3rd Apr 2007 07:02
Melrose Resources PLC03 April 2007 FOR IMMEDIATE RELEASE 3 April 2007 MELROSE RESOURCES PLC ("Melrose" or "the Company") Preliminary Announcement of Results for the year ended 31 December 2006 Melrose Resources plc (LSE:MRS), the oil and gas exploration and productioncompany with interests in Bulgaria, Egypt, France and the USA, today announcesits preliminary results for the year ended 31 December 2006: 2006 HIGHLIGHTS Financial Highlights 23% increase in turnover to US$116.3 million (2005: US$94.5 million) 16% increase in EBITDAX to US$88.6 million (2005: US$76.1 million) 17% increase in profit from operations to US$37.5 million (2005: US$32.2 million) Profits before tax of US$11.1 million (2005: US$31.8 million) Break-even for the year (2005: US$22.4 million) Proposed dividend of 1.75p (2005: 1.5p) Acquisition of Merlon Petroleum- oil and gas assets of US$277.0 million acquired Share issue raises US$130.1 million New US$300 million loan facilities Operational Highlights 4% increase in average daily production to 76.4 MMcfepd - 12.7 boepd- total production of 27.9 Bcfe, 4.6 MMboe (2005: 26.9 Bcfe, 4.5 MMboe) Assumption of operatorship in Egypt Appraisal and development of West Khilala field- on production 5 February 2007 Appraisal of West Dikirnis field- oil discovery in June 2006 Continuing major 3-D acquisition in Nile Delta First phase of onshore compression on-line in Galata gas field- second phase under construction Seismic acquisition and processing in Bulgaria- preparation for 2007 drilling programme Successful application for Mesaha exploration concession in Upper Egypt- large frontier exploration area Commenting on this, Robert Adair, Executive Chairman, said: "The acquisition by Melrose in June 2006 of Merlon Petroleum Company was asignificant milestone in the continuing development of Melrose as anexploration, development and production group. The acquisition gave us 100%ownership and operatorship of our interests in Egypt. It was, therefore, in linewith our strategy which is to acquire major interests in assets which have thepotential for growth and, where possible, to have technical and financialcontrol as operator. I believe that Melrose has assembled an impressive portfolio of oil and gasinterests through a combination of well-timed and well-priced acquisitions andgood geoscience and management. These properties offer an excellent balancebetween development and low-risk exploration upside together with some higherrisk exploration which has the potential to bring higher returns and, even, tochange the shape of the Company." For further information please contact: Melrose Resources plc 0184 553 7037Robert Adair, Executive Chairman 0131 221 3360Munro Sutherland, Finance DirectorBuchanan Communications 0207 466 5000Tim ThompsonBen Willey or visit www.melroseresources.com CHAIRMAN'S STATEMENT The acquisition by Melrose in June 2006 of Merlon Petroleum Company was asignificant milestone in the continuing development of Melrose as anexploration, development and production group. The acquisition gave us 100%ownership and operatorship of our interests in Egypt. It was, therefore, in linewith our strategy which is to acquire major interests in assets which have thepotential for growth and, where possible, to have technical and financialcontrol as operator. Since the acquisition of Merlon, our focus in Egypt has been on the appraisaland development of the West Khilala and West Dikirnis fields. These fields wereboth discovered in 2005 with the first appraisal wells on each being drilled inthe first half of 2006. On West Khilala, development drilling has been directedat the proven, central part of the structure in order to establish productioncapacity. All four wells on the crest of the structure were successful and wewere pleased to report that these wells went on production in early February2007. The West Khilala No.6 appraisal well is being drilled with a view toestablishing the down-dip limits of the field on the western flank. Furtherappraisal wells in the north-east and south-west of the field area are plannedin order to confirm the total field size. The first appraisal well on the West Dikirnis field, which was drilled in May2006 just before we closed the acquisition of Merlon, established that the WestDikirnis field, which was previously thought to be a gas field, is a gas caplying over a significant oil zone. Further appraisal drilling since then hasconfirmed that the oil zone extends to the north of the main structure and givesus encouragement for further oil exploration in the area. The West Dikirnisdevelopment project is now well advanced with first production scheduled for thethird quarter of 2007. Our exploration effort in Egypt during 2006 concentrated on the continuingacquisition and processing of 3-D data over our concessions in the Nile Delta.In total to date, over 2,000 km(2) of 3-D data has been acquired and themajority of this has been processed. All of the acquired data is beingintegrated into an impressive data set. The acquisition of up to a further 1,900km(2) is planned over the next two years. The investment in 3-D is a majorcommitment by Melrose to exploration in the Nile Delta in the medium term. Discoveries on the El Mansoura concession have now been made in a number ofhorizons: in the shallow Pliocene, Kafr El Sheikh formation; in the lateMiocene, Abu Madi formation; at West Dikirnis and West Khilala in themiddle-Miocene, Qawasim formation; and, in the Sidi Salim formation. Furtherprospectivity has been identified in the deeper early-Miocene and Oligoceneformations and it is expected that wells to test these reservoirs will bedrilled in the coming year. In due course we may also see prospects beinggenerated in the deeper Jurassic and Cretaceous formations, particularly on SEEl Mansoura. These will be higher-risk targets but they are the provenreservoirs in the adjacent Western desert basins and will provide significantupside potential in the Melrose acreage. Our exploration concessions in the NileDelta run until 2012 and 2014. I believe that these assets, with the 3-D datawhich we are acquiring and under the management of the team of explorationistsin Edinburgh and Cairo, provide a solid platform for the growth of Melrose overthe next few years. We were also pleased in 2006 in Egypt to have added a 40% operated interest inBlock Mesaha to our portfolio. This is a very large frontier exploration blockin Upper Egypt on the Sudanese border. Prospectivity in the block is likely tobe in the Jurassic and Cretaceous horizons and initial exploration efforts willfocus on acquiring regional seismic data with the objective of identifying themost likely basin areas where we would hope to see analogues of some of thestructures which have proved prospective across the border in northern Sudan. Awell is provisionally planned on the block in 2010. In Bulgaria the solid performance of the Galata field has underpinned cash flowfor the Group over the last two years. Our exploration interests offshoreBulgaria are different in nature to those in Egypt. Very few wells have beendrilled in the area and there is much less seismic data available: much of thearea is an uncharted country in oil and gas terms. Working with availableregional knowledge and seismic data, the exploration programme we have assembledis the product of several years of work by our exploration team. The prospectsare medium-to-high risk and the chances of success of any one well are of theorder of 1 in 5 to 1 in 9. The economic rewards of exploration success would besignificant for Melrose. The gas market in the area is strengthening and thefiscal terms in Bulgaria are attractive. The individual prospect economics areattractive and, in addition, we have a number of offsetting prospects on ourlarge acreage position which gives us the ability to leverage up on any drillingsuccess. CHAIRMAN'S