Operational Update

RNS Number : 1033E

Petro Matad Limited

25 May 2012

 



Petro Matad Limited

("Petro Matad" or the "Company")

Update on operations

Petro Matad is pleased to provide an update to the market on the status of its review of its 2010 and 2011 drilling programme in Block XX and other field operations across its overall Production Sharing Contract (PSC) holdings in Mongolia and to outline the activities being currently undertaken to confirm the hydrocarbon potential of its three Blocks.

Overview

The Company has undertaken both an internal and a third party peer review of technical work on all Blocks as well as the past drilling programme, in order to help configure future exploration programmes.  The understandings of the properties have been greatly advanced and the Company will undertake four months of further technical studies on all three Blocks, with an emphasis on Blocks XX and V to identify drilling targets and areas for future seismic surveys.  A decision was made by the Board that no further drilling or testing will be conducted on Block XX during 2012.  The Company's exploration focus and resources will now centre on the development of drilling and seismic programmes for all properties in 2013.

A summary of the specific developments on the various PSC Blocks is as follows:

Block XX

·     Davsan Tolgoi Anticline prospectivity downgraded and further drilling suspended

·     Additional and enhanced prospectivity identified, with multiple leads and prospects in northern portion of the Block

·     Future drilling likely to be in areas to the west and east of the Davsan Tolgoi Anticline

·    Seismic surveys in the south and central areas identify promising sub-basins and possible leads

Block V

·     Good source rock and reservoir potential identified from core samples obtained from the 2011 stratigraphic well

·     Interpretation of 2011 2D seismic has identified several prospective leads

·    Further technical work will be done to identify an area for 2012/2013 winter seismic acquisition

·     First drilling targeted for 2013

Block IV

·   Initial seismic interpretation has identified several large structures and increased prospectivity

·     Company will continue technical work to enhance understanding of the Block

·    Potentially significant occurrence of oil source rock identified (oil shale assets reported on separately)

General Update

Following the 2011 exploration program on Blocks XX, IV and V, an assessment programme of all exploration data has been undertaken by the Company's in-house technical team.  This was followed by a period of peer review by the independent advisory firm, RISC Pty Ltd ("RISC").

RISC was engaged to carry out a review of the technical work on each of the three Blocks in addition to a formal review of the Block XX drilling programme.  Their mandate on the latter review included recommendations for future exploration procedures and programmes based on the experiences of 2011.

With respect to the Company's work on Block XX and Blocks IV and V, the peer reviews recommended that further analysis be undertaken with an aim to refining the work to date to generate drill and seismic targets.  The reviews also recommended various changes to the in-house technical team's methodology and management.  Therefore, based on the internal work to date and the peer review input, the Company has decided to suspend drilling and testing for the remainder of 2012 while the suggested studies and changes are conducted. 

Work is now proceeding on this basis, including studies of basin modelling, re-processing of some seismic data and an update of the seismic interpretation.  The main purpose of these studies is to define a balanced and lower risk drilling programme, together with the targeting of seismic studies in the southern part of Block XX and in Block V. 

The market will be informed once these studies have been completed and further exploration decisions are made by the Board. 

Petro Matad CEO Douglas McGay said "Whilst the 2011 programme at Davsan Tolgoi was a major disappointment for the Company, the results have contributed significantly to our understanding of the assets.

"Additionally, the Company has looked to strengthen its team and procedures, enhancing its capacity to carry out its defined aim of measured and thorough exploration.

"Block XX still demonstrates significant promise and we are confident that strong drill targets will be generated over the next four months.  While this is in the locality of the initially-favoured prospect of Davsan Tolgoi, analysis of the greater northern area of Block XX is developing multiple drill targets over different play types.

"The Company's other large frontier holdings in central Mongolia have been methodically explored and Block V in particular is revealing conclusive indications of a hydrocarbon system.

"Petro Matad operates in the frontier resource area of Mongolia.  We have un-matched holdings of both prospectivity and size, all of which still offer enormous potential.  The further exploration studies we have now planned and commenced will refine some of that potential and lead us to the next stages of our exploration."

Block XX Update

Overview:

·    The disappointing drill and test results have resulted in the downgrading of the prospectivity of the Davsan Tolgoi Anticline and drilling and seismic activities will be suspended while further studies are performed.

·    A study of the 2010/2011 drilling programme has been completed by the independent advisory firm RISC

·    The re-mapping of the northern portion of Block XX has led to the identification of multiple leads and prospects outside of the Davsan Tolgoi Anticline, including a new play to the east of Davsan Tolgoi.  Some of these new prospects may develop into drillable targets.  The Company is now focussing on maturing those leads and prospects towards drill candidates

·    Future drilling is most likely to be undertaken in areas to the west and east of the Davsan Tolgoi Anticline

·    The initial scout seismic in the southern portion of Block XX, supported by newly acquired gravity data has identified several grabens and possible leads but requires further work to define prospectivity.

