Petro Matad yields to Mongolia’s extreme winter with DT-4 poised just above main target

Petro Matad (LON:MATD) has yielded to the extreme Mongolian winter, picking an opportune moment to suspend drilling operations.

With the mercury dipping below minus 20, the special semi-winterised drilling rig stopped turning just above the main target in the Davsan Tolgoi-4 well.

“The well is currently at an ideal stage to suspend operations, enabling an orderly shutdown and re-commencement,” the company stated. 

“The well has been logged to the current depth, the casing and cementing of the intermediate section has been completed, the well bore is in a safe position and the reservoir section is yet to be disturbed.”  

Given its down-hole position Petro Matad intends to test the DT-4 target almost immediately once the weather allows in spring.

It would appear that speculative investors, who were hoping for results this side of Christmas, have taken their chips off the table. The stock fell around 7.5 percent after this afternoon’s news.

Westhouse Securities analyst David Hart maintained his upbeat stance on the company, despite the sell-off.

“Ideally, Petro Matad would have preferred to complete DT-4 in 2010, having made such promising progress to date,” Hart said. 

“However, even partially winterised rigs have limits when exposed to the harshness of a Mongolian winter,

“Rather than risk damage to the wellbore in a potentially productive zone by continuing to drill and then suspending at a less advantageous position, the decision to stop now, in the current location, is sensible.” 

He adds: “We have no reason to adjust our current view on the back of today’s news. As a result, we maintain our 250p target price and BUY recommendation.”

On 8 November, Petro Matad extended the 2010 exploration campaign when it hired DQE International and its specialist rig team.

The DT-4 well was spudded on November 16, and it was being drilled vertically to an estimated target depth of approximately 2,020 metres.  The well will test a four-way fold closure which forms part of the previously untested Davsan Tolgoi West 1 prospect. 

In an average Mongolian winter the rig team can work through to the second week of December, however the extreme conditions have closed in earlier than usual.

"The DQE International rig and crew have performed remarkably well under increasingly arduous conditions and this has enabled the company to extend its drilling operational window by well over one month,” chief executive Douglas McGay said.

“With a similar advantage expected in the spring, Petro Matad will have extended the drilling season by two months at relatively little extra cost,

"While the drilling of DT-4 has been suspended, it is poised just above the company's target formations and will be able to quickly recommence, providing an almost immediate evaluation of those targets."

Petro Matad also updated investors on its analysis of the highly successful 2010 drilling programme, which found oil in three successive exploration holes (DT-1 to DT-3).

The success of these three wells propelled the company to become one of the most followed AIM-listed explorers in the second half of 2010.

Its shares experienced a massive rally from 45 pence at the start of drilling to a new high at 199 pence back in October. 

“Results from the DT-1, DT-2 and DT-3 wells will enable the company to undertaken a revaluation of the published Prospective Resources of Davsan Tolgoi,” Petro Matad said.  

In light of the drilling success Petro Matad’s existing 3D seismic data is being re-processed and re-mapped, and it is also re-assessing the previous risk analysis for the block.  

Subsequently, it will commission a Competent Persons Report (CPR) to independently review the findings.