1

Investing in Exploration and Production in Egypt

John NaismithTechnical Manager

Melrose Resources plc

Talk to Scottish Oil Club15 January 2009

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Melrose Resources plc� FTSE 250 listed E&P company

� Market Capitalisation of £235m

� Interests in Egypt, Bulgaria, USA, Turkey, France� Operates & holds material interests in all areas

� Net reserves 54 MMboe end 2007

� Net production 18 Mboepd 2008

� Entry into Egypt in December 1998

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� O&G accounts for 40% of Egypt’s exports and 10% of its GDP

� Effective upstream oil and gas licensing system

� Stable fiscally and contractually� Oil production is in decline, tension

between servicing gas exports and domestic demand

Oil & Gas industry in Egypt

Source: BP Statistical Review of World Energy 2008

Algeria

Libya

SyriaQatarOman

Egypt

Oil Production: Egypt & Others (1965 to 2007)

Oil

Pro

duct

ion

(‘000

bpd

)

Gas Production: Egypt & Others (1970 to 2007)

Gas

Pro

duct

ion

(Bcf

/d)

Algeria

Qatar

Egypt

OmanKuwait

SyriaLibya

20.06,000

4

� Population ca. 76 million, avg annual population growth rate 1.9%

� Population highly concentrated in Nile corridor and delta areas

� Only 4% of total area� Low income levels in remote and rural areas

� 17% of population live on less than $1 per day

� Fresh water availability becoming a significant issue� Risk of inundation of coastal areas

� Significant impact on agriculture, industry, populations

� High level of education but skills shortages, & labour market relatively inflexible

Context of Oil & Gas industry in Egypt

Source: IIASA / Cairo Demographic Centre, Feb 2007

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Upstream Regulatory Regime

Ministryof Petroleum

EgyptianGeneralPetroleumCorporation

EgyptianNatural GasHoldingCompany

EgyptianMineralResourcesAuthority

GanoubEl WadiHoldingPetroleumCompany

EgyptianPetro-chemicalsHoldingCompany

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Petroleum Licensing

� Concessions awarded with several exploration periods of 2 to 4 years� Contractor responsible for funding all operations in concession area

� Minimum work programs approved by EGPC/EGAS/Ganope

� After a commercial discovery, a non profit-making Operating Company is formed� Owned 50/50 by EGPC and Contractor

� Commercial discoveries converted into development leases (20+ years)

� Agreements in the form of Production Sharing Contracts� All production sold to EGAS

• Gas at fixed domestic prices• Liquids at Egyptian international prices

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Oil & Gas Provinces in Egypt

Western Desert

Gulf of

Suez

Offshore Nile Delta

Onshore NileDelta

8

Melrose Egypt Chronology

November 2007First production at West Dikirnis

November 2007Mesaha concession awarded

February 2007First production at West Khilala

June 2006Acquisition of Merlon by Melrose

December 2005 / June 2006West Dikirnis discovery (gas / oil)

October 2005West Khilala discovery

July 2005SE El Mansoura concession awarded

December 2003First production at South Batra

February 2003South Batra discovery

March 2001First production at Qantara

September 1999Qantara development lease awarded

December 1998Melrose acquires Odyssey

June 1998El Mansoura / Qantara concessions awarded to Merlon/Odyssey

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Melrose / Mansoura

� Good Contractor – JV relations crucial for success� 2008: 241 JV staff, 56 Melrose staff� All Egyptian, no parallel expat structure� Considerable joint study work Cairo/Edinburgh

