Petro Matad, the AIM quoted Mongolian oil company, provides the following operational update.

Key Company Updates

• Progress being made to register the Block XX Exploitation Area as special purpose land
• Mongolia announces 14 blocks available in a new Exploration Tender. Petro Matad plans to participate and exploit its competitive advantage as the country's leading explorer
• Negotiations with DQE Drilling in their final stages for a multi-well development drilling contract
• More time secured on Block V Exploration PSC and plans for drilling Velociraptor 1 being progressed

Block XX Exploitation Licence

The Mongolian government's process to certify Petro Matad's Block XX Exploitation Licence area as special purpose land is progressing. Meetings held at the Matad district and Dornod provincial levels of citizens' committees resulted in voting that did not to support the central government's certification proposal. The Mineral Resources and Petroleum Authority of Mongolia ("MRPAM") has however written to the Ministry of Mining and Heavy Industry ("MMHI") recommending certification of the Block XX Exploitation Licence despite the local committees' views. The Company's focus is now to support MMHI in progressing the matter through to a cabinet resolution as quickly as possible. Given the delays, Petro Matad is unlikely to be in a position to operate on the Heron development until the spring of 2023, once its land access rights have been re-established.

Production Readiness

The Company continues to target having everything in place to get the Heron 1 well onstream as soon as the land issue is resolved by the government. Pumping, downhole completion and power generation equipment is now all in country. Production tanks and other related surface equipment have been sourced from Petro China, offering a cost effective solution to achieve rapid production start up. Discussions with Petro China on oil processing, export and sales have also begun with the facilitation and participation of MRPAM.

Negotiations with DQE Drilling ("DQE"), the main provider of drilling services in Mongolia, have continued and a contract for a multi-well development drilling programme is in the final stages of discussion. The contract envisages a reduction in drilling costs and deferral of some costs to allow a portion of the drilling expenditure to be settled from future production revenue. The contract still needs to be finalised and agreed with DQE and then with MRPAM, but the cost reductions and payment phasing could significantly improve project cash flows and overall asset value since the largest portion of the Heron development costs are drilling related. 

Block V Exploration

On the Block V Exploration PSC area, local government approvals for land access have been secured. This area does not have the same history with the oil industry that Dornod Province has and as such, just as in previous years, thanks to its continued focus on positively engaging with local communities, Petro Matad has been able to secure all necessary permits to work on the land covering the highly prospective Raptor Trend and the Velociraptor prospect. The Company is now looking at its options and the availability of equipment to drill Velociraptor 1 on Block V in 2023.

A cost effective drilling solution for Velociraptor has been found, most equipment needed has been sourced and is already in country and MRPAM has given the necessary contractual approvals. The approval of the Company's application to secure a moratorium for 2022 on Block V has also been received from MMHI. This extends the Block V exploration period until July 2024 and ensures that there will be sufficient time after Velociraptor 1 is drilled to gather enough data and submit the necessary documentation to secure a Block V Exploitation Licence in the event of success.

2022/23 Exploration Licencing Round

MRPAM has announced an Exploration Licencing round covering 14 blocks in the prospective fairways of the southern half of the country. These areas share the same stratigraphy and geological history as proven prolific oil basins of northern China. With its extensive data base, technical expertise and operational experience Petro Matad has a significant competitive advantage as the country's leading explorer and intends to participate in the licencing round with a view to signing some new production sharing contracts.

Renewable Energy Opportunities in Mongolia

Petro Matad continues to explore opportunities in the renewables space following Board approval to do so in 2021. Work has continued this year to investigate the technical and commercial drivers of solar, wind and battery storage opportunities. A potential partner, highly experienced and well connected in the renewable energy sector in Mongolia, has been identified and negotiations for a collaborative association are at an advanced stage. The Company will update shareholders on the progress of this opportunity in due course.

Mike Buck, CEO of Petro Matad, said:
"It has been a frustrating year for Petro Matad and our shareholders given the lack of progress on the land access issue in Block XX. We are hopeful that we are now reaching a new phase in the process with central government recognising that it needs to bring this access issue to an end through direct action.  

Meanwhile, we are pleased with our progress on negotiations with DQE drilling and with the cost reductions that can make a real difference to project cash flows and asset value. Similar positive progress has been made on the Block V Exploration PSC area and we are excited about the potential to drill a high impact exploration well on the Raptor Trend in 2023.  

I would like to thank our shareholders for sticking with Petro Matad this year and look forward to sharing further updates."

KeyFacts Energy: Petro Matad Mongolia country profile