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Petro Matad presents update on the Heron-1 well

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Heron-1 well in Block XX, eastern Mongolia, had presented encouraging results and would be subject to a testing program, according to the update of Petro Matad Ltd, Mongolian oil explorer

The well been drilled to a total depth of 2960 meters with the top Lower Tsagaantsav reservoir, the primary target for the well, encountered at 2803 meters, 5 meters shallower than the pre-drill prognosis. Oil and gas shows were recorded over this interval and on the basis of the drilling data, the gross reservoir interval in Heron-1 appears to be very similar to the productive reservoirs found in oil wells immediately to the north in Block XIX.

Wireline logs have been acquired and analysis of these data supports the interpretation of a 77-meter gross interval of a potential oil reservoir.

Within this interval, the logs also define three zones with a total gross thickness of 22 meters (14 meters net) exhibiting better porosity and permeability characteristics than is generally seen within the Lower Tsagaantsav at this depth including in the nearby wells in the T19-46 oil field in Block XIX. Overall, the reservoir quality and oil saturations indicated on the wireline logs are sufficiently encouraging that casing will now be run in preparation for a testing program, the company said.

The casing operation is now underway and discussions with the testing contractor have commenced  determining how quickly the testing equipment can be mobilized to the Heron-1 location. The contract requires 30 days notice to be given but the contractor has advised that an earlier start is possible depending on the status of its other activities. Once the well has been suspended DQE’s drilling rig will move to the Gazelle location with a view to spudding Gazelle-1 before the end of September.

“The results of the Heron-1 well are encouraging. Along with the well and wireline logging data being consistent with our pre-drill prognosis, there is also evidence of zones with better than expected porosity/permeability characteristics. The well will now be tested and we are pushing the contractor to mobilize equipment as quickly as possible. Further updates will be provided in due course,” said Mike Buck, the CEO of Petro Matad Ltd.

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Petro Matad’s exploration of Red Deer 1 well fails

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Petro Matad Ltd., listed on the London Stock Exchange (LME) reported that Red Deer 1 exploration well has failed to find hydrocarbons. The company’s share price fell about 30 percent after the announcement.

The well was drilled down to 2,000 meters and no hydrocarbon bearing zones were identified. Red Deer 1 will now be plugged and abandoned. The drilling costed less than USD 4 million, the company said in a statement.

It did encounter the primary reservoir target, the Lower Tsagaantsav, slightly shallower than anticipated but no oil shows were present. Similarly, it observed indicators of potential source rocks but it was concluded that they were not mature in the vicinity of Red Deer.

“While the results of the Red Deer-1 well are disappointing, it was the first well to be drilled in any of the basins located in the south of Block XX and it, therefore, carried a lower chance of success than the wells in the north,” said Mike Buck, the Chief Executive of Petro Matad.



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Enkhbold: Revoking numerous licenses may scare off investors

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There has been a lot of changes in the mining sector, which accounts for nearly 90 percent of the exports, 75 percent of the Foreign Direct Investments, and 24 percent of the GDP. Mineral Resources and Petroleum Authority of Mongolia (MRPAM) has revoked 50 licenses since 2019. The Executive Director of the Mongolian National Mining Association, Mr. Enkhbold talked about the concerns and further challenges of the mining sector.

-The Government has withdrawn several mining licenses in the last month. How does it affect the mining sector of Mongolia?

-Even though the Government of Mongolia is prioritizing the environmental issues over mineral operations, it might be unfair for some entities in the sector. Mongolian National Mining Association aims to decrease irresponsible mining activities and it will not support the companies which offer indecent mining projects in Mongolia. However, the Government’s decision to revoke numerous licenses simultaneously is inappropriate. It will affect negatively to the external environment and investors. The government should reconsider the decision since it’s posing risk for the mining sector development.

-What are the best options in this case?

-The relevant authorities should make their conclusions and assessments on time so that it will not be necessary to stop the operation of many companies at the same time.

-Mongolia’s coal exports increased compared to the previous year. However, it might be reduced due to the decreasing coal imports of China. What is your view on this situation?

-It is too early to predict the results in advance. Mongolia nearly reached 60 percent of its target to export 42 million tons of coal to China. And the Chinese government has imposed quotas on its imports, but it can be increased or decreased depending on the economic and political situation in the global market. Currently, the main triggering factor of Mongolia’s coal exports is the trade dispute between the U.S and China. The two countries may settle their trade conflict this month.

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Mongolia’s mineral exports dependence may curtail economic growth

Decline of dropping commodity prices will directly affect exports

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The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Mongolia, highlighting the country’s vulnerability to external shocks given its high debt levels and the economy’s dependence on mineral exports. Collapses to mineral demand can lead to a sharp fall in exports, weakening growth outlook and fiscal accounts, said the IMF in the report.

Mongolia’s economy has recovered vigorously from the recent downturn. Economic growth accelerated to 8.6 percent in the first quarter of 2019, after recording its first fiscal surplus in 2018, and gross international reserves increasing by USD 2.5 billion since 2016. The recovery stems from a stronger policy framework, significant official financing and a rebound in external demand.

Directors of the IMF encouraged the Bank of Mongolia (BoM) to continue to build reserves and do so through direct purchases and limit sales of foreign exchange to address disorderly market conditions. They also highlighted that financial sector reforms, including enhancing risk-based supervision and increasing bank capital are key to ensuring macroeconomic stability.

According to the IMF assessment, structural reforms should focus on strengthening governance and diversifying the economy. Furthermore, the authorities should improve infrastructure, enhance the legal framework and the investment environment, reduce environmental degradation, and make the agriculture sector more resilient to climate change.

Foreign direct investment (FDI) is expected to be strong, and improving current accounts spur reserves accumulation, said the IMF report. However, the trend is likely to slow down from 2021 due to domestic policy.

The IMF expected Mongolia’s economic growth to remain above 6.5 percent in 2019 and moderate to around 5 percent over the medium term. The primary headwinds are weaker export and growth. Partially balancing these headwinds, fiscal policy is expected to loosen in 2019 and 2020 relative to the 6 percent primary surplus seen in 2018.




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BoM keeps interest rate unchanged in line with analyst estimates

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The Monetary Policy Committee of the Bank of Mongolia (BoM) has decided to keep the policy interest rate unchanged yesterday. In other words, the policy rate remained 11 percent considering the current state of affairs, prospects, factors affecting the economy, the uncertainty of the external and internal environment, and risk.

As of August 2019, annual inflation is 8.9 percent nationwide. Inflation has increased, due to prices for meat, vegetables, universities fee, and other state-controlled products have risen in recent months. Inflation has stabilized around the target level, taking into account factors and economic stimuli of inflation.

In the first half of this year, economic growth has surged as a result of exceeded mining volumes and increased business lending, household consumption, investment, and budget expenditures.