Petro Matad drills into Mongolia - last frontier for onshore oil

* Same geology as prolific oil basins in China

* Mongolia will need crude for planned refinery

By Barbara Lewis

LONDON, March 20 (Reuters) - Petro Matad plans todrill four wells this year in Mongolia, which it said is one ofthe last onshore frontiers for oil exploration and is seeking tocurb dependency on Russian imports of refined products.

Landlocked Mongolia, sandwiched between Russia and China, ismostly known in the natural resources sector for the huge OyuTolgoi copper prospect, operated by Rio Tinto .

The country is challenging because of its extreme weatherand a legal system and young democracy that have caused problemsfor international investors, including tax wrangles andcontractual disputes.

Petro Matad's CEO Mike Buck said in an interview Mongoliawas offering favourable terms for oil exploration and haduntapped potential because, during the era of Soviet controlover Mongolia, Russia had plenty of oil of its own, while Chinaexplored its reserves just over the border.

"There is no difference between the geology (compared withneighbouring prolific oil basins in China), but the explorationhistory is different," Buck said. "Everybody knows the geologyis the same, but no-one has been able to prove it by producingat a commercial rate."

Although oil demand growth is expected to slow as the worldshifts towards electric transport, Buck said Mongolia would needcrude for a refinery it plans to build, with help from India.

A senior official from Engineers India Ltd, the state-ownedIndian company providing consultancy, said a draft feasibilitystudy is ready, but declined to give further details.

The refinery is expected to have a capacity of 30,000barrels per day, while Mongolia's oil output is around 21,000bpd and declining, Buck said, citing official Mongolian figures.

Petro Matad has three exploration blocks totalling 60,000square kilometres - one in the east, near Mongolia's producingfields and two in central western Mongolia.

The drilling of four wells over the three blocks will beginby the end of the second quarter and be completed before thedrilling season ends in November.

The block in the east could come onstream within 18 monthsof any discovery because it is near existing facilities operatedby Petrochina, Buck said.

By the end of this year, Petro Matad's exploration spendingwill have totalled $100 million since it began operating inMongolia in 2006, including cash spent on seismic surveys andprevious drilling. It has been raised through its stock marketlisting and $16 million late last year came from British-basedinstitutional investors and U.S. funding.

Mongolia depends on Russia for almost all its oil products,which account for nearly a fifth of its import bill, centralbank statistics show.(Additional reporting by Terrence Edwards and MunkhchimegDavaasharav in Ulaanbaatar and Promit Mukherjee in Mumbai,editing by David Evans)