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I agree Master 82, the Mongolian Government should never have issued an exploitation licence that was conditional on the land use permit over which the government had no control. Hence the licence was and continues to be undeliverable. As the land use permit continues to be held up, possibly indefinitely, the PM board now needs to slim down the organisation and lay off staff to conserve funds. The fact that there has been no explanatory RNS implies that local interests are determined to thwart any further exploration and development.
Jimi: Extract from your post “not that it's of any importance to PMs operations” There is a possible issue to be addressed or finessed regarding the Government’s production share (40%) and royalty 5%. Assuming Heron is producing MG’s entitlement either would have to be exported or stored.
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.
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
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.”
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.
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
Horsers and Landicamans: Clearly,Owl had another pseudonym in the past, and it may have been Fair Analyst. Owl also participates on the Synairgen, Beacon Energy and Touchst BBs. Do we know when Fair Analyst departed from this board and what other BB’s he posted on?
It is time for the board to recognise the realities, most notably: the political situation and continued bureaucratic delays; and the weak financial position of PM, requiring repeated fund raisings at extraordinary discounts in order to further the dream and pay for overheads.
HAMM: A DCF valuation of Heron is likely 35p plus. I think shareholders would gladly accept 20p given the current circumstances. That would leave the buyer with plenty of upside. The question is “what would be acceptable to Petrovis”,
“The government will be into election mode late this year. Let’s say PM produce before year end. This will give the DP and others political ammo to use as Mongolian crude will be going over the border, when the country is shipping nearly all of its fuel from Russia. A huge political own goal. “
If as and when Heron is producing oil the Mongolian Government will be entitled to 5% royalty oil and an initial 40% production share, i.e. 45%. While PM 55% would have to go via PetroChina to a refinery in NE China, for the next three years until the Mongolian refinery comes on-stream, it is very questionable whether it would be politically acceptable for the Government to export its oil. The alternative would be for MRPAM to enter into a storage arrangement with PetroChina.
On the other hand, If Heron production is stalled for an extended period, PM wouldn’t have the income and cash flow to pay for additional block XX exploration and development, unless the deal with DQE is extraordinary favourable. Further success in Block XX is key to domestic supply for the refinery. Otherwise, Mongolia might have to import Russian crude oil for the refinery to be operationally viable.
Many thanks Ojay
Yes: there are a few potential scenarios that could work out well for PM shareholders, including a possible takeover of PM, however unlikely that may seem at this point. PM is not in control of its destiny and the economics of export to China may not be attractive in the short term ; moreover, MG has a problem with its refinery scheduled to come on stream in about three years with insufficient domestic crude oil supply. This situation lends itself to an opportunistic takeover of PM.