STATEMENT (continued) In the USA, the properties in East Texas which were acquired as part of Merlonnow look very interesting. We have carried out our own detailed technical reviewof the properties and have identified a number of prospects for drilling. We arecurrently planning to drill at least two low-risk exploration targets in thesecond half of 2007. This asset offers low-risk exploration upside and is auseful addition to our portfolio. Our original US assets in the Permian basinhave not been a major focus for Melrose in 2006. Our leasehold position isintact and we remain attracted to the potential return on developing the provedundeveloped reserves before, in due course, seeking a sale. We expect to be ableto commit to the necessary development capex on this project in 2008. Work done on our exploration concession offshore France has yielded somepositive results. Discussions with potential farm-out partners towards the endof 2006 suggested that it would be helpful to confirm the oil seeps which havebeen seen on the block through satellite surveys through physical sampling.Proving the oil seeps and chemical analysis of the oil could significantlyreduce the perceived risk on the block and allow a satisfactory farm-out to beconcluded. The sampling is being scheduled for the summer of 2007. As announced in September 2006, David Curry intends to retire as Chief Executiveno later than 1 November 2007. David has now been given leave of absence by theCompany and his duties are being performed by the other executive directors on atemporary basis. Chris Thomas retired as Corporate Development Director on 31July 2006 and as Company Secretary on 31 March 2007. We expect a further increase in Melrose's production and revenue in 2007 and Iam pleased to announce that we are proposing that the dividend for the yearshould be increased from 1.5p to 1.75p. I believe that Melrose has assembled an impressive portfolio of oil and gasinterests through a combination of well-timed and well-priced acquisitions andgood geoscience and management. These properties offer an excellent balancebetween development and low-risk exploration upside together with some higherrisk exploration which has the potential to bring higher returns and, even, tochange the shape of the Company. R F M AdairChairman FINANCIAL REVIEW Results for the year Turnover for the year was $116.3 million which compares with turnover of $94.5million in 2005. Turnover derived from Egypt was $29.4 million (2005: $26.1million), Bulgaria $60.5 million (2005: $51.9 million) and the USA $26.4 million(2005: $16.5 million). Financial income includes a realised loss on the sale of shares in Renova Energyplc of $0.02 million (2005: gain of $5.3 million) and an unrealised gain of $1.1million (2005: 4.1 million) following the revaluation of options over shares inRenova Energy plc. Profit after tax amounted to $41,000 (2005: $22,407,000) after taking intoaccount a tax charge of $11,082,000 (2005: $9,350,000). A final dividend of 1.75 pence (2005: 1.5 pence) per share is being proposed. Ifapproved, the estimated dividend of $3,758,000 (2005: $2,222,000) will bededucted from retained reserves. EBITDAX for the year of $88.6 million compares with $76.1 million for theprevious year. The reconciliation of EBITDAX to the IFRS measure of profitbefore taxation is presented below: EBITDAX 2006 2005 $000 $000----------------------------- ----------- -----------Profit/(loss) before taxation 11,123 31,757Add back:Depreciation 530 204Depletion 40,646 33,378Decommissioning charge 1,621 1,144Unsuccessful exploration costs 8,298 9,255Net financing cost 26,392 407 ----------- -----------EBITDAX 88,610 76,145 ----------- ----------- Taxation The tax charge for the year of $11.1 million was 100% of profit before tax. Thetax charge is high due to the non-deductibility for tax purposes of financingcosts and administrative expenses in Egypt. Similarly, administrative costs inthe UK (net of intra-group management fees) are not deductible for tax purposesagainst other Group income. Of the Group financing costs for the year of $28.3million, $5.5 million were non-recurring costs in connection with thepre-payment of prior loans and the writing off of capitalised costs incurred inrelation to prior loans. Also, financing costs for the year are a higherproportion of profit from operations than in the previous year as a major partof the debt in the second half of the year was incurred in connection with theacquisition of Merlon; many of the acquired properties were not on productionduring the year. Finally, the reduction in the corporation tax rate in Bulgariafrom 15% to 10% resulted in a deferred tax charge of $1.4 million as a result ofthe reduction in value of the deferred tax asset. Key Performance Indicators In total 18 wells were drilled in Egypt in 2006 of which 11 were successful, asuccess rate of 61%. In the US a total of 9 wells were drilled, all of whichwere successful. These drilling success rates are key performance indicators ofthe Group. Also important as key performance indicators are the reserves additions andreplacement statistics which are shown in the reserves table below. The tableshows that reserves added through extensions and discoveries, net of revisions,in Egypt during the year were 15.3 Bcf which was 55% of production in Egypt.Reserves added in Egypt through acquisition were 107.4 Bcf which was 385% ofproduction. On a Group basis, total net reserves additions were 340 % of Groupproduction. A key indicator of financial performance is EBITDAX which, as shown above, was$88.6 million for the year. This represented an increase of 16% over 2005. Otherkey performance indicators are the profit and cash flow per unit of productionand these are set out in detail below. Profit and cash flow per unit of production Bulgaria Egypt USA 2006 2005 2006 2005 2006 2005 $ $ $ $ $ $PricesreceivedOil/condensate - - 58.10 52.37 58.20 49.72(bbl)Gas (Mcf) 3.37 2.81 2.63 2.67 6.34 7.52 ------- ------ ------ ------ ------ ------ Unit ofproduction(Mcfe)Revenue 3.37 2.81 3.51 2.99 7.96 8.13Royaltiesandproduction (0.08) (0.07) - - (0.58) (0.63)taxesOperating (0.20) (0.14) (0.62) (0.15) (2.06) (2.10)costs ------- ------ ------ ------ ------ ------Net cash 3.09 2.60 2.89 2.84 5.32 5.40flowDepletion (1.43) (1.44) (1.31) (0.66) (1.92) (1.27)Abandonment (0.08) (0.06) - - (0.07) (0.03) ------- ------ ------ ------ ------ ------Net profit 1.58 1.10 1.58 2.18 3.33 4.10 ------- ------ ------ ------ ------ ------ Additions to the oil and gas assets of the Group during the year totalled $115.3million (2005: $73.7 million). This was split, geographically, $16.2 million(2005: $20.9 million) in respect of properties in Bulgaria, $80.1 million (2005:$37.1 million) in Egypt, $14.8 million (2005: $14.3 million) in the USA, and$4.2 million in France (2005: $1.4 million). Financial assets The Group holds options to purchase shares in Renova Energy plc which is amember of the AIM. Under UK GAAP these options are held at cost to the Company,which was nil. Under IAS 39 these options are held at fair value. At 31 December2006 these options had a fair value of $5.0 million (2005: $4.1 million). Financial instruments The Group's use of financial instruments is mainly restricted to borrowings,cash deposits, short-term deposits and various items such as trade debtors andtrade creditors which derive from its operations. Group policy in relation to hedging the selling price of Group production isreviewed periodically. In June 2006 the Group entered into a contract underwhich a proportion of expected Group oil production in the USA from July 2006 toDecember 2007 was hedged in a no-cost collar with the reference price of WTIcrude between $60 and $84 per bbl. As at 31 December 2006 a total of 170,848bbls of 2007 was hedged under this contract. Risk management The main risks from the Group's financial instruments are interest rate