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Petro Matad dips as land use challenge clouds major well spud in Mongolia (MATD)

Petro Matad (LSE:MATD) took a hit on Monday morning, falling 12.9pc to 6.9p upon the release of a bittersweet update. The Mongolia-focused oil and gas exploration business announced that it had spudded its much-anticipated Red Deer-1 exploration well in the Asgat Sag Basin of Block XX in eastern Mongolia.

The well, which the firm is drilling with the Daton Petroleum Engineering and Oilfield Service rig, is targeting a prospect with around 48MMbo of mean prospective recoverable resources. It will reach a total depth of 2,100 over up to 35 days. Petro Matad, which remains well above the 4.8p at which it sat at the beginning of June, plans to bring a bring in a separate rig for testing if it makes a discovery. What’s more, it has signed a call-off testing contract to ensure that follow-up operation can begin as quickly as possible.

Unfortunately, this positive development appears to have been overshadowed by the news that Heron-1, another of Petro Matad’s Mongolian wells, has been put on standby following a land licencing issue. The organisation said that it had reached the first casing point at 551m on schedule and that casing has been run and cemented. However, Mongolia’s provincial government has challenged its legal right to use land at Heron-1 because ‘a tripartite agreement between two central government agencies and the province has not been executed’.

In its defence, Petro Matad said it had followed land permitting regulations required under its production sharing contract and instructions from the Ministry of Mining and industry regulator MRPAM in all of its operations. The £45.6m firm added that the absence of a tripartite land-use agreement has not previously been mentioned as an issue and said it is now working to remedy the situation with all parties involved as soon as possible.

Heron-1 spudded last month and is targeting a prospect with 25MMbo of mean prospective recoverable resources. Following completion, the rig will move around 5km to the location of another well called Gazelle-1. The Gazelle prospect has an estimated Mean Prospective Recoverable Resource of 13 MMbo and is located updip of Petro China’s T19-46-1 oil well on the western flank of the Tamsag Basin. This is the primary source kitchen for the fields in Petro Matad’s Block XIX.

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