MELROSE RESOURCES PLC

("Melrose" or "the Company")

Unaudited Interim Results for the six months to 30 June 2008

Melrose Resources plc (LSE: MRS) the oil and gas exploration, development and production company with interests in Egypt, Bulgaria, the United States of America, France and Turkey, today announces its unaudited interim results for the six months to 30 June 2008.

Operational Highlights

• 47% increase in average daily net production to 21.3 Mboepd (2007 - 14.5 Mboepd)
  
  
• 66% increase in net US proved plus probable oil and gas reserves (to 25.4 MMboe)
  
  
• Developments initiated on four new Egyptian fields and at West Dikirnis Phase II 
  
  
• US Permian Basin infill and waterflood programme commenced (2 rigs currently active)

• Bulgarian Galata gas storage project progressed

• Three new exploration discoveries (Holmes No.4, East Abu Khadra No.1, Damas No.1)

• Over 150% reserves replacement of forecast full-year production achieved by mid-year 

Financial Highlights

• 209% increase in revenue to $234.0 million (2007 - $75.8 million) 

• 258% increase in EBITDAX to $213.1 million (2007 - $59.5 million)

• Operating profit of $151.8 million (2007 - loss of $16.6 million)

• Profit after tax of $76.0 million (2007 - loss of $41.3 million)

• Committed bank facilities increased to $510 million 

• Interim dividend of 1.2 pence per share

   

Commenting on this, Robert Adair, Executive Chairman, stated:

"Melrose's financial and operational results for the first half of the year are excellent. A significant increase in production to an average daily net rate of 21.3 Mboepd has driven a 209% increase in our revenue, resulting in EBITDAX of $213 million for the period.  

We have also successfully continued our active exploration and development programme and have already achieved over 150% reserves replacement of our forecast full-year production. We are continuing with the programme and will drill six more exciting exploration prospects by year end. We look forward to the future with confidence."

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  or visit www.melroseresources.com  Chairman's statement

In the first half of 2008 Melrose has, as anticipated, achieved a significant increase in production and revenue. This is reflected in exceptional financial performance with EBITDAX increased by 258% to $213.1 million and profits after tax of $76.0 million. At the same time we have enhanced our portfolio of exploration, appraisal and development projects and we are well positioned for continued growth in the future.  

Egypt

Increased production from our Egyptian oil and gas fields has now built a platform of revenue and cash flow which will fund our continuing exploration and development activities in the country. The two main fields, the West Dikirnis oil and gas field and the West Khilala gas field, are performing well. They are both fields with excellent reservoir qualities and they will underpin the Company's production profile for a number of years. A number of smaller fields also contributed to our strong production performance in Egypt most notably the El Tamad oil field, which continues to exceed expectations.  

Phase I of the West Dikirnis development was completed in January and we are now moving forward with the Phase II development of the field which is designed to maximise the recovery of hydrocarbon liquids. Phase II involves a number of integrated projects including the drilling of horizontal oil production wells, the installation of an LPG plant to recover high-value propane and butane liquids from the produced gas stream and the installation of facilities to re-inject gas into the reservoir to maintain the pressure during the initial oil production phase. The work programmes are well advanced; the first horizontal well is currently being drilled and facilities work should be largely completed by mid-2009. 

These projects should extend the field's liquids production plateau rate of around 10 Mboepd through to late-2010 and increase the field's ultimate proven plus probable reserves above the current estimate of 41.5 MMboe. The new facilities will also provide other environmental and strategic benefits since they will eliminate the need for gas flaring at the West Dikirnis facilities and the LPG plant will also be used to treat gas from other Melrose fields.

In parallel with our development activities on West Dikirnis, we have also successfully drilled a sidetrack to the Qantara No.4 production well and concluded that it will be possible to re-establish production from the Qantara field facilities which had previously been shut-in. The well was flow tested at a rate of 7.0 MMcfpd of gas and 1,210 bpd of condensate and the gross reserves are estimated at 3.5 Bcf of gas and 390 Mbbls of liquids. Given the high condensate yield and the high gas price provided for in the Qantara concession agreement (equivalent to approximately $14 per Mcf at an oil price of $100 per bbl) the production facilities are being reactivated and production is expected in October this year. 

We are also moving ahead with two new development projects at our South Zarqa and North East Abu Zahra fields, which contain combined gross reserves of 59 Bcf and 1.2 MMbbls of liquids. Government approval has been received for the field development plans and they will be produced via a common 10" pipeline tied back to Melrose's South Batra facilities. First production from the fields is expected in the second quarter of 2009. 

In the first half of 2008 we continued with our active exploration drilling programme in Egypt and drilled five wells, two of which were commercial discoveries. More recently, we have drilled two further exploration wells Ghizala No.1 and Ar Rub No.1, both of which failed to encounter commercial hydrocarbons.

