Melrose finds new gas in Bulgaria

Published on Wednesday 29 October 2008 20:46

MELROSE Resources has revealed a major gas discovery in Bulgaria, as the company draws close to securing a lucrative deal to provide gas storage to the country.

The Edinburgh-based oil and gas firm supplies about 15 per cent of Bulgaria's gas from its Galata field, which it plans to turn into a storage facility.

Yesterday, it said it had made a discovery in the nearby Kavarna exploration permit, and that its initial estimate is that it contains reserves of 24 billion cubic feet of gas.

Galata's production is being reduced, but Melrose believes it may be able to maintain a major chunk of Bulgarian production through the latest discovery along with the recent Kaliakra find and other prospects in its ownership.

Melrose intends to pipe gas from the recent discoveries into Galata during the summer, which will be released for supply during the winter when demand is higher.

Chief executive David Thomas said the company still had to agree commercial terms with the Bulgarian government and submit a development plan for the facility, but was confident the deal would be completed smoothly.

"I don't think we expect any issues, the government really is driven from a strategic perspective to put in a new gas storage facility," he said.

Thomas said the government was being driven by EU guidelines to increase its gas storage capabilities, while it also saw the facility as a way to cope with fluctuating seasonal demand.

It is also believed that the country sees the facility as a means to provide some hedging against the potential power held over it by Gazprom, the Russian gas giant, which provides around 80 per cent of its supply.

For Melrose, the facility is expected to be a financial coup, at a time when the Galata field was already approaching the end of its commercial life.

While the Scots firm will not disclose what it believes the deal will be worth for fear of compromising commercial negotiations, some analysts have estimated that it could be in the region of 60 million.

Despite the substantial gas find revealed yesterday, Melrose shares dipped 7.5p to 233.5p as the group warned it was trimming its production forecasts by 900 barrels of oil equivalent a day to 18,300 boepd.

The fall came from the scaling back of production from the Galata well to maintain sufficient gas to allow it to be used as a storage facility. Melrose also warned that there had been delays at bringing additional production from Egypt on stream.

Brewin Dolphin analyst David Macnair cut his 2008 pre-tax profit forecast on Melrose by $53m (32m) as a reflection of the reduced production and "the sharp correction in oil prices".