risk,liquidity risk and foreign currency risk. The Group's exposure to interest raterisk derives from its borrowings which are at variable interest rates. It hasbeen the Group's policy to borrow for short term periods at variable interestrates in order to reduce the interest rate charged and to allow flexibility overearly repayment of borrowings. This policy exposes the Group to a risk thatinterest rates will rise. Group interest charged at variable rates in 2006 was$16.7 million (2005: $4.9 million). Currency risk FINANCIAL REVIEW (Continued) The Group has limited exposure to foreign currency risk as the majority of itsrevenue and expenditures are denominated in US Dollars. A limited risk arises tothe extent that overhead costs and an element of capital expenditures areincurred in currencies other than US Dollars. In order to minimize currency risk, it is Group policy that borrowings incurredin relation to development projects should be denominated in US Dollars as cashflows from the development projects are denominated in US Dollars. Similarly, itis Group policy that corporate borrowings should be denominated in US Dollars. Pricing risk At this time, the Group has no long-term contracts under which the price for thesale of its production is fixed. However, gas production from development leaseswithin the El Mansoura Concession in Egypt is sold under long-term contractsunder which the gas price is linked to the oil price but with the oil price in acollar between $10 per bbl and $22 per bbl. With the oil price at its currentlevel, the gas price is at the top of the permitted range and is effectivelyfixed. Loan facilities In June 2006 the Group entered into corporate loan facilities amounting to $300million in aggregate and with final repayment due in 2012. These loan facilitiesremain in place as at 31 December 2006 with the initial repayment of thefacility currently due in June 2008. The Group is seeking to arrange an increasein the total amount of the loan facilities and a deferral of the first repaymentdate. Equity financing The Company completed a placing of 22.7 million new Ordinary Shares at 330 pencein July 2006, which raised $134.3 million net of expenses. A further 1.3 millionnew Ordinary Shares were issued following the exercise of share options. At 31 December 2006, the Group had cash balances of approximately $17.8 millionand bank and other loans totalling $297.3 million. Available borrowing capacityunder bank loans totalled $5.9 million. Financial Reporting The Group and the Company's financial statements have been prepared inaccordance with IFRS as adopted for use by the European Union. OPERATIONAL REVIEW EGYPT Of major significance for Melrose in Egypt in 2006 was the acquisition byMelrose of Merlon Petroleum Company, Melrose's partner in the Nile DeltaConcessions and the operator of these Concessions. The Merlon sale processstarted in 2005 and continued into the second quarter of 2006. In April 2006conditional agreement was reached on the acquisition by Melrose of Merlon. Theacquisition was completed on 29 June 2006 after the approval of Melrose'sshareholders of the transaction had been obtained at an EGM. The acquisition ofMerlon gives Melrose operatorship and 100% ownership of the all of theConcessions in the Nile Delta in which Melrose has an interest. Operations in Egypt prior to the acquisition of Merlon took place against thebackground of the sale of Merlon Petroleum Company. In the period since theacquisition Melrose has made a considerable effort to work with the operatingteam in Cairo in order to better understand the properties and to agreepriorities and methodologies for the most effective exploitation of thepotential of these assets. With the help and support of the team in Cairo theassumption by Melrose of operatorship has been achieved effectively andefficiently both within Melrose's new subsidiaries and in the joint-ventureoperating company. The smooth transition of operatorship has also beenofficially noted in Egypt. Strategy in Egypt Melrose's Concessions in the Nile Delta cover approximately 5,300 km(2). The twoexploration Concessions, El Mansoura and SE El Mansoura run until 2012 and 2014,respectively, and a major commitment has been made to the acquisition of 3-Dseismic over the Concession areas. Since 2003 3-D has been acquired overapproximately 2,000 km(2). Expenditure on seismic on the Concessions through theend of 2006 totalled approximately $43 million and the budget for 2007 isapproximately $22 million. Melrose's measured approach to the evaluation of theConcessions reflects the size of the Concessions and the duration of theexploration terms. The strategy also reflects a desire to establish productionin shallower horizons on the Concessions in order to provide a source ofrevenue, particularly "cost oil", in order to help fund continuing explorationand development expenditures, including exploration of the deeper potential. Initial exploration on the Concessions focused on the shallow, Pliocene, Kafr ElSheik formation: the drilling success rate in this horizon has been high but thefield sizes are small. With 3-D, exploration interest has moved to deeper andlarger prospects. Exploration success was achieved in the Miocene, Abu Madiformation with the South Batra field discovery. Field sizes in this fluvialchannel sequence can be larger but the reservoir characteristics are moredifficult and some production difficulties have been experienced. Explorationsuccess in 2005 was achieved in the middle-Miocene, Qawasim formation. Thisreservoir sequence was deposited within a marine depositional environment andthe observed reservoir characteristics are very good. The strategy in 2007 is to continue to expand the 3-D data position over thewhole of El Mansoura and south into SE El Mansoura. Data processing iscontinuing in parallel and prospect generation and evaluation and ranking isbeing given high priority in Cairo and Edinburgh. Of particular interest will bethe evaluation of the West Dikirnis trend in the east of El Mansoura withseveral analogous prospects and leads in this relatively unexplored arearequiring further study. The deeper Oligocene play will also be evaluated inthis area and it is expected that a well to this horizon will be drilled beforeyear-end. The acquisition of 3-D represents an investment in the exploration potential ofthe Concessions. The exploration value of the Concessions lies not only in thenear-term exploration programme but in a medium-term plan to add reserves andincrease production through a sustained programme of exploration drilling. Inthe short-term, it is expected that the number of rigs drilling on theConcessions will be increased from two to three by the year-end but it is alsoenvisaged that exploration drilling will continue on the Concessions for manyyears both in unexplored areas and in deeper horizons, particularly the EarlyMiocene, Oligocene and Cretaceous. Structural plays analogous to those in theadjacent Western desert are being developed in these older formations. Melrose's drilling focus in the first half of 2007 is on the continuingappraisal and development of the West Khilala and West Dikirnis fields. Inparallel with this, the ongoing generation, evaluation and ranking ofexploration prospects on the Concessions is expected to result in a veryinteresting exploration programme in the second half of 2007 and into 2008 andbeyond. FINANCIAL REVIEW (Continued) El Mansoura Concession In the first half of 2006 a limited number of exploration wells were drilled onthe Concession targeting a range of different geological horizons. Drilling inthe second half of the year focused on the appraisal of the West Khilala andWest Dikirnis discoveries and on the exploration and development in the area ofthe El Tamad oil discovery. West Khilala Field This field was discovered with the West Khilala No.1 well in October 2005 andwas first