Petro Matad Limited, the AIM quoted Mongolian oil company is pleased to provide the following update.

Key updates

• Block XX well testing operations are underway at Heron-2.
• Oil sales payments for the months of May and June have been received and the July payment is being processed by PetroChina.
• Block XX Exploitation Licence extended by three years along with customs duty payment holiday.
• Application for a new PSC has been withdrawn as coordinates have not been confirmed.
• Block XX farm out discussions ongoing.

Production Operations

Mobilisation of equipment and crew for well test operations on the Heron-2 well has been completed and downhole work commenced on 25 August. The planned activities include an acid wash over the reservoir interval and a retest of the well. Work is being carried out by DQE International under the Company's close supervision. The first phase is expected to take c. 20 days to complete. If a commercial rate of oil production is achieved during the test, then the well will be completed as a producer and production facilities will be installed with the aim to have the well on stream before year-end. If a commercial rate of oil production is not achieved, then a water injectivity test will follow to assess the potential to use Heron-2 as a water injector to provide reservoir pressure support to enhance production at Heron-1. 

Upon completion of well operations at Heron-2, equipment will move to the Gazelle-1 location for well test operations there during the second half of September. A well test at Gobi Bear-1 will then follow.

Oil Sales

Payment for oil sales for the months of May and June have been made by PetroChina with c. $320,000 received. Once again, PetroChina has withheld 30% of the invoiced amount pending progress with the Mongolia tax authorities on its tax concerns related to the oil sales agreement. The July oil sales invoice was submitted as per the signed agreement in early August and we are pushing for payment on this too. In parallel, the Company's discussions with the Mongolian tax authorities have progressed well and we are advised that they are preparing a letter addressing the concerns raised by PetroChina. A number of meetings have been held with the PetroChina finance team during the month and will reconvene as soon as we have the letter from the tax authorities in hand.

Extension of Block XX Exploitation Licence

The Company has been in discussions with both the industry regulator, the Mineral Resources and Petroleum Authority of Mongolia (MRPAM), and with the Ministry of Industry and Mineral Resources (MIMR) for some time regarding the long delays suffered on Block XX after the July 2021 award of the Block XX Exploitation Licence until the granting of land access in May 2024. We have now secured from MIMR a three-year extension to the duration of the Exploitation Licence in recognition of the time lost. The immediate significance of this is that the five-year payment holiday period for customs duties on imported goods and equipment is also extended by three years which will result in savings in future operations.

Withdrawal of Application for new acreage in the Mongolian exploration licencing round

As reported in December 2023, Petro Matad was chosen by the government as the selected contractor for the award of two new Production Sharing Contracts (PSCs) and we subsequently signed the Block VII PSC in January of this year. On the other block, the Company set a condition precedent in its application that the coordinates of a culturally protected area in one of the larger sedimentary basins within the acreage needed to be confirmed by the government before the Company would sign the contract. The coordinates have still not been confirmed and so Petro Matad has withdrawn its application for the acreage. As and when coordinates are confirmed, Petro Matad will review the acreage again as part of its ongoing evaluation of prospective open areas in the country.

Block XX Farm out

As previously reported, one counterparty in our Block XX farm out process requested and was sent a draft farmout agreement and other pertinent documentation. Further discussions have taken place and a draft Letter of Intent is in circulation for acceptance and signature covering the completion of mutual due diligence and negotiations. Discussions continue.

Mike Buck, CEO of Petro Matad, said:
"We look forward to a busy period with the well test operations planned in Block XX.

We are pleased to have received another payment from PetroChina but we are focused on removing the withholding and getting paid in full and on time as per the signed agreement. Cooperation at site between our production team and PetroChina's Block XIX field staff continues to run smoothly.

The approval of a three-year extension to the Block XX Exploitation Licence shows that MIMR recognises just causes and remains focused on improving the business environment in the upstream sector in Mongolia. The approval was secured through the persuasion and persistence of our government relations team.

The withdrawal of our application for a second new PSC is prudent given that access to explore prospective areas remains in doubt whilst coordinates are unconfirmed. Our new Block VII PSC has no such uncertainties and the support of central and local authorities in the area has already been demonstrated during the first phase of our activities."

KeyFacts Energy: Petro Matad Mongolia country profile