Tineh Formation as the Tarif No.1 and Tarif No.2A wells, originally drilled by Conoco, both encountered oil shows and small quantities of oil were also tested in the Tarif No.2A well. Like the Qantara structure, the formation is highly over pressured in this area. Qantara Concession Qantara gas field The Qantara field, located in the south-east quadrant of the concession, is currently producing from the Qantara No.1 well. Production commenced in March 2001 at 5.6 MMcfpd and 1,100 bcpd, but the water production rate built up and then stabilised quickly, suggesting communication with another water bearing formation behind the casing. Remedial work is being considered, but in the meantime the field is providing positive cash flow, with current production of 1.28 MMcfpd at the wellhead and sales of 1.0 MMcfpd and a condensate yield of 140 bcpd. The geology of the Qantara structure has been evaluated further using the reprocessed 3-D seismic data set and a better understanding of the structure and distribution of the potential reservoir zones has been established. A multi-reservoir prospect has been identified by interpolating between the Qantara No.2 and No.3 wells drilled by Agip in the 1970s and a well proposal is being worked up for this multi-target prospect. Interpretation of the reprocessed 3-D seismic also suggests that a sidetrack of the Qantara No.4 well drilled in 2001 could establish new production for moderate incremental cost. The Qantara reservoir section is now thought to have been faulted out in the No.4 well bore and sidetracking the bottom-hole location to the west should encounter the full reservoir section. Exploration The potential upside of the Qantara Concession is in the Pliocene, Kafr El Sheikh formation and the deeper early-Miocene, Qantara/Tineh Formations. The Kafr El Sheikh plays are analogous to the South Bilqas Field on the El Mansoura Concession. In addition, new plays in the late-Miocene, Abu Madi formation and the deeper early-Miocene intervals have been identified. The exploration effort is currently focused on the deeper Qantara/Tineh formations, to identify hydrocarbon potential to provide additional high-pressure gas and condensate to feed the Qantara production facilities, and on the shallow Pliocene seismic "bright spot" play. Prospects and Leads Reprocessing of the seismic data set has better defined the potential sandstone and carbonate reservoirs in the southern area of the concession and four prospects and leads have been mapped in this part of the concession where seismic quality is good. The area around the Qantara No.1 and No.4 wells has now been remapped in the early-Miocene, Qantara sands and a new drilling location, the Qantara No.7, has been identified on the eastern terrace of the Qantara structure. A good secondary target in the well is provided by a sand interval in the mid-Miocene which exhibits a strong seismic anomaly at around 9,000 ft and which has been identified in the old Qantara No.2 well. A third target in the well is a Pliocene anomaly directly overlying both of these zones. The late-Miocene, Abu Madi formation may also constitute an additional hydrocarbon play on the concession and a significant new prospect is currently being evaluated following the South Batra discovery on the El Mansoura concession. Contingent upon the results of a Qantara No.7 well, a similar Tineh prospect in a fault block to the north of Qantara No. 7, in the vicinity of the Qantara No. 3 well, could be tested and the Abu Madi play could also be tested at this location. A Pliocene prospect identified by the "missed pay" analysis on the Qantara No.2 well has also been identified. The Qantara No. 2 well, located at the southeast corner of the concession, encountered 23 ft of good quality hydrocarbon bearing sand in the Pliocene at 2,260 ft depth and just clipped the edge of the seismic anomaly. Average sand thickness could be as much as three times that encountered in the No.2 well. The Qantara No.6 well has been proposed to evaluate this shallow prospect but will probably be drilled at a later date when a low-pressure gas-gathering system can be justified. The two prospects which were identified in the deeper Qantara and Tineh horizons in the north of the concession, one of which could be up to 1 Tcf in size, were subject to further detailed interpretation during 2002. It is anticipated that 3-D seismic will be acquired over the northern area to better define existing structures