MELROSE RESOURCES (MRS).

Oil & gas explorer - 396p - Melrose Resources starts drilling this month on a portfolio of three gas prospects in the Bulgarian part of the Black Sea, which could deliver two trillion cubic feet (tcf) of fresh reserves. Melrose hopes that the largest target, Ropotamo, could deliver 1.4tcf alone. So City analysts think Ropotamo could be worth up to GBP10 a share with, currently, a 15 per cent chance of success. In other words, it should be worth 150p a share today. The other prospects, which will be drilled first, are less risky - with, say, a 25 per cent chance of success - yet they could also transform Melrose's prospects if they come good.

And Bulgarian gas should grow yet more valuable thanks to the Russian government's determination to replace 'sweetheart' deals to supply former Soviet satellites with deals at market rates. This is raising energy prices from the Balkans and beyond.

But while attention now focuses on Melrose's activities in Bulgaria, its the acreage in Egypt that has had the most coverage over the past year. Sentiment has blown first one way then the other, as analysts have reassessed the value of these licences by extrapolating from deals for similar assets.

First, Centurion Energy bid for Merlon - at that point a 50 per cent partner in Melrose's Egyptian licences - at a price significantly below the value previously ascribed to Melrose's holding. Then Melrose itself stepped in to buy Merlon at a higher price. No sooner was the deal agreed than Melrose announced drilling results from Egypt that prompted an upgrade in reserves and an expansion of planned production facilities. So analysts were suitably impressed that Melrose had gained 100 per cent control for less than the net asset value of the proven and probable reserves acquired - practically unheard of in today's market.

Subsequently, Centurion Energy received a bid from Emirates-based Dana Gas at a price that was pleasantly high. Centurion's key assets are Nile Delta acreages ...