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Petro Matad announces operational update

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Oilfield Technology,

The company has provided the following update on recent and planned activities.

Operational update

The 2015-2016 acquired datasets have revealed additional new prospective basins which have significantly expanded the company's basin portfolio. In summary, the company's subsurface database in Blocks IV and V now consists of 4200 km of 2D seismic, 11 000 km2 of Full Tensor Gradiometer and High Resolution Aeromagnetics, full coverage of blocks with conventional gravity and magnetics, two deep continuous stratigraphic coreholes, and extensive outcrop geological data. The data has been used to establish a diversified basin portfolio with multiple play types. Furthermore, the leads and prospects inventory developed from the basin portfolio have recently been peer reviewed and the process of high grading prospects to drillable targets has been completed. Multiple drillable targets have been identified and with this diversified prospect portfolio the company is now well positioned to work towards finalisation of next year's planned drilling programme.

An initial two well wildcat exploration drilling programme is expected to commence in mid-2017. The planned wells will be the first basin and play opener wells in the frontier basins of Central Mongolia, which is one of the last remaining untested exploration areas in Central Asia. The primary objective of the wells will be to target the proven oil producing Upper Jurassic-Lower Cretaceous play found in the basins of eastern Mongolia (Tamtsag, East Gobi) and eastern China (Hailar, Erlian, and Songliao). The secondary objective is the deeper play of Permian-Jurassic in age, analogous to the prolific systems of the western Chinese basins (Junggar, Santanghu and Turpan). Further details on the planned exploration programme will be announced once specific drill locations have been finalised.

The company is currently evaluating rig options and has conducted preliminary inspections of rigs capable of drilling to the depth the company anticipates will be required (3000 - 3500 m). The findings to date are very encouraging as rigs of the appropriate quality and standard are available within Mongolia and neighbouring countries. The company expects to release its drilling tender before the end of 2016.

Financial update

As previously notified, the Company has received a payment of US$10005303 from Shell's affiliate because of its exit from Blocks IV and V. An additional US$5000 000, due upon approval of the reassignment of interest, has not yet been received. The Mongolian Government approval process requires sign-off at many levels before the cabinet ultimately provides final approval, and this has been delayed due to the Mongolian national elections in June and the subsequent reorganisation of government departments. We expect approval will likely occur before the end of 2016. Upon receiving government approval, Petro Matad's wholly owned affiliate (Central Asian Petroleum Corporation Limited) will hold 100% of Blocks IV and V.

The company has undertaken cost cutting measures which are expected to reduce G&A by approximately 30% over the remainder of 2016 and 2017. The savings realised, even in the absence of securing a farmout or additional funding, should enable the company to fully finance the 2017 work programme, including the drilling of two exploration wells.

PSC extension

The company recently met with the new Mongolian Government Department responsible for regulating Production Sharing Contracts - the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) - to present the exploration potential of our blocks. MRPAM was very enthusiastic with the information provided to them and clearly indicated that they are aligned with Petro Matad on exploration strategy and are therefore supportive of an extension of Blocks IV and V beyond the current term expiry (July 2017). In addition to the two wells to be drilled in 2017, MRPAM recognises that the company's quality portfolio of drillable prospects will require additional time for drilling programs to be undertaken in 2018 and beyond. Furthermore MRPAM understands the significance of a drilling campaign in untested frontier basins in a region adjacent to the prolific producing basins in China.

Commencement of farmout process

Petro Matad has announced that a formal farmout process has commenced, for which working interests in the company's three blocks (IV, V and XX) will potentially be on offer. The company is of the view that sharing the risk of frontier exploration is a prudent approach for conserving existing funds and accessing additional funds, which will also allow for a more comprehensive exploration effort to fully explore the company's vast frontier acreage. Several companies have already signed confidentiality agreements and are currently reviewing the company's technical data.

Although the company is in a position to finance the planned 2017 exploration programme, the portfolio of quality drillable prospects greatly exceeds the two planned wells in 2017, which strongly argues for bringing in a partner to finance exploration programs beyond next year. With the promising results seen to date from the completed exploration work programmes, Petro Matad is confident that there will be significant interest in the opportunity to farm in to one or more of the company's blocks.

In support of the farmout effort, the company has announced that Philip Holloway has joined the Petro Matad team as New Ventures Manager. Philip worked for BG Group (now Shell) for 26 years and was instrumental in BG Group's decision to farm-in to Blocks IV and V in 2015. Philip has remained very optimistic on the potential of the company's portfolio and was keen to join Petro Matad. In addition to leading the company's farmout effort, Philip is a proven explorationist so will also have significant input into advancing the company's exploration of Blocks IV and V.

Further, Petro Matad has signed a contract with Zebra Data Sciences (ZDS), a United Kingdom based company that specialises in running virtual datarooms and promoting oil and gas opportunities. ZDS provides online technical data-showcasing services for farm-out projects for the entire range of oil and gas companies. We expect the engagement of ZDS will greatly enhance the visibility of the Company's assets and consequently will result in a large number of companies being aware of the exciting opportunity to acquire an interest in our Mongolian blocks.

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