Petro Matad Disappointed by DT-11 Test Results

Petro Matad provides an update on its operations at the Davsan Tolgoi Project, part of the Company's Production Sharing Contract (PSC) on Block XX in eastern Mongolia.

This update is summarized as follows:

  •  No oil was recovered during the testing of the Davsan Tolgoi 11 well (DT-11)
  • The oil shows that were encountered and reported during the drilling of DT-11 are now considered to be residual oil
  • Oil observed in the Tsagaantsav reservoirs in DT-1, DT-2 and DT-3, along the crest of the Davsan Tolgoi anticline is also now interpreted as residual oil
  • Four wells drilled at a lower elevation to the crest of Davsan Tolgoi, or on separate structures are still considered valid candidates for further testing and possible stimulation
  • The drilling program to date has proven the fundamentals of a petroleum system on Block XX, and exploration works will continue
  • Detailed seismic interpretation is developing new valid leads and prospects in the greater Davsan Tolgoi area, and maturing previously identified targets
  • As a result of the year's drilling and seismic program, the resource calculations published on March 21, 2011 will be revised, with results to be announced in the coming months
  • The processing and interpretation of the 2011 2D seismic program on the six sub-basins of Block XX is continuing

Commenting on the analysis of the results from DT-11, Petro Matad CEO Doug McGay said "We are disappointed that the test results from DT-11 have revealed that the crest of Davsan Tolgoi anticline does not contain commercial oil. However it is important to note that the focus on the prospect on the crestal area is only one component of Davsan Tolgoi and there is still scope for the development of other parts of the prospect. In addition there remains advanced exploration potential in the area around Davsan Tolgoi and the other basins in Block XX are developing into promising plays.

"These results are viewed by the Company as part of the systematic exploration of Block XX and while the crestal area has not proved to be commercial on testing we are encouraged by the positives arising from our broader exploration program.

"Both the DQE International drilling rig and the workover rig are on standby on site, awaiting an early start to the 2012 drilling season. The Company had also identified and had successful contract negotiations with an international company that will supply stimulation (fracking) services, and while this program has been placed on standby for the current time, it is envisaged that stimulations programs will be run on a selection of the existing wells in 2012 following the winter stand-down.

"We look forward to advising our shareholders and the market of the complete results of our 2011 exploration programs, including our revised resource base; the remapping of the greater Davsan Tolgoi area and environs; and the conclusions from the extensive 2D seismic program over the many other prospective areas of Block XX.

"In view of our recent exploration results and the successful commercial exploitation of oil finds of similar basins in the region we remain very positive about the prospects of success for our on-going exploration programs.

"Other aspects of the Company's 2011 exploration programs are also entering the assessments and reporting stage. Namely, the fieldwork on Blocks IV and V is drawing to a close after a busy year. We look forward to providing shareholders with an update on the provisional results, conclusions and forward work program for those two Blocks."