The two commercial discoveries were made with the East Abu Khadra No.1 and Damas No.1 wells and these were tested at 13.0 MMcfpd of gas with 182 bpd of condensate and 14.3 MMcfpd of gas with 105 bpd of condensate, respectively. The combined reserves for these discoveries are estimated to be at least 25 Bcfe and both discoveries are being fast tracked to production. East Abu Khadra will be tied back to the South Batra facilities and should come on stream in October 2008 and Damas will be tied back to the South Mansoura facilities with first production in March 2009.

Our programme of seismic acquisition has continued in 2008 with a further 712 km of 2-D data and 109 km2 of 3-D data acquired so far over the South East El Mansoura Concession. Initial interpretation of the data has confirmed the extension into this concession of the exploration trends we have already established in the El Mansoura Concession to the north. In addition, we have already identified a number of leads and prospects in the older Cretaceous and Jurassic formations which have proven to be prolific producing horizons in Egypt's Western Desert. 

Based on our available seismic and well data, there appears to be significant remaining exploration potential in the Nile Delta area in a variety of play types and geologic horizons. The analysis of recent well results has indicated, however, some increased drilling risks associated with a particular play type in the Sidi Salim formation which relies on fault seals as a primary trapping mechanism for the prospects. We are therefore focusing our near term drilling programme on structural exploration prospects which do not rely on sealing faults and oil field development and appraisal activity. The 12-month drilling programme contains seven exploration, three development and two appraisal wells and the exploration wells are targeting gross risked reserves of 230 Bcfe. Beyond mid-2009, we expect to be in a position to include additional wells in the programme to start exploring the Cretaceous and Jurassic horizons in South East El Mansoura.

In our Mesaha exploration concession in Upper Egypt we have continued to gather regional geological data and we are now preparing plans for the acquisition of a 2-D survey over part of the concession during late 2008 or early 2009. 

Bulgaria

The Galata gas field, offshore Bulgaria, has produced approximately 85% of its estimated ultimate recoverable reserves and is now entering its final year of planned production. In recognition of this we are moving rapidly forward with our plans to convert the field into a gas storage facility, which has the potential to add significant shareholder value. 

The storage project has strong support from the Bulgarian Government, who wish to supplement the country's existing gas storage capacity, and a joint feasibility study we conducted with the state-owned gas company, Bulgargaz, has concluded that the Galata field is well suited for conversion to a storage facility due its high-quality reservoir, infrastructure configuration and location. 

We envisage developing the project in three phases, building the storage capacity from 0.7 Bm³ to 1.2 Bm³ and finally to 1.7 Bm³. The first phase will cost approximately $30 million to reconfigure the existing field compression facilities, tie-back the suspended Galata East No.2 well and install metering and filtering equipment. Commercial negotiations regarding the appropriate tariff structure and levels are ongoing with the Bulgarian authorities who have indicated their desire to commence first gas injection during 2009. 

In December 2007 Melrose was re-awarded the Block Galata exploration concession which lies in the area around the Galata field production concession. We immediately drilled the successful Kaliakra exploration well which targeted a structure analogous to the Galata field. The well encountered a high quality reservoir section and was then suspended for future use as a production well. We are now proceeding with a field development plan under which the well will be completed and tested in late 2008 and tied back to the Galata platform using a 6" flow line in the first half of 2009. Production from the field will be integrated with the planned Galata gas storage project.

Also during the fourth quarter of this year, we plan to drill an exploration well on one of the other three prospects which lie on the Galata-Kaliakra exploration trend. This trend is estimated to contain around 72 Bcf of unrisked reserves in addition to the Kaliakra discovery volumes.  

USA

Work on the infill drilling and waterflood programme on our leases in the Permian Basin in New Mexico and West Texas has commenced and is continuing at pace with some positive early results. 

The planned drilling programme in the Jalmat field began in February 2008 and by mid-year 13 new wells had been drilled, 4 producers and 9 injectors, and 4 old wells had been converted to injection. Two of the new injectors have temporarily been put on production to take advantage of high initial oil flow rates and these will be converted to injection later. On the Turner Gregory field, we have completed various surface equipment improvements including the replacement of undersized pump units and pump station upgrades. We contracted a second drilling rig to work on this field and the first of 17 planned new wells was spudded in early August. On the Artesia unit, we are preparing for the waterflood with the construction of a new tank battery and water injection facilities and expect to start drilling early in 2009. 

In parallel with the operational activity, we have completed a technical review of our Permian Basin leases and as a result have increased our net proved oil and gas reserves by 3.2 MMboe and added new probable and possible reserves of 5.2 MMboe and 15.1 MMboe, respectively. The proven and probable reserves increases are primarily associated with completing the full waterflood programme at a 20 acre well spacing and the possible reserves may be accessed at a reduced 10 acre well spacing.

