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L. Munkhbaatar: We Will Fully Support Commissioning of Oil Refinery on Time
Today the Vice-Chairman of the State Great Khural of Mongolia L. Munkhbaatar received the delegation headed by the Ambassador Extraordinary and Plenipotentiary of the Republic of India to Mongolia M.P. Singh.
At the beginning of the meeting, the Vice-Chairman of the State Great Khural L. Munkhbaatar noted that major projects and programs significantly contribute to the enrichment of the Strategic Partnership between Mongolia and India with new content, and development is taking place intensively, and congratulated the Indian partners on the occasion of the 76th Anniversary of the Independence of the Republic of India. At the meeting, the parties discussed the progress of the Oil Refinery Construction Project and exchanged opinions.
Considering the time to spend on the engineering work of each oil refinery facility, the construction work is divided into 4 parts: ЕРС-01, ЕРС-02, ЕРС-03, and ЕРС-04 (ЕРС: Engineering-Purchase-Construction). ЕРС-01 package work or construction of non-technological buildings started in 2021. They are working to hand it over within this year. The contractor for EPC-02 and 03 package works and construction of crude oil pipeline was selected in 2022 and the contract was signed. Currently, the design work is in the final stage, and the construction work at the factory site officially started in April of this year. H.E. Ambassador M.P. Singh presented the announcement of the tender for the selection of the EPC-04 package construction contractor. He noted that the Minister of Finance of Mongolia and Exim Bank of the Republic of India signed a new loan agreement on the ЕРС-01, ЕРС-02, ЕРС-03 projects for the construction of the oil refinery in Mongolia, and postponed the loan repayment period until 2030.
CEO of Engineers India Limited Vartika Shukla said that due to the pandemic and international geopolitical situation, increase of the price of materials, machinery and equipment on the world market affects the total investment expenses of the project. As it is necessary to solve the problem of additional funding for the implementation of the EPC-04 set of works, she asked the Parliament to support their endeavors.
With the completion of the oil refinery, Mongolia will get rid of dependence on fuel imports, and a new branch of the petrochemical industry will be created in the country reducing foreign trade deficit. The Vice-Chairman of the State Great Khural of Mongolia L. Munkhbaatar underscored that the Parliament will fully support and pay attention to the creation of a favorable legal environment and the coordination of relevant institutions in order to successfully implement the project, a symbol of cooperation between the two countries.
Executive Director of "Mongolian Oil Refinery" LLC D. Altantsetseg, Project Management Consultant for Oil Refinery, Chairman and Managing Director of Engineers Indi
Bowley I think you might have got wrong information.
It's obvious that government projects at this level do not stop . They will find money from anywhere.
L. Munkhbaatar: We Will Fully Support Commissioning of Oil Refinery on Time
Great info Master, thank you!! 😀
Heron 1, a 2 week workover will be announced soon.
Get ready guys,
MB is in Mongolia for a reason.
Master.
If you believe the politicians that is your choice.
A friend took a picture of the site for me last month. His verdict. 4-5 years away from completion.
I am sure you will have never managed an EPC project but when you read the words, the design work is in the final stages, this means they are not even at IFC stage, which after detailed design will be another year before construction even starts.
As for the other comment, solve the problem of additional funding, what you are looking at is a project already out of control and at least four years away from commissioning.
Now if you have ever run an EPC or EPCm project in an emerging market I am happy to be corrected.
I think the significance of the refinery for Petro Matad and its shareholders is, regardless of the competency of it's planning and execution, the obvious intent and commitment it shows to the Government's desire to produce, refine and meet its own oil/petrol needs going forward.
They're backing Petro Matad as part of this wider process but Petro Matad's future isn't directly linked to the progress of the refinery's construction.
Heron oil will get to market via Petro China for as long as it takes with a good profit margin.
No refinery / no oil /no problem !
//Heron oil will get to market via Petro China for as long as it takes with a good profit margin.//
IF the MG don't decide to (p)reserve Heron oil for the refinery.
(What "profit margin" do you expect?)
I am not sure it really matters when the refinery is finished.
Mongolia need the money to pay the soft interest and the loan for the refinery
china need the oil
We get final permit (in time) we drill and hopefully everyone is happy.
So ends this story let us just hope it is not a fairy story.
Heron oil will generate income for the Mongolian Government and reduce its balance of payment deficit with the first barrel of produced oil. The World's oil needs may well tail off and stop long before the Heron field has yielded its last barrel of oil? They won't get anything for any oil that's left in the ground after this point.
I suspect this year would be their preference, which they've already stated, and what they say does appear to (eventually) happen. I think now the Cabinet decision has been made 'on the nod' no one's going to be minded to be difficult, at least at Government level. How it's going to be implemented at a local level remains to be seen but the Government have control of all the levers of power should they choose to use them.
Profit Margin? The same as that of Petro China minus whatever their cut is for transportation costs.
It's all still looking very good from where I'm sitting.
One who are NOT clever or do NOT understand Economics or want to MISLEAD will say "Govt want to keep all oil for themself until refinery built".
They do not understand revenue loss from PSC which is basic business sense.
