Petro Matad set to recommence Mongolian drilling

Oil explorer Petro Matad is gearing up to recommence drilling activities at its Davsan Tolgoi-4 well in Mongolia next month, four months after bad weather forced it to halt operations.

The well was suspended in early December at a depth of 1,271 metres ahead of the worst of the Mongolian winter conditions, the company said.

However, along with drilling contractor DQE International, Petro Matad is planning to re-start activities in April and drill the well to a depth of 2,020 metres.

The announcement came as the Mongolia-focused company said it was embarking on an "active and productive" programme this year.

It plans to begin a scheduled testing programme on the wells drilling during 2010 in May, with DT-1 as the first hole set to be tested.

Wells DT-1, DT-2 and DT-3 all encountered oil with extended hydrocarbon occurrences a significant distance southward into Block XX.

To this end, Petro Matad has called in geophysical services group BGP to undertake a 1,000 kilometre 2D seismic survey, which will consist of in-fill coverage over existing leads and prospects in the northern portion of the block as well as exploration lines running through the central and southern parts of the Block.

Elsewhere in Blocks IV and V in central Mongolia, the company has commissioned Major Drilling Group International to carry out stratigraphic drilling. The aim of the programme is to provide factual constraints on what is observed in the seismic studies, Petro Matad explained, as well as obtain direct measurements of the geothermal gradient in a move the company hailed "an essential step" in its exploration activities across the blocks.

The first seismic surveys in the central Mongolian region were carried out last year and along with field and gravity results, suggest that both blocks contain "suitably thick sequences of source, reservoir and seal rocks to have trapped significant hydrocarbons".

Chief executive Douglas McGay commented: "During the past three months the company has made excellent progress in both its exploration activities and also at a corporate level. It is noteworthy that we are advancing our field exploration activities further into both ends of the harsh Mongolian winter.

"The company is working towards an all-year round operation for the first time in Mongolian oil exploration history."

He went on to add that the company has now built up a firm foundation for what is proving to be a very active 2011 programme.

Peter Bassett, analyst at Westhouse Securities, said: "This is a positive statement from the company on its activities over the winter. In particular, we note that it has made good progress on interpretation of data from the 2010 drilling and seismic activities on Block XX. This reinterpreted data will form the basis for the location of the wells in its 2011 drilling programme.

"In addition, the company is positive over the exploration prospectivity of Blocks IV and V, although exploration is still at a pre-drilling stage. We maintain our 'buy' recommendation and our target price of 250p."