Petro Matad Spies Oil in Mongolia

Petro Matad provided an update on the Company's drilling operations on Block XX and also its exploration activities on Blocks IV and V in Mongolia.

Block XX Drilling program

As previously reported on July 14, 2010, the Company's Davsan Tolgoi-1 ("DT-1") exploration well reached a final measured depth of 1,220m. The well passed through the targeted 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. 

Subsequent to July 14, wireline logging, casing and cementing operations have been undertaken and the Company reported that initial petrophysical analysis of the Weatherford wireline logs confirm earlier reported results from the drilling shows. 

While further analysis is still to be undertaken, the wireline logs indicate good log porosities (25% average) and permeabilities concentrated in six sandstone zones, with a total net pay of 12m. The reservoir quality at DT-1 is attributed to a lack of compaction combined with early and continuous entrapment of hydrocarbons along the crest of the Davsan Tolgoi anticline, which forms the highest structural closure within the Tamtsag Basin. 

Samples have been forwarded to laboratories in the United States for reservoir and oil characterization. Results from petrophysical and laboratory analysis will be utilised in the design of the subsequent well testing portion of the program. The company is currently sourcing and evaluating workover rigs for those tests and a decision on which well will be tested this year will be made on completion of the drilling element of the three well drill program. 

The drill rig will shortly be moved to the site of the Company's second well, DT-2, and a further announcement will be made when drilling operations commence. 

Blocks IV and V exploration 

The first 2D seismic survey has commenced on the Company's Blocks IV and V in central Mongolia. Mongolian geophysical contracting company Khet LLC is undertaking the 360 km survey, covering 7 seismic lines, under Petro Matad's management and supervision. 

In addition, an in-fill gravity survey over the entire two blocks is currently being performed by Mongolian geophysical consultants, Geosan LLC. The 4,500 station survey will be added to the previous modern gravity data, providing a 2km x 2km grid over the entire 73,498km 2 combined area of the Blocks. The existing gravity data delineated five sub basins that are the initial focus of the seismic program. 

Seismic acquisition during 2010, rather than during 2011 as originally planned, is the result of rapid advancement of the Company's geological knowledge of the central Mongolian basins. The Company's in-house Exploration team recently 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. These recent advances have streamlined the exploration program with the goal of defining drillable targets in a much shorter time frame than originally envisaged. 

The Petroleum Authority of Mongolia recently approved the Company's revised exploration program and budget. The revisions and extra work have resulted in an 18% increase in exploration expenditure for both Blocks. 

CEO Douglas McGay said, "The completion of the wireline testing of DT-1 confirms 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 Davsan Tolgoi structure being a regional trap for the basin. 

"We are very happy with the initial results from our first well to date, and look forward to the completion of the analysis. The remaining two wells of the 2010 drilling program will be designed to maximize our knowledge and confirm the potential of the main Davsan Tolgoi anticline. In addition we are optimistic about the long term potential of Blocks IV and V."