Petro Matad, the AIM quoted Mongolian oil company provides the following update on its activities in Block XX, eastern Mongolia.

Mongolia operations

Key Highlights

• Mongolia's Minister of Mining and Heavy Industry has approved the award of the Block XX Exploitation Licence
• The approved Plan of Development will concentrate initially on the proven reserves area around Heron 1, expanding in phases to target the estimated 194 million barrels (MMbo) of total in place resource potential
• The agreed Exploitation Area totals 218km2 which includes the entire extension into Block XX of the proven and producing Toson Uul Basin
• The Company will now resume discussions with potential farm-in partners and review funding options to complete the next stage of activity
• The Company is now focused on preparing for a very active programme in 2022 including the start-up of oil production from the Heron discovery using spare capacity in adjacent infrastructure

Block XX Exploitation Licence

Mongolia's Minister of Mining and Heavy Industry has approved the award of the Block XX Exploitation Licence to Petro Matad. Under the Mongolian Petroleum Law and the Block XX Production Sharing Contract, the Exploitation Licence runs for 25 years (until 1 July 2046) with the option to extend for two periods of five years each.

Plan of Development

The approved Plan of Development, in line with the Mongolia Petroleum Law and normal industry practice, will concentrate initially on the proven reserves area around the Heron 1 well and the Company plans to stimulate and complete Heron 1 along with all subsequent successful appraisal and development wells enabling their early production utilising spare ullage in the nearby PetroChina operated processing and export facilities. The central processing facilities in Block XIX are located some 17km North of Heron 1 and during 2020 PetroChina and Petro Matad signed a Memorandum of Understanding under which Petro Matad can have access to these facilities. Now that the Block XX Exploitation Licence has been awarded, the commercial details for the sharing of PetroChina's facilities will be negotiated.

The full field development plan has been designed to target the estimated 194MMbo in place total resource potential in the Heron structure as independently certified in LEAP Energy's Competent Persons' Report. Based on the oil recovery factor achieved by PetroChina in Block XIX immediately to the north, the recoverable oil potential of Heron could be in the order of 33MMbo. Petro Matad plans to deploy reservoir stimulation technology widely used in the industry but not yet tried in Mongolia, to seek to improve on this recovery factor and sees a target of 30% or more (equating to recoverable resource potential of c. 60MMbo) as realistically achievable based on studies conducted to date by expert consultants on behalf of the Company.  

Exploitation Area

As part of the Exploitation Licence application process, the area to be retained by Petro Matad was agreed with industry regulator, the Mineral Resources and Petroleum Authority of Mongolia (MRPAM). The agreed Exploitation Area totals 218km².

The retained Exploitation Area includes the entire extension into Block XX of the proven and producing Toson Uul Basin. This basin contains an estimated 2 billion barrels of in place oil in the PetroChina operated areas in Block XXI and XIX immediately to the north of Block XX. Under the Exploitation Licence, the Company can continue to explore in order to increase the proven reserves within the area and has identified on existing seismic data, prospects and leads within the Exploitation Area with recoverable resource potential in the range of 100MMbo to 200MMbo in addition to the potential seen in the Heron structure. The prospectivity defined to date offers significant resource and value potential in near field appraisal and exploration targets which the Company considers have good chance of success given that the basin and the play fairway are proven and where drilling costs are low.

Forward plans

Now that the Exploitation Licence has been awarded, the Company will resume discussions with potential farm-in partners to determine if the appropriate partnership can be formed to complete the next stage of activity. In parallel, the Company will review its funding options and decide which option will best facilitate achieving the primary goal of generating revenue from early production from Heron as soon as possible. There are some legal formalities required to register the Exploitation Area, to present annual land usage plans to the local authorities and to secure budget approval from MRPAM. These will be pursued over the coming months.

Given the restrictions currently in place in Mongolia to reduce the impacts of the Covid-19 pandemic, including international border restrictions which have delayed the importation of oil drilling equipment and crews, there is insufficient time before the onset of winter for any well completion or drilling activity to take place in Block XX in 2021. However, Mongolia has a highly efficient vaccination programme underway with the expectation that the overall situation and the oil field operating environment will continue to improve. The Company is now focused on preparing for a very active programme in 2022.

Mike Buck, CEO of Petro Matad, said:
"Securing the Block XX Exploitation Licence has been a lengthy process but Petro Matad very much appreciates the patient and professional way in which the government has dealt with the matter. We are delighted and honoured to have been awarded what is only the third such licence ever granted in Mongolia. The pandemic has been difficult for Petro Matad as it has for everybody and although the Company still has some important preparations to complete, we are looking forward to an extremely active 2022 with the primary goal of generating revenue from early production at Heron as soon as possible.

I would like to thank the staff of Petro Matad for their efforts in securing the Exploitation Licence, a significant milestone for the Company."

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