Petro Matad announced its unaudited interim results for the six months ended June 30, 2010 and updates shareholders on events since the period end.
CHIEF EXECUTIVE OFFICER'S STATEMENT
The first 6 months of 2010 was a period of significant development for Petro Matad. The Company achieved many milestones of growth and expansion but the most important event was the spudding of the first well, Davsan Tolgoi 1 ("DT-1"), on the Davsan Tolgoi Prospect at the Company's wholly owned Block XX.
Since the end of the period under review, the Company has made significant progress in both its exploration and corporate activities. The most important of which was the success of DT-1 which was then followed by the closure of our recent fund raise.
Petro Matad has put in place a strong technical team to progress both the advanced prospect of Block XX and Petro Matad's less developed Production Sharing Contracts ("PSCs"), Blocks IV and V, as well as investigate other opportunities in Mongolia.
In late 2009, we appointed our Chief Operations Officer, Mr Rodney Graham and commissioned him to locate and recruit a world-class petroleum exploration team to reside in Mongolia and head our Company's exploration effort. Accordingly, on March 24, the Company appointed Dr James Coogan as its Exploration Manager. Dr Coogan is an American petroleum geologist with 28 years of experience in industry, government and academic settings, and has extensive experience in geological terrains that are analogous to the North Asian basins in which the Company operates. Further appointments of Dr Kurt Constenius as Chief Geophysicist, and another American geologist, Mr Justin Tully, completed the first stage of the initial exploration team. They have been complemented by Mongolian national professionals and are in residence in Mongolia. This is a proud achievement by Petro Matad, it being the first "in-residence" professional western technical team in the history of Mongolian petroleum exploration.
On June 23, the Company also announced that it had secured the services of Frank Witteman as Wellsite Geologist and Petrophysicist for its three well drill program and was contracting global oilfield services group, Weatherford International, to acquire an advanced wireline log suite and carry out petrologic and geochemical analysis. The Company also contracted a team of experienced American drilling supervisors and managers to manage its 2010 drilling program. Petro Matad now has the personnel, and contractors to take full advantage of the exploration opportunities presented by its PCSs and drilling operations.
The Company spudded its first exploration well, DT-1, on Block XX towards the end of the period, on June 23. DT-1 was drilled vertically and reached a depth of 1,220 meters on July 14. The well passed through the Tsagaantsav formation from 1,075m to 1,146m, then entered metamorphic basement. The entire 71m section of the Tsagaantsav formation contained oil shows and elevated mud gas, with indications of live oil through six sandstone and conglomerate units totaling about 35m in aggregate. Several of these intervals included very good shows that included cut, fluorescence, oil staining and a strong petroliferous odour. Good reservoir quality was indicated by fast drilling breaks through all sandstone and conglomerate intervals.
The uppermost oil shows consisted of volcaniclastic sandstone and conglomerates that are characteristic of Tsagaantsav reservoirs. The 3D seismic prognosis was re-interpreted utilizing the actual downhole observations. This corroborated that the well drilled the structural crest of the local four-way closure, with progressively thickening lower Tsagaantsav sandstones southwards and eastwards from the well.
Wireline logs indicated good log porosities (25% average) and very good permeability concentrated in six sandstone zones, with a total net pay of 12 meters. The reservoir quality at DT-1 was attributed to a lack of compaction combined with early and continuous entrapment of hydrocarbons along the crest of the Davsan Tolgoi anticline, which formed the highest structural closure within the Tamtsag Basin.
The subsequent completion of the wireline testing of DT-1 confirmed that good reservoir quality should be expected along the length of the Davsan Tolgoi trend relative to the Tolson Uul oil fields in the deeper, more northerly part of the Tamtsag Basin. Furthermore, this is another step toward confirming our original model of the Davsan Tolgoi structure being a regional trap for the Tolson Uul basin. We are very happy with the initial results from our first well to date, and look forward to the completion of the analysis and tests.
The remaining wells of the 2010 drilling program will be designed to maximize our knowledge and confirm the potential of the main Davsan Tolgoi anticline.