appraised with West Khilala No.2 in May 2006. Four production wellshave been drilled on the main part of the structure and first production fromthe West Khilala field was achieved on 5th February 2007 at an initial rate of34.1 MMcfpd. Well performance has been in line with expectations and it isexpected that gross field production will be maintained at 70-80 MMcfpd. Furtherproduction equipment will be installed at the field over the next few months anda continuing appraisal and development drilling programme of up to a further 4wells is planned. The West Khilala No.6 well has recently established thedown-dip limits of the field to the west. The West Khilala No.5 will test thenorth-western extension of the structure while the West Khilala No.7 willappraise the south-eastern limits of the field. The continuing appraisaldrilling programme will seek to increase gross proved field reserves from theyear-end level of 218 Bcf. West Dikirnis Field The West Dikirnis field was discovered with the drilling in December 2005 of theWest Dikirnis No.1 exploration well. The field was originally thought to be agas field but this view was revised with the drilling in May 2006 of the WestDikirnis No.2 appraisal well. This well encountered a sizable oil leg and wastested at over 5,000 bopd. The next well in the field, the West Dikirnis No.4appraisal well, proved the presence of oil down-dip to the north of the provenWest Dikirnis structure. In January 2007 the West Dikirnis No.7 appraisal wellproved additional oil reserves on the northern flank of the West Dikirnisstructure. The well was successfully tested at a maximum rate of over 2,000bopd. The result of West Dikirnis No.7 is encouraging as it proves the presenceof a good oil reservoir and confirms the extension of the field to the northtowards another exploration target at South Zarqa. The West Dikirnis field is now being developed as an oilfield with initialproduction of 10,000 bopd and 15 MMcfpd of gas still scheduled before the end ofthe third quarter of 2007. At year-end, gross proved reserves in the field wereestimated to be 12 MMbbls of oil and 109 Bcf of gas. El Tamad area The El Tamad Nos.1 and 2 oil wells were brought on line in early February 2006and there was further drilling in the area during the year. The El Tamad Nos. 3,4 and 7 were all successful in extending the proven area of the field and all ofthe wells are now on production at a combined rate of approximately 4 MMcfpd and1,900 bopd. The SW Tamad No.1 exploration well, also targeting an anomaly in theSidi Salim in a fault block adjacent to El Tamad, was not successful and thewell was plugged and abandoned. The Turbay No.1 was a further small discovery inthe same area and this well is being brought on line and tied back to the ElTamad production facilities. Also in this area, the Al Rawda No.1 explorationwell, the first well drilled in the SE El Mansoura Concession, was drilled totarget a Sidi Salim prospect to the southwest of the EI Tamad trend. This wellwas successful and will be put on production shortly as a gas producer. In the southern area of El Mansoura, the Tummay No.1 exploration well wasdrilled with targets in both Sidi Salim and Pliocene. The Sidi Salim intervalhad only residual oil but the Pliocene target was a small gas discovery whichwill be put on production in the near future. The South Tunbarah No.1 well wasdrilled in the Sidi Salim trend between the El Tamad and Al Rawda accumulations.This well had hydrocarbon shows but was water wet and was plugged and abandoned. The proven reserves in the El Tamad structure are not large but the trendextends to the east into the SE El Mansoura Concession. 3-D seismic has recentlybeen acquired in this area and preliminary interpretation of the data appears toconfirm Sidi Salim structures, analogues of the El Tamad field, identified onold 2-D seismic interpretation. Seismic interpretation has also defined thepresence of an Al Rawda extension to the southwest of the discovery well. Other drilling in 2006 The Salaka No.1 exploration well drilled in March 2006 encountered gas in thePliocene, and gas and condensate in two Miocene, Abu Madi intervals. This fieldis currently being developed and first production is scheduled for the secondquarter 2007. The Salaka well result was interesting as it is in a southernextension of the South Batra trend. This supports the view that the South Batrafield may have upside in the channels identified to the north and south of theestablished field area. Further prospects on other extensions to the South Batrachannel system are being reviewed following the Salaka result. The Salakastructure is being re-mapped and an appraisal well may be drilled in this areain the second half of 2007. The Dimyrah No.1 exploration well was drilled in August 2006 with dual targetsof an amplitude anomaly in the shallow Kafr El Sheik formation and a deeperstructure in the Abu Madi. The Abu Madi objective was not successful but theKafr El Sheik section successfully tested gas. Some of the Kafr El Sheiksection has been identified as having low-resistivity characteristics and along-term production test is planned to provide further information about this reservoir. This unconventional reservoir is widely present on the Concession anda successful test here would have favourable implications for reserve potentialelsewhere. The West Abu Khadra No.1 exploration well encountered a gas column in the targetAbu Madi level II horizon in a fluvial channel reservoir section similar to theAbu Madi sections in the South Batra field. This will bring some developmentchallenges as the reservoir has relatively low permeability and has a highercondensate yield: this is a combination which has caused production difficultiesat South Batra. In the light of experience gained at the South Batra field it isbelieved that drilling horizontal wells may significantly improve recoveries inthis type of reservoir. The West Abu Khadra well was, therefore, suspended whilethis option is further evaluated. The full potential of the Abu Khadra area willdepend on a technical evaluation of the reservoir and on the outcome of theexploration well which may be drilled on the adjacent and much larger East AbuKhadra prospect in the second half of 2007. A number of unsuccessful exploration wells were also drilled in the year. NorthAga No.1, Biyala No.1 and NE Mit Dafir No.1 were higher risk wells drilled toAbu Madi targets. The Shawa No.1 was an unsuccessful shallow Kafr El Sheik test:this formation is now drilled mainly as a secondary target. The SW Nabarouh No.1exploration well was drilled to the Qawasim and although potential reservoirswere encountered, they were water bearing and the well was plugged andabandoned. Despite these unsuccessful wells, the drilling success rate in 2006remained high. SE El Mansoura Concession The first well on this Concession, the Al Rawda No.1 was a successful extensionof the El Tamad trend in the Sidi Salim formation. Exploration activity on theConcession is currently directed towards the acquisition of 3-D seismic: threephases in the north-west of the Concession were completed in 2006 and arecurrently being interpreted. Further seismic acquisition over the western partof the Concession is planned for 2007 and 2008. Relinquishment of part of the Concession will be required in mid-2008 andregional geo-technical studies assessing the hydrocarbon potential of theConcession are in progress to assist in forming a relinquishment strategy. It islikely that the decision will be to retain the western part of the Concessionwhere a number of potential targets in the Sidi Salim formation have alreadybeen identified. These leads overly additional prospectivity recognised in theLower Cretaceous and Jurassic formations similar to the successful plays in thebasins of the Western Desert hydrocarbon province. This deeper trend extendsinto the eastern part