RE: Progressive note out16 Jan 2025 08:14
Cooperation agreement.
The crude produced at Heron-1 is transported to PetroChina’s facilities in Block XIX,where it is processed. The commercial terms of the cooperation agreement have been agreed and are awaiting sign-off by PetroChina, expected in February, after which revenue will start to be received.On a sales price of US$70/bbl, Petro Matad should receive a handsome netback of more than US$40/bbl. At current oil prices, the crude already in storage should generate net revenue to Petro Matad of approximately US$0.6m.
New exploration PSC signed−another to come.
Petro Matad has been officially awarded the Borzon Block VII PSC (Production Sharing Contract). This is in the south of Mongolia and close to other basins in China where oil and gas havebeen found in several plays. There is the potential of plays in the Jurassic/Cretaceous,which is well known in Mongolia. On top of this,there is potential in the older Triassic and Permian reservoirs,which have not been explored in Mongolia. Petro Matad has an eight-year exploration term with relatively benign fiscal commitment. The company has a second PSC tha tis awaiting Cabinet approval of the coordinates of a small,reserved area within the block. These two PSCs ensure significant exploration running room for Petro Matad, while the company is also looking at the potential of bringing in a partner.
Overview.
Today's update is positive. The performance of Heron is encouraging,and once the cooperation agreement is signed, Petro Matad should start to receive cash flow and enjoy the healthy net back from its production,which can be utilised in ramping up production further. The award of a PSC (with another to come) adds exciting exploration running room,with some new plays. As highlighted in our recent note (On the way up in 2025, 18 December),we achieve a RENAV (Risked Exploration Net Asset Value) of 12.0p/share for Petro Matad. This does not represent a target price and investors should view any valuation in the context of their own assessment of the relevant risks.
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