and high grade these to drillable prospects. In addition, 3-D seismic would be expected to result in the identification of new shallow and deeper prospects as has been the case in the existing southern 3-D area. Future work programme It is recognised that the Nile Delta onshore acreage is relatively under-explored and that new 2-D and 3-D seismic is required. Following the success of the South Batra No.1 well, and the proving of an extension of the Abu Madi channel play into the El Mansoura Concession, a three-phase programme is being planned for the acquisition of 3-D seismic, primarily to better define the structure and morphology of these late-Miocene channel sands. A proposal for the first phase of approximately 350 sq km of 3-D in the South Batra area is currently being prepared to better define the Pliocene and Abu Madi prospects to the west of the South Batra No.1 discovery. A location for an appraisal well to the South Batra accumulation should also be selected before the end of 2003. In addition, in order to further define existing leads in both the early and late Pliocene of the Kafr El Sheikh and El Wastani formations and the deeper Abu Madi and Qantara/Tineh Formations in the eastern part of the El Mansoura concession, a 350 km line 2-D seismic survey is expected to be acquired. Further drilling is dependent on the outcome of current wells but it is likely that the Qantara No.7 well will be drilled as part of the current drilling programme and, following the mid-Pliocene success with South Mansoura No.1, a further mid-Pliocene prospect (the Mansouriya No.1, which is the deeper horizon under the North Talkha well drilled last year) may also be drilled. Bulgaria The interests of Melrose in Bulgaria are located offshore in the shallow waters of the western Black Sea. Galata Production Concession The Galata Gas Field, in which Melrose has a 100% interest, has gross proved reserves of 49 Bcf and proved and probable reserves of 80 Bcf. The fiscal terms in Bulgaria are attractive with a royalty of 2.5% - 5% and corporation tax currently at 23.5%. The field will be developed with a simple platform located in 35 m of water, a 22 km section of 14 inch pipeline offshore and 58 km of 12 inch pipeline onshore. The pipeline will link into the Bulgarian gas distribution system inland from Varna to Provadia. Two production wells will be drilled during the development phase and a third may be drilled to the downthrown fault block to the southeast (Bogdanov East) in due course. The total capital cost for the Galata gas field development is estimated to be approximately $52 million. Project senior and mezzanine debt financing has been secured for the full cost of the development. Detailed design work on both the onshore pipeline and the offshore platform has been completed. Contracts for the individual elements of the development project have been put in place following final confirmation of the development financing arrangements. Rights of way and environmental issues have been dealt with for all pipelines and many of the contracts which have been set up for major materials acquisition and construction have now been entered into. All environmental matters have been fully addressed and the environmental programme has been approved. The target for the first gas delivery to Bulgargaz is January 2004 at a delivery rate of up to 53 MMcfpd. Gas production from the Galata Field is contracted to Bulgargaz, the state-owned importer and distributor of gas in Bulgaria, who have contracted to purchase 400 million m3 (14.1 Bcf) of gas per year for a minimum of 3 years, with an annual take-or-pay volume of 300 million m3 (10.6 Bcf). The gas price is linked to the prevailing gas price in the area which, in turn, is linked to the oil price. Block 91-III The evaluation of the hydrocarbon prospectivity of the Block 91-III remains a major priority for the Group as any further gas discoveries could be processed through the production and transportation facilities of the Galata gas field. In January 2003, the Bogdanov North No.1 exploration well was drilled to test the extent and hydrocarbon potential of the Galata reservoir section of Maastrichtian-Palaeocene carbonates on the Bogdanov North prospect. The secondary objective was to explore the pre-Galata reservoir section. The well reached a total depth of 1,030m in the Cretaceous Venchan/Russe Formation. The well encountered 51.8m (170 ft) of good reservoir section compared with 25m (82 