In East Texas, an active exploration programme is underway. In June we drilled the successful Holmes No. 4 well, which added estimated gross gas reserves of 10.2 Bcf. This well has already been tied back for production and is currently flowing at 9 MMcfpd of gas with 240 bpd of condensate and we are maturing similar prospects in the area for possible drilling next year. Two exciting multi-target exploration wells, Nunan No.1 and Ramsey No.1, are also planned on our Harris County acreage later this year with the first well expected to spud around the end of September. The combined unrisked reserves being tested by these wells is over 140 Bcfe.

The combined effect of the Permian Basin upgrade and Holmes No.1 discovery is to raise the Company's US proven plus probable reserves base to 25.4 MMboe, representing a 66% increase compared with our booked year-end 2007 volumes (before accounting for production). 

Turkey

In September 2007, Melrose and our joint-venture partner, GYP, were awarded eight exploration concessions in the South Mardin basin in south-east Turkey on the border with Syria. We are now planning a 2-D seismic acquisition programme over some high graded areas on the blocks and we expect this to be completed early in 2009. We have been encouraged recently by a significant oil discovery on a block to the north of our concessions in a similar geologic setting and Palaeozoic reservoir horizon to the leads on our blocks. 

France

Our recent exploration work programme in the Rhône Maritime permit has focused on attempting to establish the presence of an active petroleum system within this frontier basin using sea-bed surveys and hydrocarbon seep analysis techniques. Our most recent survey completed in June has given some encouragement and we are currently in the process of a farm-out exercise with a view to attracting an industry partner to participate in a seismic programme in the area.

Financial Results 

The financial results for the half year reflect our strong operating performance with production increased by 47% to an average of 21.3 Mboepd during the period. EBITDAX increased by 258% to $213.1 million and we made a profit after tax of $76.0 million compared with a loss last year.

During the period we improved the Company's credit rating to B/B2 and increased our committed bank facilities to $510 million, with an averaged interest rate of approximately 3.2 per cent above US$ LIBOR. The new increased facilities, coupled with our strong cash generation, provide us with ample financial resources to implement a very active exploration and development work programme. 

To reflect our strong financial performance and in line with our progressive dividend policy, we are introducing an interim dividend of 1.2 pence per share which will be paid on 17 October 2008 to shareholders on the register on 19 September 2008. Subject to continued favourable trading results, we expected to propose a final dividend for the year of at least 1.6 pence per share.

Outlook

This year the Company has achieved record production levels and our production forecast for the year on a working interest basis remains unchanged at 38.5 Mboepd. In the first half we also benefitted from unusually high product prices which significantly increased revenue generation in all of our core areas. In Egypt this has allowed us to accelerate the recovery of past costs in the El Mansoura concession and, as a result, in the second half we will receive a lower share of production under the terms of our concession agreements. Accordingly, we are revising our group net entitlement full-year production forecast down by 4% to 19.2 Mboepd but the net effect of the higher oil prices and the reduced production share is positive for Melrose from a financial perspective. 

The results of our recent exploration programme have been encouraging and with the significant reserves upgrades in the USA and the additional potential of the Galata gas storage project the long term outlook for the Company is extremely positive. In the short term, we intend to drill six exploration prospects in the USA, Egypt and Bulgaria by year end and these have the potential to add material value to the Company. We have in place the asset portfolio, the financial resources and, most importantly, the people we need to look forward to the future with confidence.

Robert F M Adair

Chairman

27 August 2008 

Financial Review

Results for the six months ended 30 June 2008

Revenue in the six months ended 30 June 2008 was $234.0 million (six months ended 30 June 2007 $75.8 million). Operating profit was $151.8 million (six months ended 30 June 2007, loss of $16.6 million). Profit before taxation in the first half was $134.2 million (six months ended 30 June 2007, loss of $34.3 million). Profit after taxation was $76.0 million (six months ended 30 June 2007, loss of $41.3 million). A dividend of 2.1 pence per share in respect of the year ended 31 December 2007 was approved by shareholders at the AGM held on 12 June 2008.

Net daily production statistics and product pricing information during the period were as follows:

EBITDAX for the period was $213.1 million (six months ended 30 June 2007, $59.5 million). Capital expenditures during the period amounted to $92.3 million (six months ended 30 June 2007, $98.7 million). Capital expenditures were split between Egypt - $64.6 million, Bulgaria - $12.1 million, USA - $14.9 million and Other - $0.7 million. 

  Independent review

Introduction

We have been engaged by the company to review the condensed set of financial statements in the interim financial report for the six months ended 30 June 2008 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Cash Flow Statement, Condensed Consolidated Statement of Recognised Income and Expense and the related explanatory notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclos