Tuesday, August 30, 2011

[CPSI NewsAlert: Petro Matad Announces Disappointing DT-1, DT-9 Testing Results]

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Petro Matad: Operational Update - DT-1 testing

August 30, Petro Matad Limited (LON:MATD) --

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 programmeDT-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."

Link to release


Petro Matad: Operational Update - DT-9 testing

August 30, Petro Matad Limited (LON:MATD) --

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. 

The testing programme on the Company's DT-9 well has been completed, with only water being produced from the most promising interval of the well in a valid test of reservoir fluids.  The water produced is approximately five times fresher than that normally observed in the Tsagaantsav Formation, and it is believed that this phenomenon led to the incorrect estimation of net pay from the pre-test wireline logs which were announced by the Company on 22 August. 

The DT-9 well reached its total depth of 1,766m on 16 August. The well encountered live oil shows at the top of the Lower Tsagaantsav and wireline logs identified a principal calculated pay zone between 1,639 and 1,651m depth that was accompanied by oil stain in samples and slightly elevated gas readings.

At that time, high apparent hydrocarbon saturations were calculated from the DT-9 wireline logs using a reservoir water salinity of 8,550 ppm NaCl equivalent.  This salinity is consistent with measured salinity of the Tsagaantsav waters that were recovered from initial testing of DT-1.  That benchmark is also within the 4,700 - 14,000 ppm range of wireline log salinities for the Davsan Tolgoi area, as calculated in-house and corroborated by two independent petrophysical consultants.  Water salinities reported in 2005 by SOCO International from Block XIX Tsagaantsav reservoirs are also within that range.  The actual formation waters recovered from DT-9 were approximately 1,700 ppm NaCl equivalent.  This unprecedented fresh water occurrence in the local Tsagaantsav reservoir is currently considered to be the likely cause of the error in the original estimate of net pay from the pre-test wireline logs. 

Unlike DT-1 water recoveries, as detailed in a contemporaneous News Release, the DT-9 waters represent a valid test of formation waters that were recovered at a rate of 200 barrels per day from a 14 hour swab test across from a zone of good bonding and zone isolation on the cement bond log.  Water production from the DT-1 test is compromised by non-Tsagaantsav sources due to mechanical complications of the cementing job, as reported in the Company's other News Release of this time.

Geological and 3D seismic reviews confirm that DT-9 well was drilled on a small fold closure that was superimposed on a larger hanging wall fault trap that is isolated from other Shoroo Prospect drilling targets and from the other DT well series drilled to date. The live oil shows from 1,597-1,601m in DT-9 indicates that the fold closure at the top of the Lower Tsagaantsav objective formed a small but effective trap. However, the reservoir quality of this interval did not merit testing.

In contrast, the deeper, thicker, and more porous 1,639-1,651m test interval in DT-9 relied on a hanging wall fault seal of the Tsagaantsav against highly fractured footwall basement rocks across a large displacement fault.  DT-9 is the first well the Company has drilled to test this trap style.  Block XIX analyses demonstrate that waters from fractured basement rocks are exceedingly fresh.  Thus the conclusion at this stage is that footwall basement fractures are the likely source of the waters tested in DT-9.  Accordingly, when assessing future drilling locations higher risk will be assigned to any that rely on hanging wall traps against footwall basement rocks. 

Petro Matad CEO Doug McGay said "While very disappointing, DT-9 was in both a separate structure and a different reservoir than previously drilled locations on Davsan Tolgoi.  Thus the test failure is not seen as an adverse judgement on the overall Davsan Tolgoi complex.

"The inaccurate results of the petrophysical calculations of the net pay zone as originally announced are regrettable but understandable, given the factor of the presence of unprecedented fresh water."

"The Company views the DT-9 results a part of our growing understanding of the Davsan Tolgoi complex, in which we maintain faith as a viable exploration and appraisal project."

Link to release



"Mogi" Munkhdul Badral

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CPS International LLC

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