ft) in the Galata Field, but there was no indication of gas and the well was plugged and abandoned as a dry hole. The thicker than expected reservoir section encountered in the Bogdanov North No.1 well maintains the prospectivity of the other Galata trend prospects (Varna East, Varna West and Bogdanov East) and these prospects are being re-assessed. Focus will now shift to the exploration prospects in the north of the concession, offsetting the onshore Tulenovo oil field. The 2-D seismic acquired in 2001 confirmed a number of multi-horizon prospects and leads in the northern part of the Block and at least two of these represent drillable prospects. The Block 91-III Exploration Licence term has been extended for a further two years until October 2004. The acquisition of additional 2-D seismic, together with the drilling of one obligation well, is currently being planned. The geotechnical evaluation of the prospectivity of the block continues with the integration of the results of the Bogdanov North No.1 well. Block Kaliakra 99 Preliminary exploration activity on Block Kaliakra 99 has focused on the reprocessing and interpretation of existing seismic which was originally acquired in the 1990s by previous operators. 1,300 km of seismic was purchased and reprocessed and the leads and structures previously identified on the Block were re-evaluated. The southern area of Kaliakra 99 has extensive Eocene flysch sediments in which good quality sands have been proven in the wells of the area. The Samotino More well is thought to have tested a thin flysch sand encased in mudstone. Evaluation of the Samotino More prospect, which lies to the south of Galata, suggests that the interval which was tested in a previous well on the structure is comprised of thin, lenticular sands with the risk that they may not be in pressure communication. The structure is complicated and additional seismic acquisition, possibly 3-D, may be required to enhance understanding of this area. In the northern area of Kaliakra 99, Palaeocene clastics and Late Jurassic/Early Cretaceous carbonates (the same reservoir as the Tulenovo Field) constitute the primary reservoir targets. It is clear that the northern area of Kaliakra 99 has some very interesting potential, with oil the most likely hydrocarbon charge for the structures identified, some of which are quite large. If initial expectations are confirmed, Melrose may then consider the possibility of farming-out an interest in this area, which is likely to be of interest to larger companies. All work obligations for the first exploration period of the Kaliakra 99 licence have been satisfied but a need for new seismic of the quality obtained on Block 91-III has been identified and new surveys are being considered for both the northern and southern areas of this Block. USA Oil and gas The Group's interests in the US provide long life production and cashflow and offer the potential for further exploitation. The Group's strategy is to add value to these interests by partial exploitation of the undeveloped reserves, including implementation of waterflood projects where appropriate. Development activity in the US during 2002 was restricted to workovers and recompletions, with the emphasis on improving field operations and reducing operating costs. No new wells were drilled during the year, but the workover programme generated PDP reserve replacement of approximately 340 Mboe at a cost of $4.00 per boe. Operating costs also reduced by 10% compared to 2001. Average daily production declined from 880 boepd in 2001 to 687 boepd in 2002 as expected. The average prices received during the period were $23.80 (2001 - $22.29) per bbl and $3.18 (2001 - $3.83) per Mcf. During the year, regulatory approval was obtained for the Artesia Unit waterflood and for the unitization of the Turner Gregory leases, thereby clearing all regulatory issues on all of the Group's development projects. With the benefit of high commodity prices, a limited drilling programme is now planned for the Jalmat Unit in 2003 and, depending upon available cashflow, a phased implementation of the Artesia Unit and the Turner Gregory Unit waterflood projects will commence. Ethanol production and distribution Wyoming Ethanol was disposed of with effect from 30 June 2002 for a consideration of $3.625 million which is payable in instalments over a 7 year period. Wyoming Ethanol is dependent upon a production incentive received from the State of Wyoming