Petro Matad Ltd (MATD)

[Zouf]

Petro Matad secures $6 million investment from EBRD for oil projects in Mongolia
Friday, December 18, 2009 by Sergei Balashov

Petro Matad (AIM: MATD) announced that the European Bank of Reconstruction and Development (EBRD) has subscribed for shares in the company worth US$6 million for a 17.5% stake in the company.


The subscription price of 14 pence per share represents a discount of roughly 14% to the stock’s yesterday’s closing price. The shares will be issued in two tranches of US$3 million each.


The latest fundraising complements Petro Matad’s share issues in the summer, when the company bagged US$12.5 million and follows the purchase of 12.75 million shares by Petrovis LLC, which upped its stake in the company to 45.88%. The company said the subscription was “tangible evidence of progress,” while broker Westhouse said the company was now “fully funded and ready to go,” now possessing the sufficient funds to cover the 2010 exploration programme.


The drilling programme planned for the next year comprises three wells on the Davsan Tolgoi prospect on Block XX, which is estimated to have an unrisked prospective resource of 122 mmboe (million barrels) with a 37% chance of success. The initial three wells could be followed by more exploration wells on the Davsan Tolgoi prospect or one of the other 14 prospects on the current Block XX prospect inventory, which has a mean unrisked prospective resource estimate of 516 mmboe.


Other activities planned for 2010 include a 2D seismic programme over unexplored basins in Block XX together with geological review work on the recently awarded Blocks VI and V.


Petro Matad experienced some difficulties while advancing its 2009 drilling programme due to the unusually severe weather conditions in October, yet Westhouse noted that this had always been scheduled and that the rig remained in-situ ready for drilling to recommence in spring 2010. Petro Matad said it was advancing the research and preparation on PSC (production sharing contracts) on Blocks IV and V during the winter suspension of field activities, as well as carrying out preparations for the resumption of the drilling programme on Block XX.
Back in October, the company hired Ansai Yuehua Oil Tech Company to drill the Davsan Tolgoi prospect.


Westhouse estimated the NPV (net present value) of Davsan Tolgoi at US$971 million based on an oil price of US$65/barrel compared to the current US73/barrel, escalated at 2.5% per annum and using a 10% discount factor.


The “buy” rating for the stock was retained, which was based on the company’s “high gearing to exploration success” on the Davsan Tolgoi prospect.


Mongolia has recently experienced a strong inflow of foreign investment in mineral and hydrocarbon projects, which also bodes well for Petro Matad’s activities in the region as it makes it easier to attract investors and raise capital as well as directly leads to an improvement in infrastructure and government services.


“Together with our existing shareholders, the EBRD will provide a stable platform for Petro Matad's future growth and development. Additionally, the EBRD's experience and input at Board level will be very welcome... The EBRD's support of Petro Matad also demonstrates a meaningful path forward for the fast developing Mongolian private sector,” said Chief Executive of Petro Matad Douglas McGay.