By Amy McLellan
Shares in Petro Matad surged more than 65 per cent on Tuesday after the AIM-quoted explorer surprised the market with news it had struck a farm-out deal with BG Group.
Newsflow has been scarce from the frontier explorer in recent years after new management took the company “back to basics” in a bid to recover from the disastrous cash-burning drilling campaign of 2010-2011, which focused on one structure on its Block XX in the far east of Mongolia.
Now the Isle of Man-based company has brought in BG Group as a heavyweight partner for Block IV and V in south-west Mongolia. BG will take on 78 per cent of the equity in the virgin blocks in return for funding Petro Matad’s share of a mutually agreed US$28 million work programme that will fulfil
Most of this work, which will include airborne FTG gravity and magnetics surveys, 2D seismic, core holes and exploration wells, is expected to take place this year and next, promising some much-needed newsflow to drive the share price.
Dr Oyungerel Janchiv, Petro Matad acting chairperson after the previous chair George Watkins resigned in November 2014, said BG’s decision to enter Mongolia was “an endorsement of the potential within the acreage and Petro Matad’s technical work to date”. He said Petro Matad would now be fully funded for its remaining commitments on Blocks IV & V.
The transaction will also ensure Petro Matad has the cash to fund ongoing operations. The AIM company will receive a phased cash injection that will add up to US$4.55 million, with US$2.75 million payable upon completion of the farm-out and a further US$1.8 million via payments of US$50,000 per month over 36 months.
Petro Matad will retain operatorship until such a time as there is an extension to the Block IV or Block V contract term, at which point BG Group will assume operatorship. BG Group will, however, provide technical support and provide a secondee to the AIM company over the next three years; this will ensure essential insight during well planning and drilling operations.
Following the transaction, which is subject to Mongolian Government and regulatory approvals, Petro Matad will continue to hold a 100 per cent interest in Block XX in the far east of Mongolia and a 22 per cent interest in Blocks IV and V. There is some irony that it is the company’s vast tracts in central-southwest Mongolia, which it was awarded in 2009, should be the current saviour.
Six years ago, they were a distraction from all the excitement about the potential oil riches on Block XX; now they have bagged the cash-strapped company a credible partner and life-line funding for three years.
These are huge blocks: Block IV spans 28,900 sq km and Block V more than 21,000 sq km. They are also highly speculative: Block IV hosts four major sub-basins and has seen no exploration drilling to date while Block V consists of frontier acreage with three major sub-basins and is again untouched by the drillbit.
In both cases, there is some seismic coverage, which was acquired by PetroMatad between 2010 and 2013, the first seismic in this part of the country.
Shares in the £15 million market cap company closed up more than 65 per cent at 8.88p