Petro Matad makes progress with Block XX, secures further funding

The AIM-traded firm said Mongolia's upstream industry regulator, the Mineral Resources and Petroleum Authority of Mongolia (MRPAM), convened a technical committee meeting on 16 March, and provided its recommendations on Petro Matad's Heron oilfield plan of development.

Those had been incorporated into the documentation, which is now ready for final review by the Mineral Resources Professional Council (MRPC) as required under the application procedure.

The MRPC had been asked to convene the meeting as soon as possible, and if required, the meeting could be conducted virtually, as happened with the MRPC review of Heron reserves.

Petro Matad and MRPAM had agreed the area of Block XX that would be retained under the exploitation licence, which would include the entire extension into Block XX of the proven and producing Toson Uul Basin.

That basin contained an estimated two billion barrels of oil in place in the PetroChina-operated areas in Block XXI and XIX, immediately to the north of Block XX.

The agreed Block XX exploitation area contains all of the prospectivity identified within the proven basin, with Petro Matad saying it would look to undertake near-field exploration drilling in the area, in parallel with the development of the Heron oilfield.

“We have requested that MRPC reviews and approves the plan of development as soon as possible, and once confirmed by ministerial resolution, we will have all the documents required to submit the formal application to the minister to grant the Block XX exploitation licence,” the Petro Matad board said in its statement.

The company noted that Mongolia had been undertaking localised lockdowns in response to the Covid-19 pandemic in recent weeks, with another two-week lockdown now imposed in Ulaanbaatar due to a rise in cases.

It said it was hopeful that the lockdown would not impact the MRPC meeting, noting that MRPC met virtually to review and approve the Heron field reserves during Mongolia's December lockdown.

“We are focused on successfully completing the exploitation licence application procedure and submitting the application to the minister for award of the licence early in the second quarter,” the board said.

As the firm reported in 2020, cash conservation initiatives were implemented to extend the life of the company's existing cash resources through to mid-2021 - a period deemed long enough at the time to secure the exploitation licence and the funding necessary for the next phase of development.

Given the progress made in recent weeks, the board said it remained hopeful that the licence would still be granted within the period, but in order to secure its financial standing beyond mid-2021, it said it had procured an unsecured loan facility from its major and founding shareholder Petrovis.

Petrovis agreed to make available a line of credit of up to $1.5m (£1.09m) to Petro Matad, to be drawn when needed to maintain the company's operating capability, to see it through to the award of the exploitation licence and the establishment of funding for development operations.

Interest on the loan would be paid at effectively the same rate that Petrovis secured dollar financing from its banks, currently being 10%.

The loan would only be drawn if required, and based on current and forecast operating costs, the directors said it could fund the company at its current level of staffing and activity through to the third quarter of 2022 if necessary.

With the new funding mechanism available, Petro Matad said it would have the finances it needed to complete the exploitation licence application process, and to secure the funding required for development operations on the Heron oilfield.

“We are very pleased to have agreed with MRPAM the exploitation area which contains the entirety of the Heron and Gazelle structures and the full extent into Block XX of the prolific oil-producing Toson Uul basin,” said chief executive officer Mike Buck.

“We are evaluating the near field potential in the area that could see reserves increase significantly through low cost, high chance of success, exploration drilling conducted in parallel with production and development activities at Heron over the next few years.

“On the Plan of Development, we are appreciative of the time and dedication shown by MMHI and MRPAM in providing their expertise and recommendations to improve the plan.”

Buck noted that MMHI had also said it will expedite the MRPC review, which would be the final, formal meeting required in the exploitation licence application procedure.

“Finally, we are extremely grateful to Petrovis for their continued support and their firm belief that Petro Matad can successfully move to being an exploration and production company in the near-term.

“Their ongoing support underlines their confidence in the potential of Petro Matad and of the country for sustained development.”

At 0853 BST, shares in Petro Matad were up 5.13% at 3.15p.