Melrose has completed the sale of the Company's assets in the Permian Basin in the USA to Quantum Resources Management.
Permian Basin Divestment
The divested assets are interests in mature oil field leases located in the Permian Basin in West Texas and East New Mexico. The interests cover three main field areas, namely Artesia, Jalmat Cone and Turner Gregory, together with a number of smaller units. The fields are characterized by having long producing lives with relatively material reserves but with low production levels. The current combined field production rate is approximately 830 bpd of oil and 0.5 MMcfpd of gas and the remaining proved plus probable reserves at year end 2009 were 20.3 MMbbl of oil and 16.1 Bcf of gas on a working interest basis.
In order to fully optimize the field developments and access the reserves, a significant amount of additional investment will be required in the assets over forthcoming years. The Company has determined that a preferable alternative to this investment program is to dedicate its capital resources to strategic, higher growth opportunities in areas where it has, or can create, a competitive advantage.
Given the above, the Company commissioned Scotia Waterous to manage a formal sales process for the assets and this has now been successfully concluded with Quantum selected as the preferred bidder.
Quantum has acquired the assets for a cash consideration of $80 million, subject to normal working capital and transaction adjustments and individual lease pre-emption provisions. For the avoidance of doubt, the transaction excludes the Melrose leases in East Texas and the Fort Worth Basin.
The sale proceeds will primarily be used to pay down debt with the balance to fund the capital work program, consistent with the Company's plan to reduce financial gearing towards 100 percent by the end of 2011.
Other Operational Matters
In the Rhone Maritime concession, offshore Southern France, a seismic vessel is currently on location and has to date completed 1,365 kilometers of the planned 7,500 kilometer 2D seismic acquisition program. The survey is expected to complete in March 2011.
In Egypt, the South East Dikirnis-1 exploration well has been drilled by the EDC-9 rig to test a Qawasim prospect in the Mansoura concession. No hydrocarbon indications were found and the well has been plugged and abandoned. The drill rig has since relocated to West Dikirnis where it will drill the fifth horizontal production well in the main field area. In the South East Mansoura concession, the seismic data acquisition program has been successfully completed with the acquisition of 140 kilometers of 2D and 365 square kilometers of 3D data which will primarily be used to evaluate the undrilled Cretaceous oil play on the block. The preliminary data interpretation is expected to be completed by early April 2011.
David Thomas, Chief Executive, said, "The completion of the Permian Basin assets divestment is an important step for the Company and we are pleased that the sale process has yielded a satisfactory result. We are now focusing our resources on other initiatives which present more material growth opportunities and are better aligned with our core strategy. The cash generated from the sale will further strengthen the Company's financial outlook."