When mr Buck say MMHI, MRPAM full backing for onstream THIS YEAR common sense tell you why.
But BB not known for common sense 😂
Clever one will keep focus on investment for multiple ROI with Petro Matad growth / development 💰💰🦉
"Profit Margin? The same as that of Petro China minus whatever their cut is for transportation costs."
Well Petro China is state owned, so I'm guessing their terms will be better than what Petro Matad get ;)
Transportation costs reimbursed by Chinese refinery.
I did post interview before with time stamp for this info.
“Transportation costs reimbursed by Chinese refinery.”
Owl, what is the source for this statement?
The trucking costs & operating costs which are recoverable under the contracts s you get those back."
12min 30sec
https://youtu.be/AzHbQpedtMI
Owl, I think you may be confusing the allowable costs recoverable under the terms of the PSC with what the refinery in NE China pays for the crude on a delivered basis. Petro Matad will not be reimbursed by the refinery in China
Mr GKahn this is possible. Whatever way Petro Matad will recover costs from PSC or Refinery who take at 5% discount to Brent
This is best info I can find on this sir
Oil is produced all over the World and it somehow always finds it's way to market to be sold or refined.
Why the worry that Petro Matad will be any different?
Petro China's oil gets there readily enough and Petro Matad with the support and assistance of the Mongolian Government are in the process of negotiating terms with them. I think Petro China will be only to happy to negotiate, make a little extra on the side and keep in the Government's 'good books'?
Owl: the pricing basis for crude has not been resolved with the Mongolian Government. I recall an RNS of more than a year ago which stated that this was to be discussed, specifically whether the pricing should be linked to Brent or a Chinese marker Crude. There has been no further update on this issue since as far as I am aware. Logically these discussions with MRPAM would relate to the price for crude consumed by the Mongolian refinery when it is on-stream. In the meantime, while crude is exported to China, Heron crude would surely have to be competitively priced against the alternative.
Mr GKahn
Will help if you link to info so we can confirm directly & see timeframe. All recent statement have suggest very health financial metric for Petro Matad production / profits so good for investor. Also with oil price projection upward.
OWL: RNS 7 December 2021:
“The Mineral Resources and Petroleum Authority of Mongolia (MRPAM) and Petro Matad held the first Exploitation Meeting at which it was agreed that the technical details of the benchmarking and pricing of Heron crude should be finalised between the Company and MRPAM by year-end. This will then allow for contract negotiations with potential buyers to begin. Mongolian crudes have been priced benchmarked to both Brent and Daqing crudes over the years. The Heron 1 assay is Brent-like in its chemistry and so Petro Matad is pushing for benchmarking to Brent in discussions with MRPAM and once agreed, plans to do so in the follow up negotiations with potential crude oil buyers early in the New Year.”
As far as I am aware there has been no further update on crude pricing.
You may find the following extract from the CPR in the AIM admission document of relevance despite being historic.
“Petro Matad has advised that any Block XX crude oil production would be sold at the Aershan Oil Gathering Station located in the Aershan Oil Field in Inner Mongolia, approximately 400 kilometres from the block. We are advised by Petro Matad that the crude price obtained at this point for any Block XX crude would be equal to the FOB price of Daqing crude oil less a differential of US$1 / bbl.”
Thank you for that GKhan - much appeciated.
However, what investors (incl. myself of course) are primarily interested in are the results of your analysis, i.e. what do you think about these elaborations? In case you may have not (yet) realized: your opinion on this board counts and is highly respected. Many thx.
Ojay
Thank you for your kind words, much appreciated.
In terms of analysing the export economics for Heron crude, there are a few points on which we need clarification.
Firstly, the trucking costs for the 400km to NE China and empty return, I saw a recent post which mentioned a cost of US$8.00 /bbl. I am not sure of the provenance for this figure, maybe PetroChina, but the estimate looks reasonable. In addition, PC will want a marketing/facilitation fee.
Secondly, we need clarification on whether the trucking costs and PC’s expenses can be treated as recoverable Petroleum Costs within “Petroleum Operations”. I have looked for a definition of Petroleum Operations, but unfortunately the summary of the PSC in the AIM Admission document does not include a definition.
Generally, there has been a close historic correlation between Brent and the Daqing crude price, in which case whichever is adopted as the basis for pricing Herod crude may not be material. However, we need to understand whether discounted Russian crude entering the China market could be a factor in the export negotiations with PetroChina.
Under the Block XX PSC, the Mongolian government has a production share of 40%, managed by MRPAM, plus a 5% royalty which they will likely take as royalty oil. The question arises whether the Mongolian Government will participate in exporting their 45% share given the political sensitivities. If they decline what are the potential implications?
GKahn
Not quite as straightforward as some would have us believe is it!
BP
Indeed, there are several issues to be negotiated. However, I believe that these can be agreed relatively quickly once the land problem is finally resolved. Hopefully the Chinese will be pragmatic and MRPAM will be supportive and co-operative.
I am confident the export economics should be attractive whether or not the trucking costs and PC’s fees can be treated as recoverable under the PSC.