Melrose to expand Wyoming before sale

0 Comments | Sunday Herald, The, Apr 28, 2002 | by Darran Gardner

MELROSE Resources, the Edinburgh oil and gas exploration company, is looking to expand its Wyoming Ethanol business to boost its attractiveness to potential buyers in the US.

Although a sale is now unlikely to be achieved until 2003, when the Wyoming State Legislature is expected to renew the industry's subsidies that June, it is planning to increase production levels to tap into growing interest in ethanol production.

Melrose's ethanol plant, which ferments grain to create a chemical used to dilute petrol so it produces fewer emissions, generated pre- tax earnings of (pounds) 320,000 last year.

"The really attractive earnings of the plant will really be attractive for any buyers. The plan is to have further ethanol production by next year," said chief executive David Curry.

"The operation is probably too small to attract the attention of a big player but we are hoping to catch the eye of a smaller player. However, it's going to be difficult to sell until next year."

Following last week's decision by the US Senate to approve the country's new energy bill, the starting date for ethanol to be added to gasoline is now set for 2004. Several senators had hoped to delay the process until 2005, arguing that a provision requiring ethanol to be added to gasoline would spike prices at the pump.

"Although we are fascinated by this sector," said Curry, "we are exploring ways of getting the business off the books. It distorts the business and our shareholders expect us to focus on oil and gas."

The ethanol industry received increasing support in the US energy bill as an alternative and cleaner fuel, and subsidies worth up to $20m are now likely to be guaranteed. Farmers are also expected to profit from increased demand for it. Melrose recently announced that its turnover had increased by 90% to (pounds) 14.2m after production boosts from its Egyptian gas field.

But with pre-tax profits down, it is considering raising new funds from stock market investors to cut debts of (pounds) 12m.