of the Concession and further 2-D data may be acquired inthis area to assist in the relinquishment decision. Qantara Concession There was no drilling activity on the Qantara Concession in 2006. The recentre-processing of the 3-D data set over the southern part of the Concession hasbeen used for geo-technical studies and has allowed the definition of drillableprospects. Further work on the 2-D seismic in the north of the Concessionindicates a large shallow Pliocene structure as well as deeper Miocenestructures with significant potential. During 2007 it is planned to acquirearound 70 km2 of additional 3-D and 20 km of 2-D seismic on the Concession.Thereafter, it is anticipated that a directional well from the Qantara No.4 welllocation will be drilled to re-establish production from the original Qantarafield and, in addition, an exploration well is planned. The topside facilitiesat the Qantara Field remain under care and maintenance. Mesaha Concession In 2006, Melrose added to its portfolio of interests in Egypt with theannouncement that Melrose was the successful bidder for a 40% interest asoperator in the Mesaha Exploration Concession. Subject to final Governmentapproval and to completion of documentation, it is expected that the Concessionwill be formally awarded by the third quarter of 2007. The Mesaha Concessioncovers an area of 56,930 km(2) and is located in the south-west corner of theWestern Desert in Upper Egypt on the border with Sudan. The block is frontier acreage in Upper Egypt but it holds considerable potentialfor the discovery of liquid hydrocarbons. The new block will complement thelower risk exploration activity of the current concessions in the Nile Delta. Production Gross production from Melrose's properties in Egypt in 2006 totalled 16.8 Bcf ofgas and 362.9 Mbbls of oil and condensate. Average gross production rates were46.0 MMcfpd of gas and 994 bpd of oil and condensate. Melrose's net production,which includes production of Merlon after the acquisition on 29th June 2006,totalled 5.8 Bcf of gas and 137.4 Mbbls of oil and condensate, an average of15.9 MMcfpd and 376 bpd. Production from the South Batra field during the year was below expectations.The combination of a low-permeability reservoir and a high condensate yield hascaused production problems in the field. A full geological and reservoirengineering study is underway to better understand the field reservoir extentand characteristics. The results of this will become available over the next fewmonths and will influence drilling strategy and remedial works in this field in2007 and 2008. The conclusions will also be relevant to the appraisal anddevelopment of other discoveries in the Abu Madi horizon, including Salaka andWest Abu Khadra. Five fields are currently producing: South Batra; South Mansoura; South Bilqas;El Tamad; and, since February 2007, West Khilala. Five fields are currentlyunder development or awaiting approval to commence production. Four of these areon the El Mansoura Concession: Turbay; Tummay; Salaka; and West Dikirnis. Onefield, Al Rawda, is on the SE El Mansoura Concession. The successful developmentof these fields should give Melrose a steadily increasing production profilethrough 2007. BULGARIA Production - Galata gas field During 2006 the Galata gas field performed well with the first stage ofcompression being commissioned on time and within budget in January 2006. Thecompressor has run at a high efficiency rate since installation, allowing thefield to meet all gas sales nominations even in January and February duringcommissioning and despite local temperatures falling as low as -21degrees C. Thecompressor turbine is fitted with SoLoNox technology to ensure that the exhaustgases meet stringent environmental emission limits. Production from the Galata field during 2006 totalled 17.9 Bcf which isequivalent to around 15% of Bulgaria's domestic gas consumption. Productionlevels are set in line with reservoir characteristics and the capabilities ofthe production facilities. A field reservoir model is constantly updated withthe latest production data which gives confidence in the understanding of thedeliverability of the reservoir. The installation of the second stagecompression is now well advanced and is scheduled to be operational during thethird quarter 2007. Production rates have been reduced in line with remainingreserves and planned production for 2007 is 10.6 Bcf. The Galata development project has been very commercial for Melrose andproduction from Galata has underpinned Group production and revenue sincemid-2004. The Galata field has now produced over two thirds of its reserves andthe goal in Bulgaria over the next year is to add reserves through explorationto replace and supplement Galata production. Further consideration is also beinggiven to the possible use of the Galata reservoir as a gas storage facility. Exploration Melrose has a 100% working interest in four exploration licences offshoreBulgaria: Block Kaliakra 99, Block Emine, Block Rezovska and Block Bourgas Deep.In total, these licences cover an area of 12,043 km(2). Exploration activity in 2006 focused on preparation for the planned 2007drilling programme. About 2,300 km2 of seismic was purchased and reprocessed,including 450 km2 of specialised AVO analysis. Sea-floor coring and geochemicalsampling was undertaken over two of the prospects in order to assist in theevaluation of prospectivity. 240 sea-bed samples covering an area of about 300km2 were taken in this survey. A further 610 km2 of high-resolution shallowseismic was acquired over the prospects in order to refine them with greateraccuracy and to identify gas horizons in the shallower sections. The Group's exploration priorities in Bulgaria in 2007 are aimed at evaluatingthe deeper water areas of three blocks. Building on the exploration work doneover the last three years, three firm exploration wells are planned targetingprospects on Block Kaliakra 99, Block Bourgas Deep and Block Rezovska. Dependingon results, two further wells are planned. The Atwood Southern Crosssemi-submersible rig arrived on the first location in mid-March 2007 and theresults of the drilling programme are expected over the next several months. Inaddition to the exploration wells a further 2,600 km2 of 2-D seismic will beacquired during 2007. Block Bourgas Deep Melrose acquired the rights over Block Bourgas Deep from a subsidiary ofOccidental in 2006. Block Bourgas Deep covers an area of 5,110 km(2) and islocated in the south eastern part of the Bulgarian Black Sea, east of thecontinental shelf with water depths ranging from 200m to 2,000m. Since theacquisition, Melrose has carried out an extensive review of the explorationpotential of the block using 2-D seismic acquired on the Block by previousoperators. Melrose's review has included the reprocessing of selected 2-Dseismic lines, AVO modelling and sea-bed geochemical sampling. A number of play concepts have been identified within the Block in both the deepand shallower water areas. Melrose's initial focus has been on the shallower,western area of the Block. The play concept here involves a number of brightamplitude features, which relate to both structural and stratigraphic traps onthe continental shelf-edge area. The Izgrev prospect has been identified as the highest ranked prospect in thisarea and the Izgrev No.1 will be the first well to be drilled as part of the2007 drilling campaign. The Izgrev No.1 will test a Miocene channel immediatelybelow a major unconformity interpreted as base Pliocene. Block Kaliakra 99 Block Kaliakra 99 covers an area of 2,412 km(2) in water depths mostly less than700 m. In 2005 Melrose drilled two wells in the south-western part of the Blocktargeting stratigraphic channel targets in the Oligocene and Eocene. Both wellsencountered good reservoir sands and residual hydrocarbons, but were plugged andabandoned as commercial