Detail:

As part of its peer review, RISC undertook an extensive review of the 2010/2011 drilling programme on Block XX and developed controls which will be used for decision-making during the next phase of drilling and testing so as to optimise future success. 

No additional wells are anticipated within the Davsan Tolgoi Anticline area at this time.  Future drilling is most likely to be undertaken in areas to the west and east of Davsan Tolgoi, once the current leads have been matured.

During this break in field activity, the Company will review, reinterpret and reprocess (as required) the seismic data, along with the petrophysics and undertake source rock maturity modelling.  This will allow for the refinement of prospects, including risk reduction.  Options for additional field seismic programmes will also be considered.  The programme is expected to take three to four months and result in a future work programme being recommended to the Board.  It is likely that a multi-target drilling programme would be proposed when these further studies are completed.

The four main "play" areas in the north of Block XX - Davsan Tolgoi West, Davsan Tolgoi Anticline, Lag Nuur (Davsan Tolgoi East) and Lag Nuur Thrust - have been the subject of seismic interpretation and evaluation.

Following study of drilling data and further seismic interpretation, the stratigraphy previously defined as a paleovalley unit (announced by the Company in March 2011) has been reassigned to the Lower Zuunbayan Formation.  This is consistent with wells producing from this Formation in the adjacent Block XIX.

The Davsan Tolgoi West area has been confirmed as prospective, as the extensional plays in the area lie in the up-dip southern margin of the proven Tolson Uul Basin.  Also, the improved resolution of the reprocessed seismic and addition of the 2011 2D seismic acquisition has led to the recognition of a thrust belt in the north-eastern part of Block XX, to the east of Davsan Tolgoi.  This has resulted in the identification of a new set of prospects and leads in that area.

In 2011, 835 km of seismic lines were acquired in the central and southern parts of Block XX.  These seismic data have been interpreted and revealed potential grabens with structural features that may, with further evaluation, progress into prospects.  Importantly, new studies will include an updated basin modelling study to assess the potential for hydrocarbon source maturity.

Block V Update

Overview:

Since the last major report on developments on Blocks IV and V on 17 November 2011, the Company has progressed activities on Block V and has had encouraging results, including:

·     Completion of detailed analysis of the 5-4-1900 core in the Tugrug Basin of Block V, with further confirmation of source rocks, plus encouraging details about reservoir rocks, thermal maturity and age

·    Completion of the processing of the 2011 seismic surveys, and the interpretation and mapping of that seismic, including the preliminary definition of leads in the Taatsiin Tsagaan Nuur and Tugrug Basins

·    The Company will now undertake further technical work to identify an area for further seismic acquisition, which is expected to begin in the winter of 2012.

·     First drilling on Block V is targeted for 2013.

An in-house report on the above activities and results was completed in March 2012, and has been the subject of an external peer review.

Detail:

Prior to Petro Matad's 2010-2011 exploration programmes, almost no meaningful data existed with regard to petroleum exploration in the Valley of Lakes region of Mongolia, in which both Blocks IV and V lie.  The extensive surface and subsurface sampling of the stratigraphy has vastly improved Petro Matad's understanding of its assets and has also resulted in a major shift in the understanding of stratigraphic age and structural development for this region of Mongolia.

Various studies on the reservoir sandstones from both field localities and the core hole drilled on Block V indicate that the rock composition appears to have very favourable porosity.  Detailed investigation of the core has yielded results which have contributed to the Company's understanding of the petroleum system of the Tugrug Basin. 

The key results are:

·    As previously reported oil staining of sandstones in the lower part of the core and fluid inclusions containing oil throughout the core are evidence that oil has been generated in the Tugrug Basin (previously reported)

·    Good-to-excellent source rocks - organic rich shales averaging 3.3% total organic carbon and capable of yielding significant quantities of oil (20 l/tonne average), are found at the base of the hole, where they are reaching thermal maturity

·     Reservoir rocks - microscopic examination of sandstones from many depth levels in the well reveals many reservoir rocks with excellent porosity of between 15-30%.

Block V contains two main basins.  These are the Taatsiin Tsagaan Nuur Basin and the Tugrug Basin.  The basins are about 30-35 km wide.  Mapping of the new seismic has identified both compressional and extensional structures.  The potential for stratigraphic traps has also been identified where there has been truncation and pinch-out of beds along unconformities and channelised features.  At present, the wide grid spacing of the seismic lines precludes accurate prospect delineation. However, a number of leads have been mapped, some as simple anticlinal closures, others as folded angular unconformities and as combinations of both.  There are a number of leads that are analogous to the Tolson Uul producing fields from eastern Mongolia. 

