Petro Matad – Chasing The Mongolian Raptors

The countdown has started as Petro Matad (LON:MATD) recently announced that it the rig for the drilling of its Velociraptor-1 exploration well is just days away from being onsite.

Investors are still excited that the £74.5m capitalised Petro Matad, which is focussed on oil exploration, development and production in Mongolia, could still be sharing very good news within the next two months.

Interests

At the current time, the Isle-of-Man based Petro Matad holds a 100% working interest and the operatorship of two Production Sharing Contracts with the Government of Mongolia.

The country’s leading explorer has 100% interests in production sharing contract blocks, including Ongi Block V that covers an area of approximately 7,937 sq kms; and Matad Block XX that consists of an area of approximately 218 sq kms in Mongolia.

Block XX is in the far eastern part of the country and Block V is in the central western part of the country.

On Block XX the company has been suffering delays with completing the Heron-1 oil discovery into a production well and to then start generating cash flow. Crews and equipment are ready to be brought in, while DQE has been contracted for a multi-well drilling. Petro China has the ability to export crude through its nearby facilities.

Velociraptor-1

It is on Block V that the group has mobilised equipment in preparation of the drilling location and to set-up the camp for its Velociraptor-1 operations. 

The company has stated that all required equipment for the well is in the country, while the water source well for the operation has also been prepared for production.

All activities are planned to be completed in advance of rig arrival, which is forecast by Canadian contractor Major Drilling to arrive at site in early June and to spud the well by the middle of the month.

Velociraptor-1 is targeting an inversion anticline with recoverable resource potential of 200 million barrels and the adjacent Oviraptor and Tsagaanraptor prospects would be significantly de-risked by success and have the potential to triple the resource potential on the exciting Raptor Trend.

Whilst there has been very little exploration drilling done in that part of Mongolia, Velociraptor-1 is located 7 km south of the Snow Leopard 1 well drilled by Petro Matad in 2018.

That well found excellent oil source rocks and oil shows and proved that there is a working petroleum system in the Taats Basin, in which the Velociraptor-1 prospect is well located to receive hydrocarbon charge.

The 2023 Exploration Licencing Round

The Petroleum Authority of Mongolia has a round in progress offering 14 blocks in the southern half of the country.

The company has an application out on one round and has identified three other blocks in subsequent 2023 rounds.

Renewable Energy possibilities

Mongolia has huge renewable energy generation potential from solar and wind projects.

The group has formed a joint venture with SunSteppe Energy, which is a Mongolian renewable energy project developer.

The JV projects, ranging in size from a few tens of megawatts to hundreds of megawatts, have already been identified in solar supplied battery storage to help improve Mongolian grid efficiency and in clean energy supply to mining projects in the South Gobi region.

Management Comment

CEO Mike Buck stated that:

“Preparations to drill Velociraptor 1 are well advanced and we are excited to spud in June and to explore the potential of the Raptor Trend.”

Broker’s View – Zeus Capital says 17p value

Daniel Slater, analyst at Joint Broker Zeus Capital, considers that Velociraptor-! could be a very important catalyst for Petro Matad over the next couple of months.

He states that there is a very significant potential upside from the forthcoming drilling of the Velociraptor-1 exploration well, which is targeting around 200mmbbl.

Slater has a positive outlook for the group’s shares, which he values at 17p on his ‘total risked’ NAV.

Analyst Peter Hichens at Progressive Equity Research has a ‘risked value’ on Velociraptor alone at 32p a share.

However, he has suggested that the group’s Management have assessed the prospects for success on this next well as being just 20%.

Craig Howie, analyst at Shore Capital, the group’s NOMAD and Joint Broker, has recently updated his ‘risked’ net asset value of 14.5p on the shares, against 11.5p previously.

Shore Capital rate the company’s Velociraptor-1 well as being a ‘potential company-maker’.

His estimates for turnover in the 2023 year to end December are $4.68m (nil), producing a loss before tax of $2.37m ($3.27m).

For next year he has predicted a very much higher revenue of $13.87m, upon which he forecasts a $1.64m pre-tax profit.

My View – Could Double In Price On Good News

The group’s shares fell 21% on massive volume straight after the latest Update.

Perhaps it was that suggestion from Progressive Research that has knocked the shares, with a massive trading volume of over 56m shares that day, against the daily average of 9.1m shares dealt.

Apparently, there are plenty of opportunities in the group’s expanding oil areas of operation, while the JV on renewable energy holds interesting possibilities.

We await further news on the progress of its Heron-1 completion and on getting into production, while its Velociraptor-1 exploration well is sure to be adding to the excitement.

Whatever the news over the next few weeks, there will be increase of private investor interest in this group.

After having been up to 7.1p in the second week of this month, and with its shares down now at 4.7p, it is very possible that good news could see them double in reaction.

Even so, I will cautiously set a Target Price at 6p, which is still offering an attractive ‘penny share’ upside nearly 28% higher.