which was due to expire in July 2003. An extension of this incentive was granted in March 2003 for a further period of at least 6 years, securing the long term viability of this business. Melrose has also retained a 19% equity interest in this business. OIL AND GAS RESERVES At 31 December 2002 the Group's proved and probable reserves, calculated on an entitlement basis, comprised: Egypt Bulgaria USA Total Oil Gas Gas Oil Gas Mbbl MMcf MMcf Mbbl MMcf Mboe Proved developed 150 2,715 - 2,060 6,353 3,721 Proved undeveloped - - 49,193 9,747 8,350 19,337 Proved 150 2,715 49,193 11,807 14,703 23,058 Probable developed - 2,775 - - - 463 Probable undeveloped - 7,093 24,587 - - 5,280 Probable - 9,868 24,587 - - 5,743 Developed 150 5,490 - 2,060 6,353 4,184 Undeveloped - 7,093 73,780 9,747 8,350 24,617 Proved and probable 150 12,583 73,780 11,807 14,703 28,801 Proved and probable reserves in Bulgaria and the USA are based upon evaluations by independent petroleum engineers and in Egypt are based upon directors' estimates. Movements in the Group's proved and probable reserves during the year were as follows: Changes in reserves Egypt Bulgaria USA Total Oil Gas Gas Oil Gas Mbbl MMcf MMcf Mbbl MMcf Mboe At 1 January 2002 185 11,758 80,340 11,911 14,375 29,841 Disposals - - (6,560) - - (1,093) Extensions and discoveries - - - - - - Revisions (17) 1,027 - 83 713 355 Production (18) (202) - (187) (385) (302) At 31 December 2002 150 12,583 73,780 11,807 14,703 28,801 The disposal in Bulgaria is the estimated effect of the revenue sharing arrangement which was entered into as part of the mezzanine financing of the Galata field development. Discounted Net Present Value The discounted net present value (at 10% per annum) of the Group's proved and probable reserves at 31 December 2002 was as follows: Egypt Bulgaria USA Total Discounted present value (PV10) $000 $000 $000 $000 Proved developed 6,671 - 21,963 28,634 Proved undeveloped - 23,891 72,452 96,343 Proved 6,671 23,891 94,415 124,977 Probable developed 4,392 - - 4,392 Probable undeveloped 6,417 28,211 - 34,628 Probable 10,809 28,211 - 39,020 Proved and probable 17,480 52,102 94,415 163,997 The discounted net present value is based upon the following pricing assumptions: * USA: $24 per barrel of oil and $4.00 per Mcf * Bulgaria: $2.55 per Mcf * Egypt: $24 per barrel of condensate and $3.60 per Mcf and $2.50 per Mcf Reserve additions since the year end Since the year-end, the Company has announced the successful result of the South Batra No.1 well and of the South Mansoura No. 1 well (in the Miocene horizon only). The South Mansoura No.1 is now being drilled to a deeper Pliocene target. Based on evaluations of the well results by an independent petroleum engineer and by the operator, the Directors estimate that the gross proved and probable reserves in these two discoveries are approximately 187 Bcfe and 45 Bcfe respectively. This is equivalent to net reserves to the Group on an entitlement basis of 26 Bcfe with a discounted present value (PV10) of $33.8 million. FINANCIAL REVIEW Turnover for the year was #7.1 million compared with #14.2 million in the previous year. Turnover derived #4.4 million from the Group's oil and gas production activities in Egypt and the USA and #2.7 million from the production and distribution of ethanol. The reduction in turnover reflects the disposal of Wyoming Ethanol with effect from 30 June 2002 and reduced oil and gas production in Egypt and the USA. The results for the year show a loss on ordinary activities after taxation of #2,232,000 compared with a profit of #415,000 for the year ended 31 December 2001. Earnings were adversely affected by the weakness in the US dollar, which is the Group's principal operating currency. Furthermore, realised foreign exchange losses of #555,000 arose during the year (and have been included in administrative expenses) compared with gains of #129,000 in the previous year. EBITDA for the year of #0.5 million compares with #3.4 million for the previous year. Net cash inflow from operating activities during the period of #0.9 million compared with #3.4 million in the previous year. Additions to the oil and gas assets of the Group during the period totalled #7.5 million. This was split, geographically, #3.6 million in respect of properties in Egypt, #2.9 million in Bulgaria and #1.0 million in the USA. Additions to plant and equipment, mostly Bulgaria, amounted to #0.4 million. At 31 December 2002, the Group had cash