In order to further develop the regional understanding of the Block, the Company will undertake a number of studies.  These include, basin modelling for source maturity and preliminary paleogeographic mapping.  Together with re-mapping of the more promising leads, this will allow the focusing of exploration effort, the definition of additional seismic programmes and the evolution from preliminary leads to prospects.

The Company intends to carry out those studies over the next four months, with a view to the resultant recommended seismic acquisition taking place over winter.  These studies and field programmes are all designed to work towards a targeted timetable for the first drilling programme on Block V in 2013.

Block IV Update

Overview:

Since the 17 November 2011 report detailing developments on Blocks IV and V, the Company has focused its activities in Block IV on:

·    Completing seismic processing and initial interpretation, which has revealed several large structures which warrant further exploration

·     Drilling a 1,440m deep core hole in the Biger Basin for stratigraphic purposes.

·    Ongoing work to compare data from the core to other regional data, in order to assess regional stratigraphy and oil potential

·    Furthering work on the source rock surface occurrence, Khoid Ulaan Bulag.  The significance of its potential for oil shale will be reported upon separately.

The Company will continue technical work to enhance understanding of the region.

Detail:

The reconnaissance grid of seismic lines comprises a loose grid spaced at an increment of about 20-25 km.  Interpretation of the seismic data has revealed candidates for further exploration based on the depth of the basin and, in selected cases, large structures and/or stratigraphic truncations.

The quality of the Company's seismic in the Biger Basin is excellent and on interpretation appears to contain a 3,000m thick assemblage of sedimentary rocks with extensive lateral continuity.  To the east, the basin transitions to a partially uplifted and folded basinal region named Baatsagaan Trough containing large anticlinal folds which will require further seismic data to map in detail.

The in-house technical team has studied the stratigraphic core obtained from the Biger Basin.  Ongoing work will compare the findings from this core with the array of field localities and the Tugrug core so as to assess regional stratigraphy and structural development of the greater Valley of Lakes area and thus its oil potential.

Summary

While the emphasis of further studies over the next four months will be on Block XX and V, attention will be paid to Block IV with a view to gaining more understanding of this very large frontier region, in order to be able to focus subsequent exploration. 

This programme will be carried out by the Company's in-house technical team, supervised by the Company's new Exploration Manager.  Petro Matad has identified an exceptional and well-qualified candidate and is in the final stages of formalising the appointment.  Other expertise and management will be deployed as necessary.  RISC will be engaged on a "peer assist" basis during this period.  The Company expects these studies to cost less than US$1m and can fund the work from its current cash reserves of US$10.7m. 

For general information, the Company has no further area relinquishments due on Block XX, and its expenditure to date exceeds the commitments in the PSC.  Blocks IV and V expenditure is in line with the PSC commitments and both are due for a 20%-30% area relinquishment in 2013.  Due to the large size of these Blocks and the exploration work completed to date, this can be achieved without dropping any prospective regions. 

Technical information in this news release has been reviewed by Conrad Todd BSc MSc and Dr Nick Eustance BSc PhD of the independent advisory firm, RISC, who have an aggregate of over 60 years of experience in the petroleum industry in technical, management and consulting positions.  RISC provides independent opinion, peer assistance and advisory services to the oil and gas industry.  RISC has completed over 1,300 assignments in over 60 countries to nearly 500 clients.

About Petro Matad Limited

Petro Matad is the parent company of a group focussed on oil exploration, as well as future development and production, in Mongolia.  The Group holds sole operatorship of three Production Sharing Contracts with the Government of Mongolia.  Block XX has an area of 10,340km² in the far eastern part of the country.  Blocks IV and V are located in central Mongolia.  Block IV covers approximately 29,000km² and Block V approximately 21,150km².

Petro Matad Limited is incorporated in the Isle of Man under company number 1483V.  Its registered office is at Victory House, Prospect Hill, Douglas, Isle of Man, IM1 1EQ.

Further information:

Petro Matad Limited

Douglas J. McGay - CEO 

[phone]

NOMAD and Joint Broker

Westhouse Securities Limited

Richard Baty / Petre Norton

[phone]

Joint Broker

Macquarie Capital (Europe) Limited

Jeffrey Auld / Steve Baldwin / Nicholas Harland

[phone]

Investor and Public Relations

RLM Finsbury

James  Leviton

[phone]

 

END

 

 

MSCSEDSLIFESESI