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10

32 30’ Eo

32 00’ Eo

31 30’ Eo

31 00’ Eo

30 30’ Eo

30 00’ Eo

1000

00

0 N

950

000

N90

000

N

M E D I T E R R A N E A NM E D I T E R R A N E A N S E AS E A

ANUBIS-1

I.M May , 2003

EL MAX-1

31

30’N

o31

00

’No

30

30’N

o

ISMAILIA

ALEXANDRIA

PORT SAID

BATTERLAKE

W E S T E R N D E S E

R T

EL MANSOURA

EL QANTARA

DUMYAT

ABU SIR-1 Alexandria Nourth B-1

FAYOUM-1

Alexandria Nourth -2

ABU QIR NORTH

EL KING-1ST

IDKU NORTH-1

IDKU NORTH-3

Alexandria N. F 1

1

2

ABU QIR WEST

1

1

EL TABIA-2

ALEXANDARIYA-1

MARAKIA –1

KAFR EL DAWAR-1

NWD 310 -1BURG EL ARAB-1

MARYUT F2-1

MARYUT A3-1

SHALTUT-1

ABU QIR

GEBEL KANTARA - 1

GEBEL MELHA - 1

NWD 343 - 1

NATRUN GHIBLI-1

NATRUN GHIBLI E. -1

WADI NATRUN - 1

TAHRIR - 1

BIRLGAT - 1

GS 373 - 1

GH 418 - 1

N.DILINGAT - 1

HOSH ISA - 1

650 000 E500 000 E 550 000 E 600 000 E 700 000 E 750 000 E

GH 423 - 1 ITA EL BARUD - 1

S.DAMANHOUR - 1

MAHMOUDIYA - 1

DISUQ - 1

ABU QIR - 3

BUSEILY - 1

EL HASSA - 1

GIDDIYA - 1

BURULUS - 1

ROSETTA -2ROSETTA -7

BALTIM MARE.-1

BALTIM S.-1A

A10 7

Jg 064-1

9

NIDOCO

EL QAR’A

NORTH WEST -1

NIDOCO - 8

ABU MADI W.-1

ABADIYA -1

ABU MADI

4

F11ST

7

13

12

2

3

KHILAIA-1

BILQAS N.-1

EL HAMUL – 1

SIDI GHAZY -1

TIDA -1

QAWASIM -1

SIDI SALIM -1

KAFR EL SHEIKH -1

QALLIN -1

TANTA -1

SHIBIN EL KOM -1

GS 313-3

LL 87-4

SATA-3

KHATATBA-1

KK 85-1

OURABI-1

R 69-1

GS 216-1

UBUR-1

Q 71-`1Q 72-`1

ABU SULTAN

KABRIT-`1

HABASHI-1

ABU HAMMAD-1

MIT GHAMR-1

SINDY-1

E.D.-8

E.D.-7

EL MANS.-2DIKIRNIS-1

TARIF1

2A

SAWARIS-1EL MANS.-1

SHERBEAN-1

GELGEL-1

E.D - 4

SAN EL HAGAR-1

FASADA-1

ABU MONKAR-1

ABUL NAGA-1MATARIYA-1

S.-1

12

345

MALLAHA-1x

ROMMANA -1

EL FAYROUZ

SNEH-1

DRAK-1

PORT SAIDSOUTH-1

HOUT-1

GOBY-1S,T1

PORT FOUADMARINE SE-1

PORT FOUAD M. - 1

NOURAS-1

ABU ZAKN-1

KERSH-1

BARACUDA W. DEEP-1

PORT FOUAD M. SW-1

DARFEEL-1

OCTOPUS-1

SEMMAN-1

KAROUS-1

KAROUS S.-1

DAMIETTA-1

MAYAS - 1

ASFOUR-1

RAS EL BAR-1AIDA 1ST

SEKHMET-1

SEKHMET-2

BASARTA-1

NIDICO - 4

E.D.- 6

E.D -2

BILQA SW.-1

N.TALKHA-1

BATRA1

E.D -1

2

3

S.-1

TAL EL AHMAR-1

L . Burullus

L . ManzalaL . Idku

2

MANSOURA-3

MONAGA - 1

WAKAR -1ABU SEIF - 1

SEGAN - 1

S.BATRA - 1MANSOURIYA - 1

S.MANSOURA - 1

BALTIM E. - 1

BALTIM N. - 1

BALTIM N.E. - 1

2

ROSETTA

4

3

5

AKHEN

TUNA N.E1

1

W-1

N.IDKU2

4

HAPY - 1

1

N.DENISE-1W-1

OSIRIS

SEITH -1

E-1

KARAWAN -1

DENISE-1

N.W-1

TUNA -1

EL TEMSAH

1

2

E.-1

SETIPIO-1

BARBONI-1

E.D -3E.D -5

EL TEMSAH NW-2

QANTARA

EL WASTANI

2

E -11

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E A S T E R N D E S

E R T

SCALE

0 5 10 15 20 25 KM.