balances of approximately #0.5 million, bank loans totalling #13.3 million and other loans of #11.8 million. Available borrowing capacity under the loans totalled #1.9 million. The maximum loan available under the bank loans of Melrose Resources plc is #9.0 million and this amount was fully drawn at the year-end. These bank loans are repayable on 31 December 2005. The loan available under the Loan Note with the Adair Trusts was fully drawn at year-end at #7.5 million. This loan is repayable in four instalments between 30 April 2003 and 31 December 2005. The repayment of #3.0 million of this loan, which is due on 30 April 2003, will be repaid from the proceeds of the Rights Issue and the balance of the loan is repayable in three instalments between 30 April 2004 and 31 December 2005. At the year-end Melrose had, in addition, borrowed #4.2 million under a short-term loan from a company which is connected with the Chairman. This loan will also be repaid from the proceeds of the Rights Issue. The borrowing base under the bank loan of the Group's oil and gas subsidiary in the USA (which, at the year-end, had a balance outstanding of $7.0 million) is re-determined bi-annually and no repayments are currently due during the next 12 months. This facility is due for renewal in September 2004. The current budget for 2003 capital expenditures in Egypt is $3 million, but this will be kept under review following the recent exploration success. Expenditures in Egypt will be financed by cash flow from production and from existing cash resources and corporate debt facilities. During the year, and depending on the results of the planned exploration programme, the availability of debt finance to assist with the funding of the Group's activities in Egypt will be investigated. In Bulgaria, expenditures on the development of the Galata gas field during the year are budgeted at approximately $40 million and it is expected that these will be financed entirely from the senior and mezzanine debt which has been arranged for the project. Budgeted exploration expenditures in Bulgaria are approximately $3 million, principally in respect of the Bogdanov North exploration well that was drilled in January 2003. Planned capital expenditures in 2003 on the Group's oil and gas activities in the USA amount to approximately $3.8 million. These expenditures will be financed from cash flow in the USA and from the bank loan facility which is in place. Under the terms of this bank loan, the remittance of funds from the USA to the UK is subject to the approval of the lender. On 24 February 2003, at an EGM of the Company shareholders approved a Rights Issue by the Company which will raise up to #13.9 million, net of expenses. The latest time for acceptance and payment under the Rights Issue is 3.00 pm on Monday 24 March. After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue to operate for the foreseeable future. For this reason, the accounts have been prepared on the going concern basis. Consolidated summarised profit and loss account Year ended 31 December 2002 2001 Note #000 #000 #000 #000 Turnover Continuing activities 4,375 6,606 Discontinued activities 2,749 7,549 7,124 14,155 Cost of sales (4,135) (8,633) Depletion (958) (1,517) Gross profit 2,031 4,005 Administrative expenses (2,642) (2,516) Operating (loss)/profit Continuing activities (437) 1,554 Discontinued activities (174) (65) (611) 1,489 Net interest payable (1,465) (1,068) (Loss)/profit on ordinary activities before taxation (2,076) 421 Taxation on profit on ordinary activities (156) (6) (Loss)/profit for the period transferred to reserves (2,232) 415 (Loss)/earnings per share (p) (3) (13.62) 2.53 Consolidated summarised balance sheet As at 31 December 2002 2001 #000 #000 Fixed assets Intangible 5,297 3,441 Tangible 40,410 43,030 Investments 7 10 45,714 46,481 Current assets Stock - 1,050 Debtors: Amount falling due after more than one year 2,181 - Amount falling due within one year 900 1,187 3,081 1,187 Cash at bank and in hand 460 1,310 3,541 3,547 Creditors: amounts falling due within one year (9,257) (4,131) Net current liabilities (5,716) (584) Total assets less current liabilities 39,998 45,897 Creditors: amounts falling due after more (17,875) (17,956) than one year Provision for liabilities and charges - (121) 22,123 27,820 Capital and reserves Called up share capital 1,639 1,639 Share premium account 21,660 21,660 Other reserves 197 3,662 Profit and loss account (1,373) 859 Equity