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Thursday, July 14, 2011

Petro Matad Encounters Hydrocarbons at Davsan Tolgoi Well

- Petro Matad Encounters Hydrocarbons at Davsan Tolgoi Well

Thursday, July 14, 2011
Petro Matad Ltd.

Petro Matad announced that the Davsan Tolgoi-7 well ("DT-7") has reached a total depth of 1,733m in metamorphic rocks below the Tsagaantsav Formation objectives.

DT-7 was drilled as a test of the Uppermost Tsagaantsav and the Lower Tsagaantsav reservoirs of the Davsan Tolgoi Mod Prospect, a fault and fold structural trap consisting of three subsidiary fault blocks.

The well penetrated the Uppermost Tsagaantsav at 1,149m depth, 22 meters high to prognosis. Initial petrophysical analysis has identified three zones of possible net pay totaling 4.8m in thickness and averaging 25% porosity. An additional 18.5m of water-bearing net reservoir with 19% average porosity is distributed between the three zones of moveable hydrocarbons. A similar pattern of alternating oil and water-bearing sandstone reservoirs is common in the Tolson Uul field on Block XIX to the north of Davsan Tolgoi. The three Uppermost Tsagaantsav hydrocarbon zones are being evaluated as candidates for future testing, and additional well locations are being evaluated up to 75m up-dip (higher) to DT-7, where more complete hydrocarbon saturation may be expected.

The Lower Tsagaantsav objective was penetrated between 1,208 and 1,703m depth with minor hydrocarbon saturation at 1,542m depth. 23m of reservoir quality sandstone is distributed between twelve thin zones that average 17% porosity.

Drilling, casing and cementing operations have been completed at DT-7 and the rig has been moved to the new DT-8 location as part of the Company's drilling program to evaluate its inventory of twelve independent prospects in the Davsan Tolgoi area of Block XX.

The DT-8 well is scheduled to be spud today and is located 700m northeast and 38m lower than the DT-5 well that was drilled in June, and 1.8 km south and 80m higher than the Daqing 19-62 oil well in Block XIX. The well will test a stratigraphic pinch-out of the Uvgan Gol paleovalley reservoir between the thin hydrocarbon-saturated sandstones at DT-5 and the thick oil-producing sandstones of the 19-62 well. On further analysis and comparison of data from the DT-5 and 19-62 wells, a secondary stratigraphic trap objective in Lower Zuunbayan sandstones has been identified and the location of DT-8 is well situated to test this objective. Lower Zuunbayan sandstones are the primary reservoirs in the North Tolson Uul field of Block XIX and if productive at DT-8, they will confirm a new play for the Davsan Tolgoi area.

The Company also wishes to give an update on the progress of the planned well-testing program for Davsan Tolgoi. As of today, 135 truckloads of equipment accompanying the workover rig are waiting at the Chinese side of the border post, 150kms south of Petro Matad's Block XX operations. Mongolian national holidays are in progress, and the border point is due to re-open today. Whilst there is a large back-up of cross-border traffic awaiting that re-opening, Petro Matad and its contractor DQE International are confident that mobilization will continue shortly.

The Company is also well advanced in all other aspects of the extensive testing program. Matters such as explosives for well perforation, permits, extended test equipment and international specialists are all either in place or planned.

In other matters pertaining to Davsan Tolgoi, the Company's geo-scientists are currently completely re-mapping the Davsan Tolgoi 3D survey, using a newly processed set of data that adds new definition and clarity to the model. Additionally, data from the drill holes is being added and used in the assessment as it becomes available. This large undertaking is scheduled to be completed by the end of August.

In the immediate vicinity of Davsan Tolgoi, the recently completed 2D seismic lines have been processed, and are currently being incorporated into the previous 2,700kms of survey, ready to be re-mapped. This is expected to add much greater clarity to the areas adjacent to Davsan Tolgoi, both to the east and the west, and enable the generation of new volumetrics, as well as possibly defining drill targets.

Additionally, the Company advises that the 2D seismic surveys over the three sub-basins in the south of Block XX have now been completed and processed. Early processing results indicate similar depths of basins as those in the northernmost parts of Block XX, near Davsan Tolgoi. Interpretation and collation of the entire 1,300kms of new 2D is proceeding.

Petro Matad CEO, Doug McGay stated, "Once again, it is pleasing to note that we have encountered hydrocarbons in our Davsan Tolgoi drilling program and to have the reservoir formations' prognosis confirmed.

"We are methodically working our way through our portfolio of targets in the Davsan Tolgoi area, having so far encountered hydrocarbons in all but one of the seven wells drilled to date. Our management and exploration team note the less-than-resounding results in DT-5 and DT-7 and the dry hole at DT-6, and conclude that is a statistically anticipated outcome of the type of exploration drilling program needed on such a structure as Davsan Tolgoi. Each of the wells has already given us important information that is being used to refine our geologic model, and hence our drill site selection. This should serve us well not only for the continued drilling of our prospect inventory, but also for the ongoing exploration of the remainder of Block XX.

"Progress is being made with the other aspects of the exploration of Block XX, particularly the complex well-testing program. The re-mapping of the newly re-processed 3D survey will also be an important milestone. The area outside of Davsan Tolgoi is also being methodically explored, and we are looking forward to refining our portfolio of leads and prospects in the immediate vicinity, as well as furthering the more grass-roots exploration of other sub-basins."

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