Petro Matad, the AIM quoted Mongolian oil company, has provided an operational update.
Key updates
- PetroChina has advised that the 2026 Oil Sales Agreement will be approved imminently.
- Production from Heron-1 and Gazelle-1 continues in line with forecast.
- A technically and commercially attractive proposal to acquire a 3D seismic programme over the Block XX Exploitation Area during the coming months is under review.
- The recent rise in oil price has seen interest from potential partners in Petro Matad's portfolio increase and farm-in discussions are progressing.
- Work is continuing on our 200MW Hybrid renewable energy project and Sunsteppe Renewable Energy is pursuing three new, sizeable projects.
Oil Sales Agreement
As previously reported, all issues outstanding with the 2025 Oil Sales Agreement were resolved and payments were made. In subsequent discussions with industry regulator the Mineral Resources and Petroleum Authority of Mongolia (MRPAM), with Block XIX operator PetroChina and with the General Tax Authority of Mongolia, a common understanding was reached on the best way to word the 2026 Oil Sales Agreement to align it with the Petroleum Law and tax legislation. Although PetroChina Mongolia approved the new agreement, approval stalled in their headquarters as their Compliance Department sought an amendment to PetroChina's contract with the refinery to incorporate wording relating to Block XX crude. However, we are now informed that this issue has been resolved and the approval process will be completed shortly.
With Block XX production accumulating in the Block XIX storage tanks and with a rising oil price through 2026, Petro Matad was prepared to give PetroChina time to resolve its issues as the delay in selling the year's production to date, which totals c.35,000 barrels, gives the Company the chance to secure a substantially higher price per barrel than had the oil already been sold month by month through the year. In parallel, Petro Matad approached Chinese oil traders to set up an independent route to market in case the delay continued. Interest was shown and this remains an option, but with PetroChina's approval now expected, the tried and trusted export operation remains our strong preference.
Block XX production
Heron-1 continues to perform as forecast with average oil production from the well of 126 barrels per day through the first quarter. The water cut remains low and stable at c.3%. The gradual decline in the oil rate is in line with the production characteristics of the basin. The approved plan of development for Heron includes water injection wells later in the field life to support reservoir pressure and improve recovery per well and increase the overall recovery factor from the field.
Gazelle-1 production has been optimised and the water cut has stabilised at c.20% with daily oil production averaging 123 barrels which is greater than our initial forecast when water breakthrough was first detected.
Since Gazelle-1 came on stream in November 2025, we are pleased to report that Block XX operating costs have not increased above the level they were at when we had only Heron-1 in production. This has been achieved as a result of the savings in power generation realised after connecting Heron-1 to the national electrical power grid. With Gazelle-1 performing above expectation, we are looking at the economics of connecting this well to the transmission line at Heron-1.
Production operations are continuing to run smoothly with excellent cooperation in the field between the Petro Matad and PetroChina teams. 2026 production to date totals c.35,000 barrels of crude and Block XX production since start up now exceeds 110,000 barrels.
Farm-out
Discussions with the most advanced potential farminee have not yet reached a conclusion. The counterparty chose to do some seismic reprocessing of Block XX data. We await their feedback. We are disappointed that the evaluation is moving so slowly but the current high oil price has led to a significant uptick in interest from other potential partners for Block XX and Block VII and we are following up.
2026 Work Programme
The Company has received a technically and commercially attractive offer from the seismic acquisition contractor with the most experience in Mongolia to conduct a high resolution 3D seismic survey over the Block XX exploitation area. We are urgently evaluating the proposal as the crew is available to begin in late June or early July. With existing 3D covering the northern portions of both the Heron and Gazelle fields but not the southerly up dip culminations of these traps, state of the art 3D seismic will provide the structural definition required to drill future appraisal, development and exploration wells. New data should also improve seismic resolution at the reservoir level compared to that provided by the existing 2D and 3D surveys which were all acquired more than 15 years ago.
On well work for 2026, whilst Heron-1 and Gazelle-1 are still performing at or above forecast, we will not undertake any workover activities on these wells at this time. Petro Matad is in discussion with a specialist company with the capability to workover the Heron-2 well to see if it can improve the flow potential of the reservoir at this location. We are also awaiting feedback from the well test contractor to secure a cost effective proposal for the testing of the Gobi Bear-1 well.
SunSteppe Renewable Energy
SunSteppe Renewable Energy (SRE)'s operational focus in 2026 remains on its 200MW hybrid wind, solar, and battery energy storage project in Tuv Province. Changes at Cabinet level in the Mongolian government in recent months have slowed the Ministry of Energy's evaluation of the feasibility study for the project and its Science and Technology Committee has yet to meet to review and approve it. Work at site to gather wind data continues.
Following the recent changes in leadership, the government has accelerated renewable energy and battery storage projects to help address growing power demand and grid stability requirements. This is expected to create a supportive environment for SRE's ongoing and planned developments and 2026 has seen an increase in new projects being offered or becoming available.
SRE is part of a short-listed consortium that has submitted a bid for a 90MW solar/battery project for Ulaanbaatar city. SRE has also submitted an expression of interest on a 100MW wind/battery project being managed on behalf of the government by the International Finance Corporation.
In addition to these two projects, SRE is assessing the potential of another 100MW utility scale solar/battery project under the government's broader efforts to improve winter power supply reliability. With Ulaanbaatar having suffered power outages last winter due to interruptions in service at its ageing coal fired power plants, the government needs larger scale battery storage projects online this winter and will expedite all necessary approvals to achieve that goal. SRE has had positive discussions with potential financing institutions, construction contractors and strategic partners regarding possible participation.
Mike Buck, CEO of Petro Matad, said:
'The delay in approving the 2026 Oil Sales Agreement has been frustrating but the rising oil price has given us the chance to benefit significantly from a commercial standpoint so the news that the approval is coming soon is most welcome. Interest from Chinese oil traders in our 2026 inventory also means we have an independent export route in case we need it.
We are pleased to see the interest in our portfolio from several new potential partners. Whilst the discussions with these entities are going on, the availability of the crew for a 3D seismic shoot in Block XX presents us with a value-additive opportunity which we are evaluating as a priority.
SRE's rising profile in-country has generated some new, sizeable renewable energy opportunities which we are excited to pursue and which could deliver substantial value in the near term if the deadlines can be met.'
Source: Petro Matad
