[size=75:1gwpa90x]novinite 17 January 2010

Daily Mail: Melrose in Line for Big Boost as Fields Begin Gas Production

Many companies are worried about 2010. They are nervous about the direction of the economy and the impact of higher taxes and unemployment on consumer and business confidence. Melrose Resources is in a rather different position.

A significant producer of both oil and gas, it has an exciting exploration pipeline, with many projects either coming on stream or getting under way this year.

The business was founded in the Nineties by chairman Robert Adair, an accountant specialising in oil and gas taxation. Adair still owns 50 per cent of the company so he is clearly committed to its long-term success. Chief executive David Thomas graduated in engineering and has spent nearly 30 years in the oil and gas industry, while the company's operations director, David Archer, has more than three decades of oil experience.

This cluster of expertise at the top is a good indication that the company knows what it is doing, while Adair's accountancy background should mean Melrose's finances are kept in good shape.

The group derives 90 per cent of its revenues from gas fields in Egypt, with the remaining ten per cent primarily coming from Texan oil. However, the mix should change soon as a large gas project in Bulgaria comes on stream. Not only will Melrose start producing gas there this year, but it is also developing an underground-storage plant. This type of facility is particularly useful for countries that depend on foreign sources for large amounts of gas.

Last winter, for instance, trouble in Ukraine cut off gas supplies for weeks and Bulgaria suffered badly. Homes were left without heating in the coldest part of the winter and businesses could not operate.

The new gas storage plant is likely to come on stream over the next two to three years, but in the meantime gas production means that 20 per cent of group revenues should come from the country this year.

The gas market is different from that of oil as gas is priced on a country-by-country basis. Bulgarian wholesale gas prices are about per 1,000 cubic feet, which is fairly expensive by global standards and means the country should be highly profitable for Melrose.

In Egypt, the price is just .70 but production costs are extremely low at 20 cents per 1,000 cubic feet, but again the country delivers handsome profits for Melrose. The company already produces more than 35,000 barrels of 'oil equivalent' a day (the terminology for measuring gas production), but two big projects are coming on stream this spring that will provide a material boost to production levels.

The company is also involved in a massive project in Egypt, prospecting for oil and gas in an area the size of Scotland with promising geological characteristics. There are few such sites left in the world and though the chances of success are about one in ten, which is typical at this stage, if the area does deliver, Melrose would enjoy a huge boost.

Elsewhere, a new gas project kicks off in Romania this year and costs should be reasonably low as the field is similar to the Bulgarian sites, so similar equipment can be used, and in Turkey the company is prospecting near the Syrian border and hopes to deliver results over the next couple of years.

Melrose worked hard in 2009 and production levels rose, but profits were affected by the slump in the crude oil price.