10

10

ROSETTA T

REND

BA

LTIM

TR

EN

D

TEMSAH TREND

NEOGENE

QATTARA –ALAMEIN

RIDGE

HINGE LINE

GAS TREND

850

000

N

Nile Delta – Regional Setting

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Achievements in El Mansoura/SE Mansoura

� $700m invested over 10 years� 16 Development Leases declared� Re-invigorated/new plays� First significant oil field discovered

onshore Nile Delta� Fast track developments� Current Production of 176 MMscfe/d

(130 MMscf/d + 7600 blpd) WI basisSE Mansoura

Mansoura Qantara

NE Abu Zahra

W Khilala

S Bilqas

Abu Arida

W DikirnisMansoura

W Mansoura

Salaka

Tamad

Tummay

Rawdah

Aga

Shinfas

S Mansoura

Turbay

S Zarqa

0

2000

4000

6000

8000

10000

12000

07 Feb 06

07 May 06

07 Au g 06

07 Nov 06

07 Feb 07

07 May 07

07 Aug 07

07 Nov 07

07 Feb 08

Oil

Rat

e (B

BLD

)W.Dikirnis

Tamad

TamadW.Khilala

Al Rawda

W.Dikirnis

0

20

40

60

80

100

120

140

160

31 Dec 02

30 Jun 03

31 Dec 03

30 Jun 04

31 Dec 04

30 Jun 05

31 Dec 05

30 Jun 06

31 Dec 06

30 Jun 07

31 Dec 07

Gas

Rat

e (M

MSC

FD)

S.Batra

MansouryaS.BelqasS.Mansoura

Gas ProductionOil Production

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Exploration Focus

BILQAS

MIT GHAMR

EL WASTANI

KAFR EL SHEIKH

QAWASIM

SIDI SALIM

QANTARA

TINEH

ROSETTA

GELGEL

ABU MONKARS.MANSOURAMANSOURIYA

DARFEEL,DENISE,HA’PY,SETH

EL QARA,BALTIM,A.MADI,E.DELTA,S.BATRA,KHILALA

PORT FOAD N.AL RAWDAH

KERSH,WAKAR,ABU ZAKN

TEMSAH,AKHEN

QANTARA

SHERBEEN

W.DIKIRNIS

EL TAMAD

REGIONAL SEAL WITH STRATIGRAPHICALLY TRAPPED MARINE CHANNEL AND TURBIDITE SANDS. EASILY IDENTIFIED ON SEISMIC, GENERALLY SMALL PROSPECTS

POT. EXT. CHANNELS, VAR. QUALITY RESERVOIR BENEATH REGIONAL SEAL

MARINE DEPOSITIONAL ENVIRONMENT, GOOD QUALITY SANDS

TILTED FAULT BLOCK PLAY AND ERODED HILL PLAY BELOW MESSINIAN UNCOMFORMITY

COASTAL SHALLOW MARINE RESERVOIRS IN TILTED FAULT BLOCK PLAYS

ABU MADI

FORMATION LITHOLOGY DISCOVERIESCOMMENTS� Early efforts

� Qantara field –difficult!

� Smaller KEF prospects identifiable from DHIs

� Abu Madi play assumed exhausted

� Then � Extensive 3D� Focus on deeper

horizons� Less obvious from

seismic� New Abu Madi

discoveries� Qawasim success

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Nile Delta – Geological Cross-section

