Drilling Commenced at Mongolian Exploration Well

Petro Matad announced that the Davsan Tolgoi-2 ("DT-2") exploration well was spudded at 13:15 Mongolian time on August 28, 2010 (06:15 on August 28, 2010 BST).

The DT-2 well is being drilled vertically to an estimated target depth of approximately 1,300 meters. The DT-2 well is being drilled with the company's contractor, the Chinese company Ansai Yuehua Oil Tech Company Ltd. Drilling operations are expected to take approximately 25 days and a further announcement will be made once drilling is completed, or as appropriate. DT-2 is the second exploration well to be spudded as part of Petro Matad's three well drilling program for 2010 on its Production Sharing Contract on Block XX in Eastern Mongolia, one of three exploration blocks owned and operated by the Company in Mongolia. DT-2 is located approximately 930 meters south-southwest of DT-1, where the Company encountered a 71 meter thick section of Tsagaantsav formation with oil shows and elevated mud gas over the entire interval.

The previous concept for siting the second well 4km west of DT-1, on a separate structure known as Davsan Tolgoi West, was reconsidered. In view of the encouraging results of DT-1, the Company decided to locate the DT-2 well on the major Davsan Tolgoi prospect, and on the same structure as DT-1 to improve its understanding of this primary prospect.

Production tests will be carried out on one of three wells being drilled this year and a decision on which well to test will be made later in the program.

Blocks IV and V exploration

The 2D seismic survey over Blocks IV and V is approximately two-thirds completed. Preliminary interpretation of the field processed data has demonstrated that the basins are much deeper than inferred from the gravity data, and has confirmed the presence of structures which could form hydrocarbon traps.

The infill gravity survey over these central Mongolian blocks is also still in progress.