Petro Matad reports progress amid some local difficulties

Mongolia-focussed oil company Petro Matad updated the market on its operations on Friday, reporting that at the Block XX exploitation area, it had advanced negotiations with operational service providers for the 2022 work programme, and secured some price reductions compared to the 2019 programme.

The AIM-traded firm said contracts were being prepared ahead of discussions at the annual budget meetings with the industry regulator, the Mineral Resources and Petroleum Authority of Mongolia (MRPAM).

It said it was pushing for operational activity to start after the winter hiatus in the second quarter, with the re-entry, stimulation, and completion for production of Heron 1.

The equipment and personnel required for the work was largely already in Mongolia.

“Currently the timing of the availability of drilling equipment and crews for the drilling of additional Heron wells has not been confirmed by the contractors,” the board said in its statement.

“The most active Chinese drilling contractor along with the other, mainly Chinese, service providers have been impacted by Covid-related travel restrictions.

“These are due mainly to the restrictions imposed by China, which has maintained tight control on movement within and across its borders in response to the Omicron variant of the virus.”

Mongolia, meanwhile, recently re-opened its borders to all vaccinated travellers to “reinvigorate” the business and investment environment.

“Petro Matad continues to push the service providers to confirm the timeframe for its work programme in the 2022 drilling season.

“At the same time, efforts are continuing apace to get the government to remedy the legal contradictions related to land access and usage issues that have previously impacted the work of Petro Matad and other operators in Mongolia.

“We are advised that proposed legal changes confirming land use rights, including input Petro Matad has provided, are working their way through the approvals processes within the central government.”

The company said that at the local level, provincial and district authorities were “unwilling” to discuss local land access applications, pending direction from the central government.

Petro Matad said it was working at both central and local levels, and recently made a presentation to the relevant local authorities.

“The presentation was well received, which is a positive step forward in securing the permits required,” the directors claimed.

“We continue to push at the central, provincial, and district levels to secure the permits required for the next phase of our activities.”

Drilling and operational service provider DQE International, meanwhile, had made a proposal to Petro Matad for a cooperation agreement under which DQE would provide a suite of services which could include geotechnical input, drilling, stimulation and completion services, production operations and oil export for Block XX operations.

Petro Matad said DQE supplies those services to its parent company PetroChina - Mongolia's major oil producer - and had more than 15 years of expertise working in the Tamsag Basin.

“DQE International's suggested cooperation includes the possibility of payment from production revenue, partial payment in oil, and some risk sharing,” the company said.

“This is an intriguing proposal from Mongolia's most experienced service provider, and the parties have set up a working group to determine urgently how such a cooperation could work and to try and reach a conclusion early in the second quarter so that the 2022 drilling season is available for the implementation of any agreement reached.”

At the same time, Petro Matad said it was still progressing discussions with potential farminees, but the firm was funded for, and planned to implement, its operational programme in 2022 with or without a farm-in deal.

At the Block V exploration production sharing contract (PSC), the company said the environmental impact assessment to allow it to operate there in 2022 and beyond was completed and submitted to, and approved by, the Ministry of Environment.

“The company is now working with the local authorities to try to secure land access and usage permits for the high-graded Raptor trend.

“We are also investigating cost effective drilling solutions for the relatively shallow, very high impact prospectivity identified in the area.”

At 1558 GMT, shares in Petro Matad were down 6.12% at 3.8p.