The share price of Petro Matad (LSE: MATD) fell over 20% this morning after it announced disappointing results from its Snow Leopard-1 well. The company reported that no sands were encountered at the shallower of the two primary targets of the well and therefore it will be abandoned.
The well is the first oil exploration well ever drilled in the Valley of Lakes complex in Central Mongolia where Petro Matad operates its solely owned Block V. Although the drill was unsuccessful in striking oil, the company reported that drilling gases and an oil sheen were observed across the interval and it believes these to be indicative of an active petroleum system in the basin. Petro Matad goes on to suggest the oil observed in the mud may have entered the well from one of the prospect bounding faults which could be acting as a conduit for migrating oil.
The Snow Leopard-1 well will now be plugged and abandoned, and the post well evaluation will commence. Petro Matad believes that the initial examination of cuttings samples and wireline logs indicate the presence of a significant thickness of source rocks in the well, including claystone layers with a ‘hot shale’ wireline log response. The hot shale response can be an indicator of very high organic content, and this will be investigated further.
Once operations are complete at Snow Leopard, the rig will move to the Wild Horse 1 location, a mobilisation distance of some 450km. The Wild Horse prospect, targeting 480 MMbo of prospective resource, is a large four-way dip and fault bounded closure in the Baatsagaan Basin in Petro Matad’s Block IV. The Company has completed all pre-drill formalities for Wild Horse 1, has all the required approvals in hand and has engaged proactively with local stakeholders. The company will provide a further update when the well spuds.
Mike Buck, the CEO of Petro Matad said:
“Whilst Snow Leopard 1 did not find the oil accumulations we had hoped for there are encouraging signs in terms of confirmation of source and reservoir rock development. The presence of oil and wet gas shows has heightened our interest in the other prospects mapped in the Taats basin. We are working these up now based on the wealth of information gathered in the well.”
Investors may be tempted to jump in with the stock available to buy at 6.1p, however its usually worth observing the ‘Three-Day Rule’ after such a sharp price fall. Often an initial bounce from lows is short-lived and a period of consolidation is required to firm up a base before a stock recoversBased on experience, three days is typically a good period to ascertain whether or not the price has bottomed out, and to avoid catching the proverbial falling knife.
Author: Stuart Langelaan
Disclosure: The author does not own shares in the company mentioned above