Bulgarian success helps drive Melrose Resources into the black

OIL and gas explorer Melrose Resources swung into profit last year, thanks to strong production from its Bulgarian wells.

The first full year of production from its Kaliakra and Kavarna gas fields in the Black Sea also helped the Edinburgh-based firm increase revenues, by 21 per cent to $291 million (£183m).

Chief executive David Thomas said a higher price negotiated for the gas – which is sold to Bulgaria – had helped. With most of its costs remaining fixed, the firm reported profits after tax of $51.6m, compared to a loss of $11.7m in 2010.

Thomas said the previous year’s deficit was because of a one-off charge but, excluding that, profits still more than doubled. He said the company should be able to remain profitable in the years ahead.

“We should be producing [from Kaliakra and Kavarna] for another seven or eight year years,” Thomas said. “We will be bringing an additional field on stream in the middle of next year to help maintain our production levels.”

He said the key for the company was to continue exploring its Bulgarian concessions, as the high gas price, low cost of extraction and favourable tax regime meant even small finds could produce handsome returns.

Melrose used its cash to pay down some of its debts, reducing its borrowing to $322.6m from $418.8m and setting out plans to further cut its financial gearing. It is also proposing a dividend of 3.6p per share for the year, up from 3.4p.

Thomas said the firm is now better balanced and less dependent on its maturing Egyptian assets. He added: “Last year, we generated about half our cash from operations in Bulgaria and half in Egypt.

“We are now much less dependent on our Egyptian fixed price gas contracts for revenues.

“We would like to build from here, so we are continuing to develop the portfolio. The key event last year was the signing of the concession agreements for our two new blocks in Romania.”

The company is planning to move quickly and start exploring the blocks, encouraged by a nearby deep-water gas find by Exxon-Mobil. It is carrying out seismic surveys this year to back up a multi-well exploration project in 2013-14.

It also has plans to drill a highly speculative well in a previously unexplored area of southern Egypt, as well as exploring in Turkey and in deep water off the south coast of France, and said it would consider buying more exploration and development assets.