hydrocarbon accumulations were not encountered. The southern area of Block Kaliakra 99 is still considered to be veryprospective, and a number of prospects and leads have been worked up. All datagathered during drilling and field work has been incorporated into seismicmapping and prospect evaluation. In 2007 one firm exploration well is plannedtargeting the Obzor prospect in the deeper water area in the south-easterncorner of the Block. A second well targeting the Kamchia prospect is planned ifthe results of the Obzor No.1 are positive. The prospects to be targeted arePliocene sandstone fans, which have not been tested in this area of the BlackSea before. A number of adjacent prospects have been mapped in detail using the3-D seismic and the potential of this play in the area is significant. The northern part of Block Kaliakra 99 is geologically different from the southand to date has been evaluated with 2-D seismic only. The area lies close to theonshore 150 MMbbls Tulenovo oil field and the current understanding suggeststhat the northern area of Block Kaliakra 99 lies on the most likely migrationpathway for oil to this field. The plays here are both structural andstratigraphic and an additional 2-D survey to cover the leads and prospects inthis area is planned for 2007. Block Rezovska Block Rezovska covers 504 km(2) and is located at the southern limit ofBulgarian territory, adjacent to Turkish waters. The Block covers an areacharacterized by the Rezovo structural zone and this dominant structural featureis associated with all the prospects and leads defined in this Block. UpperCretaceous to Eocene sediments have been uplifted and form structural closures.Neogene to recent sediments overlay and drape this structure providing thepotential for stratigraphic traps. In order to assess the prospectivity of the Block further, Melrose hasundertaken geochemical sea-bed sampling over the highest ranked prospect, theRopotamo prospect. In addition, AVO processing has been completed over a numberof regional 2-D lines, crossing both Block Rezovska and the adjacent BlockEmine. The Ropotamo No.1 well, which is expected to be the third well in theprogramme, has a main target in the lower-middle Eocene with a secondary targetin the Oligocene. This is a large, high-risk target and, if successful, otheranalogous prospects have been identified in the area. Block Emine Block Emine is located directly south of Block Kaliakra 99 and extends to thesouthern Bulgarian border, covering an area of 4,018 km2. Water depths withinthe block range from less than 20 m to just over 450 m. The Block extends over two distinct geological regional settings. In the westernand central part of the Block Tertiary sediments overlie Upper Cretaceousvolcanics within the Bourgas Depression. The eastern area of the Block isdominated by a structural high which runs NW-SE along the eastern boundary ofthe Block and is associated with the Balkanide compressional complex. One well was drilled in 1994 in the north-eastern corner of Block Emine. Thewell encountered gas shows but was not properly completed or evaluated. In orderto assess the prospectivity of the Block, Melrose has purchased additional 2-Dseismic data acquired by previous operators. This data has been reprocessed andintegrated into the Melrose database. In addition, AVO processing and modellinghas been completed targeting numerous amplitude anomalies. This technical reviewof the available well and seismic data has been aided by data covering theadjoining acreage. The planned exploration programme in Block Emine in 2007 is to acquire a new 2-Dseismic survey designed to firm up prospect and lead mapping and to allow theeffective design of a 3-D seismic program in the future. No wells are planned onBlock Emine in 2007. Block Galata Exploration Melrose reapplied for the vacant Block Galata exploration area in 2005. Melrosehas been notified that its bid for the block was the highest but, unfortunately,the Ministry of Environment and Waters published a decision in January 2007 thatit did not intend to complete the bid process and award the Block. Melrose iscurrently appealing this decision in Bulgaria. Exploration summary The up-coming drilling programme in Bulgaria represents the culmination of amajor exploration effort by Melrose over three years. This area of the Black Seais a largely un-drilled hydrocarbon province and although evidence of structure,reservoir and the presence of hydrocarbons have been seen in a number ofdifferent areas the exploration wells are not without risk. The attraction ofthe area to Melrose lies in the reasonable fiscal terms, the potential access toEuropean gas markets and in Melrose's proven ability to complete developments inthe area. Most importantly, Melrose's acreage position and the number of otherprospects and leads already identified give Melrose an ability to scale-up onany exploration success. In exploration terms the balance of risk and reward ofthe exploration programme is attractive. USA Following the acquisition of Merlon and the addition of its East Texas assets,the Group's expanded interests in the US now combine a good balance of existingproduction of both oil and gas with development projects and exploration upside. East Texas The properties located in North Raywood and Rankin Fields, Liberty and HarrisCounties, Texas, cover an area of approximately 18,000 net acres and includenine producing gas wells. These assets balance the Group's predominantlyoil-producing portfolio with significant gas production and provide someinteresting exploration upside. Average net daily production from the Group'sinterests in East Texas for the period since acquisition amounted to 6.1 MMcfpdof gas and 48 bpd of oil and condensate. The North Raywood Field is located about 40 miles northeast of Houston, Texas,in Liberty County. The field was discovered in 1953 with the drilling of the MrsE Morris et al well which reached a total depth of 11,750 ft and was completedas a gas producer in the Cook Mountain zone. The Rankin Field is located about20 miles northeast of Houston, Texas, in Harris County. The field was discoveredin 1948 with the drilling of the Bossier Ruby D well, which was completed as agas producer in the Yegua zone. Melrose owns exclusive 3-D data over the area around the Rankin field and overthe last few months Melrose has carried out a detailed review of the geology andgeophysics of the area. The review has yielded encouraging results and severalleads and prospects have been identified for drilling. Two prospects of 25 Bcfand 42 Bcf have been selected and are likely to be drilled in 2007. An appraisalwell close to existing production may also be drilled. Permian Basin Average daily production from the Group's interests in the Permian Basinincreased by 2% in 2006 to 941 boepd. The focus over the last year in thePermian Basin has been the continued implementation of the secondary recoveryprogrammes on two of the Group's principal fields - the Jalmat field and theArtesia field. This last year's capital expenditure programme was cut back from original plansfollowing the acquisition of Merlon Petroleum and, as a result, only 9 new wellswere drilled during the year. Capital expenditure in 2006 of $12.2 million(2005: $14.2 million) comprised $5.1 million (2005: $8.0 million) on new wells,$4.6 million (2005: $4.1 million) on the secondary recovery implementation and$2.5 million (2005: $2.1 million) on workovers and recompletions. Jalmat field 6 new wells were drilled on the Jalmat field during 2006, all of which wereinfill wells drilled as part of the waterflood programme on this field. A secondwater injection facility and tank battery has been built on the Cone Jalmatlease in the southern area of the Jalmat field. This now means there are activewater injection programmes in both the northern and southern areas of thesefields and there are adequate