Petro Matad Regulatory News (MATD)

Petro Matad Limited ("Petro Matad" or the "Company")

Operational Update - DT-1 testing

Petro Matad provides an update on its operations at its Davsan Tolgoi Project, part of the Company's Production Sharing Contract (PSC) on Block XX in eastern Mongolia.

As previously advised the Company is currently undertaking both an exploration drilling and a testing programme on Davsan Tolgoi. The testing programme commenced on 1 August 2011 with operations on the DT-1 well, the first of the 3 wells completed during Petro Matad's 2010 drilling programme. DT-1 operations were suspended on 22 August due to problems related to the original cementing operations of the reservoir interval. This resulted in an invasion of water into the third interval tested.

The original cement bond log had revealed zones of equivocal bonding at the time of casing and cementing of DT-1, in zones of poor hole conditions associated with permeable reservoir intervals.

The first test interval from 1,111-1,123m was swabbed and indicated a production rate of 107 barrels of fluid per day, 80% of which was water. The test provides a valid assessment of oil productivity, but in light of the cement job complications the results are being evaluated for possible contribution by non-reservoir sources for the recovered water.

The second test interval from 1,090-1,104m was swabbed with an indicated production of less than 1 barrel of fluid per day, with a 10% oil cut.

The third test interval from 1,072-1,080m tested the zone with the best combination of sample shows, porosity, and calculated hydrocarbon saturations at the top of the Tsagaantsav Formation. The test was swabbed and had an indicated production of 1,300 barrels of fluid per day with a trace of oil. The produced water was significantly fresher than that produced from the lower intervals and rates of fluid production were inconsistent with realistic permeabilities for the third test interval. These results reveal that the water was not from the intended test interval and that the test was unsuccessful.

The Company's technical team is evaluating the mechanical and geologic conditions responsible for the results of the test. The primary cause is currently believed to be the poorly controlled application of high-density cement during casing operations in July 2010. Those operations resulted in cement loss into the permeable reservoir zones and probable fracturing adjacent to the wellbore. Such formation damage, in combination with zones of poor and absent cement bond between the casing and formation, explain the lack of Tsagaantsav fluids in the third test interval and the extraordinary contribution of anomalously fresher water from either the overlying Zuunbuyan Formation or the underlying basement (or both).

The Company has decided not to carry out further operations on DT-1 while data analysis is being completed and options are considered. No remediation, stimulation, or pumping operations will be undertaken until the engineering and geologic evaluation is completed. The workover rig and the testing equipment were moved to the DT-9 site (see contemporaneous News Release)

Given the relatively low cost of drilling new wells and the possibility that damage to DT-1 may prove to be irreparable, it has been decided that the Company will locate the Company's next well (DT-11) approximately 220 metres from DT-1. DT-11 will be tested as soon as drilling has been completed. This location has the advantage that a successful test would contribute towards establishing a reserve in the DT-1 and DT-2 reservoir.

Oil recovered from the testing of DT-1 is being analysed by Amber Laboratories in Ulaanbaatar, Mongolia with early confirmation of 20 API oil. In addition, initial results of the analysis of core recovered from DT-4 have been received from Core Laboratories in the United States. They indicate an API of between 30° and 40°. These differences in gravity values are expected over the different areas of the Davsan Tolgoi prospect, given the varied depths, reservoir objectives, and complexities of the Company's prospect inventory.

The current drilling contractor, DQE, has exceeded expectations in many aspects not the least of which has been the time taken to drill each well in 2011. As a result, our originally planned drilling programme is well ahead of schedule. Following the completion of exploration well DT-11, sufficient wells will most likely have been drilled for the Company to focus primarily on the flow testing programme and the analysis and integration of data gathered from the exploration programme, including re-mapped 3D and 2D data, along with the 2011 2D seismic surveys in the area.

Petro Matad CEO Doug McGay said "The failure of the DT-1 test, due to mechanical issues is considered to be a relatively minor setback in our overall progress at Davsan Tolgoi. The inexpensive well costs, in both monetary and time terms, mean that alternative actions can be taken quickly and the possible loss of the initial investment in the DT-1 well's drilling and testing is the only setback when viewing the larger picture of our Company's and its programme's progress. Our analysis to date indicates that this is a mechanical issue. The qualified success of the bottom section gives us encouragement and valuable data, including the achievement of having brought Petro Matad's first oil to the surface.

"It is also important to note that cement bond logging has been undertaken on each of the wells drilled to-date and cement problems are considered to be restricted to wells DT-1 and possibly DT-2, drilled in 2010 by our previous contractor. Wells from DT-4 onwards have all been drilled by our current contractor DQE International and under our Drilling Section's supervision they have achieved new levels of competency, speed and economy. No CBL anomalies have been observed in any of those wells."

"The speedy drilling we are now achieving means that the Company can efficiently drill and perform what will effectively be a supplementary test in the DT-1 and DT-2 reservoir".

"The results of the DT-9 test, detailed in a separate and contemporaneous News Release should not be seen to be related either geologically or mechanically to the DT-1 issues. DT-9 is in an entirely separate portion of Davsan Tolgoi (the Shoroo Prospect) and was testing a different type of structural trap in the Tsagaantsav Formation. The reservoir being tested in DT-1 is in the Uppermost Tsagaantsav (paleovalley) Formation, a different trap style and a different prospect, together with the fact the Company believes DT-1 issues are mechanical."

Technical information in this news release has been reviewed by the Company's Exploration Manager, Dr James Coogan. Dr Coogan is a petroleum geologist with 30 years of experience in North American and international exploration and development. He is a member of the American Association of Petroleum Geologists and the Geological Society of America.

About Petro Matad Limited

Petro Matad is the parent company of a group focussed on oil exploration, as well as future development and production in Mongolia. The Group holds the sole operatorship of three Production Sharing Contracts with the Government of Mongolia. The principal asset is the PSC for Block XX, a petroleum block of 10,340km² in the far eastern part of the country. The two other Blocks, IV and V are located in central Mongolia and jointly cover 71,040km².

Petro Matad Limited is incorporated in the Isle of Man under company number 1483V. Its registered office is at Victory House, Prospect Hill, Douglas, Isle of Man, IM1 1EQ.

Further information:

Petro Matad Limited

Douglas J. McGay - CEO

+976 11 331099

Westhouse Securities Limited

Richard Baty/Petre Norton

+44 (0)20 7601 6100