Drilling doubts bore a hole in Melrose shares

SHARES in Melrose Resources fell yesterday after the Edinburgh-based oil and gas explorer delivered a mixed drilling update and was hit by a broker's downgrade.

Output in the company's third quarter fell by 6 per cent but Melrose said it expected full-year production to rise from 40,000 barrels of oil equivalent per day (BOEPD) to 40,700 barrels.

But analysts at Numis said there were "limited catalysts" to drive the share price back up again and so downgraded their recommendation from "add" to "hold".

Melrose received a blow earlier this month when Canada-based Sterling Resources said it had ended an agreement for the Edinburgh company to take a stake in two exploration sites off the coast of Romania.

Shares in Melrose shed 16 per cent on the day the announcement was made and are now sitting about 23 per cent lower, closing down 2.4p last night at 250p.

In its third-quarter update, the explorer - which was awarded two licences in Romania in July - said it was finalising the agreements and expects to start the initial three-year exploration programme in the first half of next year.

Melrose noted that its Egyptian gas fields continued to produce strongly at about 200 million cubic feet per day, but it had to restrict production at the West Dikirnis field while it ramped up operations.