Petro Matad reports third oil find in eastern Mongolia

Petro Matad (LON:MATD) shares came under pressure following mixed results from the third Davsan Tolgoi (DT-3) well in eastern Mongolia.

DT-3 is the third well to successfully find oil on Block XX, but initial analysis has raised a question mark over the previously considered model for the prospect.

The well encountered significant hydrocarbon shows whilst drilling both the Lower Tsagaantsav formation and the overlying Upper Zuunbayan formation. However further analysis indicates that DT-3 lies within a separate compartment from the previous two wells

With the harsh Mongolian winter closing in, Petro Matad has effectively called an end to the 2010 work programme, however a specialised rig may still be deployed to drill an extra well in the coming weeks.

Overall the 2010 programme has proved to be a success despite its initial delays, technical complications and a slightly premature end.

"In its maiden year of drilling, Petro Matad is pleased to have discovered hydrocarbons on all three wells,” chief executive Douglas McGay said.

Investors piled the pressure on the shares in light of this latest development, with Petro Matad shares down around 20 percent at around 108 pence in afternoon deals.

Although today’s update has prompted something of a sell-off, a glance at the Petro Matad’s chart will quickly put the company’s progress into perspective.

The shares have more than doubled in value since the start of the drilling campaign, when they were trading ataround 45 pence each. Petro Matad then hit a new high at 199 pence with the DT-2 results announcement on 6 October.

The DT-3 well was drilled to 1,266 metres on 27 October 2010. The well primarily targeted the Lower Tsagaantsav formation.

It was designed to test the continuity of hydrocarbons in Tsagaantsav reservoirs between the DT-1 and DT-2.

Petro Matad said that preliminary analysis shows more than 50 metres of high-quality reservoir rocks with average porosities above 20 percent. Additionally the Lower Tsagaantsav sandstones included 10m of weak live oil shows, including elevated levels of pentane gas.
However the calculated hydrocarbon saturations are low throughout the reservoir.

With both DT-1 and DT-2 showing high hydrocarbon saturation Petro Matad believes that DT-3 lies within a separate fluid compartment. Subsequently each compartment will be evaluated by the remapping of the 3D seismic survey.

In the Upper Zuunbayan preliminary analysis has delineated 5.5 metres of potential net oil pay, with average porosity of 23 percent.

"While the results from DT-3 have not proven very positive for hydrocarbons in the Tsagaantsav formation at this location, we consider it important that the well encountered a significant hydrocarbon interval in the overlying Zuunbayan Formation,” McGay added.

“The elevated gas levels and the reservoir quality of the Tsagaantsav are also technically meaningful, demonstrating the capability of long-range oil and gas migration to the Greater Davsan Tolgoi prospect.”

Petro Matad began the 2010 drilling campaign on the back-foot after an unusually long Mongolian winter. This delayed start was exacerbated further by a foot-and-mouth outbreak that isolated the first well site until June 2010.

Now with the Mongolian winter looming once again Petro Matad’s engineering consultant has recommended that the testing phase of the program is deferred until the spring.

Consequently it has now released it drilling contractor for 2010.

"Other exploration programmes are being advanced at this time,” McGay said.

The company has located a ‘partially winterised’ rig team that has drilled until mid-December in similar circumstances.

“The most significant current development is the possibility of a further add-on drilling programme at Davsan Tolgoi before the end of this year.”

Petro Matad said that negotiations to secure that rig are in the final stages, and it plans to drill at least one well, starting in mid-November, if it can contract the rig and its crew.

This well would be drilled on a separate closure to the Greater Davsan Tolgoi prospect.

“Additionally, tenders for 2D and 3D seismic surveys on Block XX are currently being evaluated, with a view to undertaking those surveys during the winter months.”
source: http://www.proactiveinvestors.com.au