injection facilities to fully implement thewaterflood of this field. A further 9 producing or shut-in wells were converted to water injection during2006 and there are now 30 active water injection wells in the Jalmat field. Twoshut-in water-source wells were tested and will be reactivated in 2007 whenadditional volumes are required for water injection. Average daily productionfrom the Jalmat field increased by 4.2% in 2006. This was in line withexpectations taking into account the decline rates of new wells drilled over thelast three years and before the waterflood programme has had any tangibleeffect. Artesia field 3 new wells were drilled on the Artesia Unit during 2007 as part of thesouth-western area pilot waterflood programme. The north-western pilotwaterflood has not yet been activated, pending construction of a new injectionfacility and laying of a high pressure water injection trunk line which is beingplanned for 2007. There are now 29 active water injection wells in this field.Average net daily production from the Artesia field decreased by 10.7% but allof this decline was from the non-operated interests in this field. Other interests Average daily production from the Group's other interests in the USA during 2006increased by 7% to 274 boepd. This included production from the Group's interestin the Main Pass 139 which converted from a royalty interest to a 10% workinginterest during 2006. FRANCE The Rhone Maritime Concession, which covers an area of 15,600 km(2), was renewedin November 2005 for an exploration period of five years. This is a high-risk,deep-water concession and Melrose's exploration activity on the Concessionduring the last year has centred on the completion of a block-wideinterpretation of all aspects of the petroleum system. New play fairways havebeen recognised which coincide with areas of observed natural hydrocarbonseepage. Melrose's objective has been to develop viable theories for thegeneration and trapping of hydrocarbons on the Concession. The goal will then beto seek industry partners to participate in the acquisition of 3-D over part ofthe Concession and, in due course, in drilling a well on the Concession. Recent exploration work has focused on the integration of additionalre-processed seismic data to allow a detailed seismic interpretation across theentire Concession. The results have greatly improved the quantification ofstructural and stratigraphic trapping mechanisms and have provided a betterunderstanding of depositional processes in the area. Coupled with results from a3-D thermal basin modelling study and recently acquired information on naturaloil seepages, it has been possible to define focal areas for future exploration. Isopach thickness mapping from the interpreted seismic data has revealed severalpre-salt, Miocene, depocentres for large turbiditic fans. These fan bodies arelikely to contain thick reservoir sands as seen in other deep waterpetroliferous basins around the world. The location of the turbidite systems ispredominantly in the northern part of the Concession. This area is also the mainfocus for hydrocarbon migration pathways defined by the recent basin modellingstudy and highlighted by the corresponding location of surface oil seeps. Thisarea, along with adjacent large, post-salt structural closures is likely to bethe focal area for future exploration. The current work programme is aimed at investigating the nature of the oil seepsin order to understand more about the hydrocarbon source and the timing of thehydrocarbon charge into potential traps. Two surveys are being planned to samplethe seeps both on the surface of the Mediterranean and at the seabed. If thiswork brings the expected results, a large infill 2-D seismic survey will beconsidered for late 2007 in order to aid the definition of leads and prospectswithin the delineated focal area. Melrose will seek to farm-out an interest inthe Concession in order that the work programme can be directed towards thedrilling of a well within the next three years. OIL AND GAS RESERVES Proved and Probable Reserves Proved and probable reserves have been estimated in accordance with thedefinitions contained in Chapter 19 of the UKLA Listing Rules governing MineralCompanies. Proved and probable reserves are the estimated quantities of crude oil, naturalgas and natural gas liquids which geological, geophysical and engineering datademonstrate with a specified degree of certainty to be recoverable in futureyears from known reservoirs and which are considered commercially producible.The figures are estimated on the basis that there should be a 90% probabilitythat the actual quantity of recoverable reserves will be more than the amountestimated as proven and there should be a 50% probability that the actualquantity of recoverable reserves will be more than the amount estimated asproved and probable. Proved reserves in the USA are as evaluated by independent petroleum engineers.Proved and probable reserves in Bulgaria and Egypt and probable reserves in theUSA are directors' estimates based upon evaluations by Company employees whichhave been reviewed by independent petroleum engineers. At 31 December 2006 the Group's proved and probable reserves, calculated on anentitlement basis, comprised: Egypt Bulgaria USA Total Oil Gas Gas Oil Gas Oil Gas Mbbl MMcf MMcf Mbbl MMcf Mbbl MMcf-------------- ------- ------- -------- ------- ------- ------- -------Proveddeveloped 3,592 97,226 20,711 2,575 12,635 6,167 130,572Provedundeveloped 2,088 62,393 8,900 9,083 9,670 11,171 80,963 ------- ------- -------- ------- ------- ------- -------Proved 5,680 159,618 29,611 11,658 22,305 17,338 211,534 ------- ------- -------- ------- ------- ------- ------- Probabledeveloped 412 12,487 5,900 - - 412 18,387Probableundeveloped 2,032 17,083 1,700 - - 2,032 18,783 ------- ------- -------- ------- ------- ------- -------Probable 2,444 29,570 7,600 - - 2,444 37,170 ------- ------- -------- ------- ------- ------- ------- Developed 4,004 109,713 26,611 2,575 12,635 6,579 148,959Undeveloped 4,120 79,475 10,600 9,083 9,670 13,203 99,745 ------- ------- -------- ------- ------- ------- -------Proved andprobable 8,124 189,188 37,211 11,658 22,305 19,782 248,704 ------- ------- -------- ------- ------- ------- ------- Movements in the Group's proved and probable reserves during the year were asfollows: Egypt Bulgaria USA Total Oil Gas Gas Oil Gas Mboe MMcfe Mbbl MMcf MMcf Mbbl MMcf-------------- ------- ------- -------- ------- ------- ------- ------- At 1 January2006 1,259 124,119 55,155 12,014 13,673 45,431 272,585Acquisitions 2,410 82,135 - 148 9,953 17,906 107,436Extensions anddiscoveries 5,253 11,433 - 101 302 7,310 43,859Revisions (661) (22,709) - (337) 94 (4,767) (28,601)Production (137) (5,790) (17,944) (268) (1,717) (4,647) (27,882) ------- ------- -------- ------- ------- ------- -------At 31 December2006 8,124 189,188 37,211 11,658 22,305 61,233 367,397 ------- ------- -------- ------- ------- ------- ------- OIL AND GAS RESERVES (Continued) Discounted Net Present Value The net present value, discounted at 10% per annum, of the Group's proved andprobable reserves at 31 December 2006 was as follows: Egypt Bulgaria USA Total Discounted net present value (NPV10) $000 $000 $000 $000--------------------- -------- ------- ------- ------- Proved developed 285,085 60,268 63,627 408,980Proved undeveloped 154,940 30,103 176,581 361,624 -------- ------- ------- -------Proved 440,025 90,371 240,208 770,604 -------- ------- ------- ------- Probable developed 53,709 19,180 - 72,889Probable undeveloped 94,991 6,729 - 101,720 -------- ------- ------- -------Probable 148,700 25,909 - 174,609 -------- ------- ------- ------- -------- ------- ------- -------Proved and probable 588,725 116,280 240,208 945,213 -------- ------- ------- ------- The discounted net present value is based upon the following pricingassumptions: • USA: $55.00 per