shareholders' funds 22,123 27,820 Consolidated summarised cashflow statement Year ended 31 December Note 2002 2001 #000 #000 Net cash inflow from operating activities (4) 461 3,428 Returns on investments and servicing of finance Interest paid (1,163) (958) Interest paid by discontinued activity (22) - Interest received 27 41 Net cash outflow from returns on investments and (1,158) (917) servicing of finance Tax paid (156) (6) Capital expenditure and financial investment Purchase of intangible fixed assets (2,184) (2,069) Purchase of tangible fixed assets (5,385) (9,671) Purchase of tangible fixed assets by discontinued (41) - activity Disposal of tangible fixed assets 122 164 Net cash outflow from capital expenditure and (7,488) (11,576) financial investment Financing Borrowings raised 12,382 9,383 Repayment of borrowings (4,956) - Net cash inflow from financing 7,426 9,383 (Decrease)/increase in cash (915) 312 Notes 1. Statement of total recognised gains and losses 2002 2001 #000 #000 (Loss)/profit for the period (2,232) 415 Currency translation difference on foreign currency net (3,465) 725 investment (5,697) 1,140 2. Reconciliation of movements in shareholders' funds 2002 2001 #000 #000 (Loss)/profit for the period (2,232) 415 Dividends paid and proposed - - (2,232) 415 Other recognised gains and losses relating to the period (3,465) 725 Net (decrease)/increase in shareholders' funds (5,697) 1,140 Opening shareholders' funds 27,820 26,680 Closing shareholders' funds 22,123 27,820 3. Earnings per share and dividends Earnings per share has been calculated by dividing the loss after taxation for the year ended 31 December 2002 of #2,232,000 (2001 - profit #415,000) by the number of shares in issue throughout the period of 16,390,765 (2001 - 16,390,765). Diluted earnings per share has not been calculated for 2001 or 2002 as the share options are anti-dilutive. No dividend has been declared (2001 - nil). 4. Net cash inflow from operating activities 2002 2001 #000 #000 Operating (loss)/profit (611) 1,489 Depletion and depreciation 1,131 1,918 Non cashflow from disposal of subsidiary 2,780 - Loss on disposal of fixed assets - 9 Provision against value of fixed asset investment 3 6 Intangible fixed assets written-off - 25 Decrease/(increase) in stocks 889 (296) (Increase)/decrease in debtors (1,587) 603 Decrease in creditors (2,144) (326) Net cash inflow from operating activities 461 3,428 5. Financial information and annual report The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The comparative financial information is based on the statutory accounts for the year ended 31 December 2001. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. The statutory accounts for the financial year ended 31 December 2002 will be delivered to the Registrar. The summarised balance sheet at 31 December 2002 and the summarised profit and loss account, summarised cash flow statement and associated notes for the year then ended have been extracted from the Group's financial statements. Those financial statements have not yet been delivered to the Registrar, nor have the auditors reported on them. Full accounts are due to be posted to shareholders by 9 May 2003 and will be available at the Company's registered office, No. 1 Portland Place, London W1B 1PN, from that date. Glossary of terms bbl barrel of oil or condensate Bcf billion cubic feet of gas Bcfe billion cubic feet equivalent Bcpd barrel of condensate per day Boe barrel of oil equivalent Boepd barrel of oil equivalent per day Bopd barrel of oil or condensate per day the Company Melrose Resources plc EBITDA Earnings before interest, taxation, depletion, depreciation and amortisation EGPC The Egyptian General Petroleum Corporation GIIP gas initially in place the Group the Company and its subsidiaries Mbbl thousand barrels of oil or condensate Mboe thousand barrels of oil equivalent Mcf thousand cubic feet of gas Melrose the Company or the Group, as appropriate MMbbl million barrels of oil or condensate MMboe million barrels of oil equivalent MMcf million cubic feet of gas MMcfpd million cubic feet of gas per day PDP proved developed producing Petreco Petreco S.a.r.l. and/or Petreco Bulgaria EOOD as appropriate PUD proved undeveloped PV10 discounted present value at 10% per annum Tcf trillion cubic feet of gas This information is provided by RNS The company news service from the London Stock Exchange END FR JBMMTMMJTTMJ
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