On August 31, after the period under review, Petro Matad announced that it had spudded the Davsan Tolgoi-2 well ("DT-2").
As at the date of publication of these interim results, drilling at DT-2 is proceeding.
Blocks IV and V
Following the spudding of DT-1, the Company commissioned a 2D seismic survey on its Blocks IV and V in central Mongolia. This is the first ever seismic survey done in this region of Mongolia, a matter of considerable pride for the Company. Under Petro Matad's management and supervision Mongolian geophysical contracting company, Khet LLC, undertook the 345 km survey, covering 7 seismic lines. It has now been completed and the results are being processed before interpretation by our in-house professional team.
In addition, Mongolian geophysical consultants, Geosan LLC, are performing an in-fill gravity survey over the entire two blocks. The 4,500 station survey will be added to the previous modern gravity data, providing a 2km x 2km grid over the entire 71,040km 2 combined area of the Blocks.
The existing gravity data delineated five sub-basins that are the initial focus of the seismic program, and the preliminary results of the seismic survey confirm this, thereby increasing our knowledge of the depths of those sub-basins.
Seismic acquisition during 2010, rather than during 2011 as originally planned, was the result of rapid advancement of the Company's geological knowledge of the central Mongolian basins. The Company's in-house exploration team completed field expeditions with the assistance of international and Mongolian experts that identified prospective structures and confirmed principal elements of Mesozoic hydrocarbon systems across the Blocks. They also confirmed hydrocarbon material at surface and discovered more occurrences than historical records had indicated.
The above activities streamlined the exploration program and advanced the goal of defining potential drillable targets in a much shorter time frame than originally envisaged.
The Company is increasingly optimistic about the potential of Blocks IV and V.
On February 22, the Company welcomed the European Bank for Reconstruction and Development (the "EBRD") as a shareholder when it received the first of two tranches of US $3 million. Following the second tranche on June 14, the EBRD became, at that time, an 18.5% shareholder in Petro Matad thereby illustrating its confidence in Petro Matad and the Mongolian private sector.
The EBRD has participated in the recent fundraising (detailed below) to a significant degree.
On September 16, after the period under review, the Company announced a fundraising of up to US $46.8 million through a placing of new shares to both new and existing shareholders. The net proceeds of the share issues will enable the Company to accelerate its drilling program on Block XX. The Company now intends to test all appropriate wells in its three well program instead of the single test that was previously budgeted in 2010. Weather permitting; Petro Matad plans to drill a fourth well in Davsan Tolgoi in 2010.
It is also proposed to commission further seismic surveys in other parts of Block XX. Priority will be in the southern portion of the Block, where Petro Matad has previously identified and partially explored other sub-basins. In addition, the Company will commence supplementary exploration of the other leads and prospects outlined in the northern part, adjacent to Davsan Tolgoi.
The Company will apply part of the net proceeds to additional exploration on Blocks IV and V with extra 2D seismic surveying and stratigraphic borehole drilling. In addition, other exploration opportunities in Mongolia will be assessed and if promising, pursued. This share issue allows Petro Matad to continue to explore Mongolia for oil and gas in an even more effective manner.
Finally, this fundraising will also enable an appropriate expansion of the facilities and services needed to support the Company's prime activity, the exploration for oil and gas in Mongolia. An increase in our commitment to corporate governance, social action and our technical services group are just a few of the areas that will benefit from the funding.
Petro Matad will also benefit at board level from the experience of both the EBRD and Petrovis with the appointment of Mary Ellen Collins, a nominee of the EBRD, and Davaanyam Enkhchimeg, Chief Executive Officer of Petrovis, as non-executive directors of the Company on May 17. Ms Collins has extensive financial experience and a proven track record of working with companies in the emerging markets and Ms Enkhchimeg has expertise in both Mongolian and international commerce. Both new directors will be valuable liaisons between Petro Matad and its two largest shareholders.
The Company now has an extremely diverse and well balanced board and is immensely proud of its international and local appointees.
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