barrel of oil and $7.00 per Mcf • Bulgaria: $4.42 per Mcf • Egypt: $55.00 per barrel of condensate, $7.81 per Mcf (Qantara) and $2.50 and $2.65 per Mcf (El Mansoura) The discounted net present value is calculated on the basis of these commodityprices and of estimates of capital and operating costs at current prices withthe resulting net cash flows being discounted at 10% per annum. The discountednet present value is not necessarily an indication of realisable market value. CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2006 Year ended 31 Year ended 31 December 2006 December 2005 $000 $000--------------------------------- ------- ------- Revenue 116,336 94,506 Depletion (40,646) (33,378)Decommissioning charge (1,621) (1,144)Unsuccessful exploration costs (8,298) (9,255)Other cost of sales (17,912) (10,429) ------- -------Total cost of sales (68,477) (54,206) ------- ------- Gross profit 47,859 40,300 Administrative expenses (10,344) (8,136) ------- ------- Profit from operations 37,515 32,164 Financing income 1,892 9,897Financing costs (28,284) (10,304) ------- -------Profit before tax 11,123 31,757 Income tax expense (11,082) (9,350) ------- ------- Profit for the year 41 22,407 ------- ------- Earnings per share (cents) Basic - 28.9 ------- ------- Diluted - 28.1 ------- ------- The profit for the year is 100% attributable to equity shareholders. Note: All operations were continuing operations. CONSOLIDATED BALANCE SHEETas at 31 December 2006 At 31 December At 31 December 2006 2005 $000 $000 ----------- ----------- Non-current assetsGoodwill 66,173 -Intangible assets 85,701 19,281Property, plant and equipment 473,839 196,186Financial assets 5,011 4,132Deferred tax asset 16,468 17,259Other receivables - ------- ------- 647,192 236,858 ------- -------Current assetsInventories 24,104 6,847Trade and other receivables 28,338 23,945Cash and cash equivalents 17,769 7,965 ------- ------- 70,211 38,757 ------- ------- ------- -------Total assets 717,403 275,615 ------- ------- Current liabilitiesBank loans - (20,000)Other loans (3,229) (3,500)Trade and other payables (34,677) (14,298)Provisions (1,889) (1,099) ------- ------- (39,795) (38,897) ------- ------- Non-current liabilitiesBank loans (287,149) (47,519)Other loans - (17,500)Deferred tax liability (81,245) (1,338)Provisions (10,027) (6,797) ------- ------- (378,421) (73,154) ------- ------- ------- -------Total liabilities (418,216) (112,051) ------- ------- Net assets 299,187 163,564 ------- ------- Equity attributable to shareholdersIssued capital 18,502 14,080Share premium 141,629 8,579Special reserve 101,244 111,244Retained earnings 37,812 29,661 ------- -------Total Equity 299,187 163,564 ------- ------- COMPANY BALANCE SHEETfor the year ended 31 December 2005 Year ended 31 Year ended 31 December 2006 December 2005 $000 $000---------------------------- ----------- -----------Profit from operations 37,515 32,164Adjustments for:Depreciation 503 204Depletion and decommissioningcharge 42,267 34,522Unsuccessful exploration costs 8,298 9,255Loss on disposal of assets 16 14Equity-settled share-basedpayment expenses 438 737Income tax charge on Egyptianrevenue (6,129) (6,968) ------- -------Operating cash flow beforechanges in working capital 82,908 69,928 (Increase) in inventory (11,072) (5,463)(Increase) in trade and otherreceivables (4,393) (4,148)Increase/decrease in trade andother payables 36,966 (303) ------- -------Cash generated from operations 104,409 60,014 Income taxes paid - - ------- -------Net cash inflow from operatingactivities 104,409 60,014 ------- ------- Cash flows from investing activitiesProceeds from sale of property,plant and equipment 150 -Proceeds from sale ofinvestments 547 5,350Interest received 765 416Acquisition of property, plantand equipment and intangibleassets (116,276) (67,671)Acquisition of subsidiary (netof cash received) (252,340) - ------- -------Net cash outflow from investingactivities (367,154) (61,905) ------- ------- Cash flows from financing activitiesProceeds from the issue of sharecapital 141,127 8,669Fees payable (3,656) (234) ------- -------Net proceeds from the issue ofshare capital 137,471 8,435 Interest paid (18,835) (6,472)Loan arrangement fees (13,643) -Borrowings raised 448,987 6,000Repayment of borrowings (279,919) -Dividends paid (2,222) (1,333) ------- -------Net cash inflow from financingactivities 271,839 6,630 ------- ------- Net increase in cash and cashequivalents 9,094 4,739Cash and cash equivalents atstart of period 7,965 4,237Effect of exchange ratefluctuation on cash held 710 (1,011) ------- -------Cash and cash equivalents at endof period 17,769 7,965 ------- ------- Notes To Financial Information 1. Basis of preparation The preliminary financial information has been prepared on the basis of theaccounting policies set out in the most recent set of financial statements forthe year ended 31 December 2005. These policies are detailed on pages 35 to 39of the Melrose Resources plc annual report for 2005. This report is approved bythe Board of Directors on 2 April 2007. 2. Consolidated statement of recognised income and expenses Year ended 31 Year ended 31 December 2006 December 2005 $000 $000----------------------------------- ------- -------Exchange differences onnon-functional currency entities (69) -Cash flow hedges - effective portionof changes in fair value 358 21Deferred tax oncash flow hedges (136) (8) ------ ------- 153 13Profit for the period 41 22,407 ------ -------Total recognised income for the year 194 22,420 ------ ------- 3. Annual Accounts The financial information set out in this announcement does not constitute theGroup's statutory accounts for the year ended 31 December 2005 or 2006 but isderived from those accounts. Statutory accounts of Melrose Resources plc for2005, which were prepared in accordance with International Financial ReportingStandards ("IFRSs") as adopted by the EU, have been delivered to the Registrarof Companies and those for 2006 prepared under IFRSs as adopted by the EU, willbe delivered in due course. The auditors have reported on those accounts; theirreports were (i) unqualified and (ii) did not include references to any mattersto which the auditors drew attention by way of emphasis without qualifying theirreports and (iii) did not contain statements under section 237 (2) or (3) of theCompany's Act 1985. EU law (IAS Regulation EC 1606-2002) requires that the annual financialstatements of the Group for the year ended 31 December 2006 be prepared inaccordance with International Financial Reporting Standards ("IFRSs") and itsinterpretations as adopted by the European Union ("adopted IFRSs"). Theaccounting policies adopted by the Group and Company in this financialinformation are consistent with those used in the financial statements for theyear ended 31 December 2005. Glossary bbl barrel of oil or condensateBcf billion cubic feet of gasBcfe billion cubic feet of gas equivalentbcpd barrel of condensate per dayboe barrel of oil equivalentboepd barrel of oil equivalent per daybopd barrel of oil or condensate per daythe Melrose Resources plcCompanyEBITDAX earnings before interest, taxation, depletion, depreciation, amortisation and unsuccessful exploration costsGIIP gas initially in placethe the Company and its subsidiariesGroupMbbl thousand barrels of oil or condensateMboe thousand barrels of oil equivalentMcf thousand cubic feet of gasMelrose the Company or the Group, as appropriateMerlon Merlon Petroleum CompanyMMbbl million barrels of oil or condensateMMboe million barrels of oil equivalentMMcf million cubic feet of gasMMcfe million cubic feet of gas equivalentMMcfpd million cubic feet of gas per dayNPV10 net present value discounted at 10% per annumPDP proved developed producingpsi pounds per square inchPUD proved undevelopedTcf trillion cubic feet of gas This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Management Resource Solutions