Bulgaria drags Melrose to massive loss

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Melrose Resources, the oil and gas explorer, is to increase its exploration drive despite an unsuccessful program in Bulgaria that resulted in a pre-tax loss of $55 million.

Edinburgh-based Melrose, which is set to join the FTSE 250 for the first time next Wednesday, confirmed yesterday it had committed $250 million to capital expenditure this year, almost half of which will be spent on exploration.

In 2007 the company was forced to write off the value of its deep water assets in Bulgaria, leading to charges of more than $60 million after three wells failed to find commercial reserves.

The write-down meant Melrose recorded a pre-tax loss of $55 million, despite turnover increasing 36% to $158.1 million.

Excluding the write-downs, Melrose said earnings before interest, tax, depreciation, amortization and capital expenditure rose 36% to $120 million.

Chief executive Dave Thomas said the company was unlikely to conduct more deep-water drilling in the near future after its experience in Bulgaria, but planned to drill 14 wells in Egypt, where it has most of its production, and two in the US.

Total production rose 18% to 15,015 barrels of oil equivalent a day (boepd), and Melrose forecast production would rise by another 30% in 2008 to about 20,000 boepd.

Production will be boosted by a full year's contribution from the West Khilala and West Dikirnis fields in Egypt, both of which came on stream during 2007. Revenue is expected to increase at a “substantially higher” rate than production, Thomas said, with more than half of group revenue expected to come from oil rather than gas for the first time. (scotsman)

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