Shares in Mongolian oil explorer Petro Matad (LSE:MATD) were off today following several schedule changes to the firm’s four-well drilling programme for 2018. The business has decided to delay drilling at the Tugrug Basin and bring forward its 90MMbo Snow Leopard prospect to Q2 this year following interpretation of 3-D seismic data over the last two months.
Petro Matad said it is removing the Falcon prospect at Tugrug from its drilling programme because 3-D seismic showed it is smaller than previously thought. In spite of this, the company said the data has also confirmed the presence of a large and well-defined structure at Tugrug, which is considerably larger than Falcon. It has also found several other promising prospects. With more detailed work now being needed to get these sites to drillable status, Petro Matad has decided to defer drilling and bring forward Snow Leopard to avoid any exploration delays.
According to Petro Matad, the Taats Basin, where Snow Leopard is based, is much easier to drill than Tugrug. The site has two primary targets with a cumulative estimate of 90MMbo of prospective recoverable resources. It also has three secondary targets that will be penetrated by the well. Original programming for drilling Snow Leopard was completed in 2017, so the site has all the required permits in hand other than a land use permit, which Petro Matad expects to renew this month. Petro Matad expects the site’s construction to begin in May and rig mobilisation to start once the Snow Leopard location has completed. The well will take around 70 days to drill 3,350m deep, costing about $7m.
Wild Horse, the 290 MMbo prospect that was initially expected to be drilled first for c.$4m, will now be drilled after Snow Leopard. Petro Matad said permitting is progressing well here, with the government already conditionally approving a critical environmental assessment. It also said the tender process for a rig for drilling its Block XX is near completion, with work expected to begin the second half of the year.
Despite today’s update offering plenty of promise, the mere mention of delays can be a sore spot for Petro Matad’s investors, who have been waiting for the company to begin drilling for a very long time. As a result, shares had fallen 4.9pc, or 0.6p, to 11.9p as at the time of writing. Mike Buck, chief executive of Petro Matad, offered a more optimistic view, claiming the 3D seismic has shown great promise despite the dropping of Falcon.
He said: ‘The new mapping on the 3D indicates that we have some excellent targets but we do not wish to delay our exploration efforts in 2018 whilst they are matured to drillable status. Snow Leopard and Wild Horse are two large, well defined and exciting prospects with huge follow up potential. As the firm two well programme for Blocks IV and V in 2018, they will tell us a lot more about the potential of the area and we are moving ahead rapidly with preparations to start drilling during this quarter. Planning, procurement and permitting for drilling in Block XX are also advancing well.’
Here, Buck echoes his sentiment when speaking to ValueTheMarkets last month. He said it is vital the business delivers on the drilling programme and schedule that it said it would. He added:
‘When I joined in October, I said, “We need to do some drilling, this is the only thing that will crystallise value for shareholders, so how are we going to do that? This problem has been solved by the raise [in January], which has given us a very active 2018. We were only able to do this because the market has warmed somewhat to exploration in recent times Fundamentally, this is exploration and comes with certain risks, but I would not have joined if I did not think there was a very good chance of success.’