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~

~

~ ~

~

~~~

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~

~

~~ ~ ~

~

~

~

~

~

~

Sept.,2003I.M

N S

T.D. 3538 m ( 11608’ )

IEOC1966

ABU MADI - 1KB = 6.15 m. ( 20’)GL = 1.00 m. ( 3’)

972 ( 3189’ )

36( 118’ )

3007( 9866’ )

3150( 10335’ )3220( 10565’ )

3305( 10843’ )3335( 10942’ )

3459( 11349’ )

1219( 4000’ )

4100 m (13,452 ft. )

N. BILQ-1IEOC1981

RT = 6.7 m. ( 22’ ) GL = 1.7 m. ( 6’ )

2956( 9699’)

3567( 11.703’)

3860(12,632’)

92( 302’)

1260( 4134’)

1042( 3419’)

1649( 5410’)

2206( 7238’)

3040( 9974’)

3144( 10.315’)

3312( 10.867’)

T.D. 1980 m ( 6497’ )

MAN. - 3MERLON

2003

KB = 10 m. ( 30’)

GL = 2 m. ( 6’)

899(2951’)

1078(3538’)

1527(5010’)

1875(6151’)1879(6166’)

79(260’)

BILQ.SW-1IEOC1968

KB = 7.4 m. ( 24’ ) GL = 2.0 m. ( 6’ )

4571 m (14,997ft. )

1402 m ( 4599 ft )

N.TALKH-1MERLON

2002

KB = 7.0 m. ( 23.5’)

GL = 2.0 m. ( 6.5’)

832 ( 2730’)

1030 ( 3378’)

63 ( 207’)

3139 m (10,300ft. )

S. BATRA-1MERLON

2003

KB = 9.0 m. ( 30’ ) GL = 3.0 m. ( 10’ )40( 130’)

803( 2634’)

991( 3253’)

1460( 4790’)

2051(6730’)

2746( 9010’)2784( 9135’)

2876( 9435’)

3014( 9888’)

3300 m ( - 10827ft. )

742 ( 2434’)

945 ( 3100’)

1375 ( 4511’)

1957 ( 6421’)

2612( 8570’)

2965 ( 9728’)

2706 ( 8878’)2806 ( 9206’)

45(148’)

PETROBEL

E. D.- 71995

KB = 10.0 m. ( 33’)

GL = 1.5 m. ( 5’)

KB = 9.0 m. ( 30’ ) GL = 3.0 m. ( 10’ )

S.MANS.- 1

MERLON2003

T.D. 2961 m ( 9720’ )

754(2472’)

983(3224

2413(7916’)2450(8040’)

2613(85732’)

56(85’)

2916(9568’)

MIT GHAMR - 1

IEOC1966

KB = 17.0 m. ( 56’ ) GL = 4.5 m. ( 15’ )

2201 m (7221ft. )

X X XX X

X X XX

X

X X XX X

X X X

X X

X X XX X

X X XX X

X X XX X

X X XX

X

X X X

436 ( 1430’)

20 ( 66’)

1701( 5581’)

1117( 3665’)

2002 ( 6568’)

483 ( 1585’)

1014 ( 3327’)

653(2142’)

R – 69 - 1KB = 126 m. ( 413’ ) GL = 120 m. ( 394’ )

1977S.F.MINERAL

2487 m ( 8160 ft. )

201 ( 659’)

902 ( 2959’)

493 ( 1618’)

597 ( 1959’)

1414 ( 4639’)

1648( 5407’)

BALTIM E.- 1K.B. = 30 m. ( 98’ )WD = 45 m. ( 148’ )

IEOC1993

T.D. 3912 m ( 12835’ )

230(755’)

712(2336’)

3488(11444’)

3590(11779’)3646(11962’)

3756(12323’)

3850(12632’)

1259(4131’)

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~~

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~~~~~~

~~~~~~

~

~~~~~

~~~~~

~~~~

~~~

AG

E

FOR

M.

QUAT.OLIGOC.

CE

N.

ALB

.A

PT

AIN C

RE

TA

CE

OU

SJU

RA

SS

IC

MA

LMD

OG

GE

RLI

AS

AG

E

FOR

M.

PLE

IST

OC

EN

E

MIT

GH

AM

R

P L

I O

C E

N E

KA

FR

EL

SH

EIK

HE

L W

AS

TA

NI

MIO

CE

NE M

ES

SIN

IAN

AB

U M

AD

I

III

III

SE

RR

.

