Source: Oilbarrel.com                      Date: 21 September, 2010

The first Oilbarrel.com conference following the long summer break brought together an eclectic bunch of companies. Topics under discussion ranged from elephant hunting in Namibia to wildcatting in Mongolia.

Mr. Douglas McGay, chief executive of Petro Matad, had the happy task of making a presentation on the back of a successful maiden well.  The company, which listed on AIM in 2008, struck oil just about four weeks ago with the DT-1 wildcat on the large Davson Tolgoi prospect in Block XX in eastern Mongolia.  The well found 70 metres of gross pay, within which there were 10 net pay zones totalling some 12 metres of net pay.  Porosity and permeability were very good, said Mr. McGay, and downhole samples are now being analysed in the US.

This is just the beginning of the exploration task in this remote frontier.  DT-1 was the first of a planned three well campaign on Davson Tolgoi, with the company planning to test just one well.  DT-2 is now drilling 900 metres away.  “It’s so close because we want to make sure of our ties to the 3D data and then we can confidently step our further,” explained Mr. McGay, adding the company was also hoping to hit the oil-water contact in DT-2. 

Block XX covers 14,250 sq km - roughly the size of Kuwait, quipped Mr. McGay, wisely ending the comparison there – and abuts the PetroChina-operated Block XIX, which the Chinese bought from London-listed SOCO in 2005.  Since then, the Chinese company has spent USD1 billion on its acreage, drilling a massive 500 holes, with an astonishing 99 per cent success rate, to unearth a resource of one billion barrels of oil-in-place (PetroChina assumes a 10 per cent recovery factor to give them 100 million barrels, and is currently exporting around 3 million barrels a year from the Tolson Uul oilfields).  The oil is 37-degree API with a slightly waxy content, so it trades at a USD1 a barrel discount.  Production rates are rather disappointing, averaging about 100 bpd, said Mr. McGay, although he’s hopeful the Petro Matad reservoirs may be better quality and yield higher production rates.

This is still to be put to the test.  A workover rig should be onsite in the next month or so, ready to flow test one of the three wells.  The results of this should provide investors with a lot more comfort about the economic robustness of this remote discovery.

Block XX isn’t Petro Matad’s only play in Mongolia.  It also holds Blocks IV and V – together the size of Ireland, said Mr. McGay – which lie in the centre of the country and have got the geologists excited by their oil shale potential.  The AIM company is currently one year ahead of its commitments on this acreage, having acquired 380 km of seismic, which has shown the basins here to be deeper than anticipated at about five km.  “We are pretty excited about this,” said Mr. McGay, a former minerals and mining expert.  Given the surge in the share price since this summer’s success at DT-1, he isn’t the only one to see the attractions of finding oil in a country that borders energy-hungry China.