SID

I SA

LIM

LAN

GH

.B

UR

D.

QA

NT

AR

A

57Km.31Km.10Km.11Km.7Km.8Km.5Km.8Km.24Km.39Km.

10Km.

500m.

1010

SEA BOTTOM

~~~~~~

~~

25 ( 82’)

890 ( 2920’)

1110 ( 3642’)

1494 ( 4902’)

2095 ( 6874’)

2751 ( 9026’)

3058 ( 10,033’)

3213 ( 10,542’)

3702 ( 12,146’)

4087 ( 13,409’)

2795 ( 9170’)2851( 9351’)~2823( 9292’)

?

?

?

SHORELINE

MIT GHAMR

EL WASTANI

KAFR EL SHIEKH

DABAASID

I SALIM

QAWASIM

QANTARA

CR

ETA

CEO

US

JUR

ASS

ICLI

AS

DO

GG

ER

MA

LM

APT

AINALB

.CEN

.

(TR

OT

.)

(SE

RR

.)(B

UR

D.)

(AQ

UIT

.)

(LA

NG

H.)

NE

OG

EN

E H

ING

E L

INE

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Practicalities of 3D in the Delta (1)

� Highly variable terrain

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Practicalities of 3D in the Delta (2)

� In an area where crops can be harvested 3 times per year…

…discussing access to farmland for seismic operations can be time-consuming and problematic

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Practicalities of 3D in the Delta (3)

� After some early hiccups, acquisition progressed well

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2008: SE El Mansoura 3D Survey

� Did you say “breakfast for 1,000?!?”

� Base Camp, Western Geco crew

18Total 2D acquired : 1635 km

Seismic Acquisition

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Practicalities of Drilling in the Delta

� Clustering development well sites has reduced land issues (e.g. West Dikirnis)

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West Khilala Gas Field

� Discovered Oct 2005

� Found thick Abu Madi channel sands of 18%-28% porosity and Darcy permeability

� Re-invigorated Abu Madi play in onshore Delta

� Field on stream February 2007

� Current production >100 MMcfpdfrom 6 gas producers

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Field trip to Bahariya Oasis (Western Desert)– Cretaceous fluvial/estuarine sands, possibly deposited

by proto-Nile. A reservoir target in the Western Desert and similar to the Cretaceous targets in SE El Mansoura

– Further exploration success clearly depended on getting out into the field and studying those rocks really close-up!

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• Discovered Gas Down To with West Dikirnis-1 (Nov 2005)

• Then found oil with WD-2 (June 2006)

• First significant oilfield onshore Nile Delta

• Drilled appraisal wells and used as Phase I development wells

• Phase I complete (6 oil producers)– Field on stream November 2007– WD-1 kept for future gas re-injector

• Phase II: Horizontal wells, Gas Re-Injection, LPG recovery

NW SE

WD1

WD1

WD2

WD2

West Dikirnis Oil Rim Field

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� Wells Drilled 49

� Successful Wells 25

� Success rate 51%

Exploration Success Rate

� Exploration wells drilled from 2000 to 2008 by Melrose/Mansoura in Qantara, El Mansoura and SE El Mansoura Concessions

� Wells drilled to targets in:� Kafr El Sheikh, Abu Madi,

Qawasim and Sidi Salimformations

Melrose Exploration Statistics2000-2008

24 (49%) 25 (51%)

SuccessesFailures

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Mesaha

24

25

Mesaha Block – Logistics

Very remote: logistics issues� 12-18 hrs to first aid facilities,

then flight to hospitals, etc

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Mesaha Block – Ground Operations

� Varied terrain, from rocky desert to jebel to sandy desert including dunes

� Implications for ground operations

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Current/future challenges for Melrose Egypt

� Pursue further horizontal well drilling in West Dikirnis

� Deliver Gas Re-Injection and LPG Projects to plan

� Continue to exploit El Mansoura Concession

� Build the PI in SE El Mansoura Concession

� Mature Mesaha to readiness for seismic and then drilling

Cycle B

Cycle A

Cycle C

GOC

OWC

N` S

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Thank you

Questions?