Matra Petroleum (MTA LN)

Matra Petroleum

17 January 2012

(MTA LN)

BUY

Coverage Update

Price target: 0.039

0.039

Oil & Gas

17 January 2012

Appraisal and Development in Russia

Stock Data

BUY recommendation

12 month target:

Summary
We are updating our coverage of Matra Petroleum plc (Matra or Company)
with a Buy recommendation and a target price of 3.9p.
Matra is an AIM-listed oil and gas exploration and production company with a
single asset located in the Orenburg region of Russia where it owns 100% of the
rights to the Arkhangelovskoe licence (Licence). The Companys Sokolovskoe
oilfield discovery in the License is independently assessed to have contingent (2C)
resources of 15MMbbl and prospective resources upside of 38MMbbl.
Our risked valuation of the 2C resources alone is US$87m or 2.6p per share
(assumed a fully diluted basis as explained later in this note) and our un-risked
valuation is US$124m or 3.7p per share. Our risked valuation for the prospective
resources (the exploration upside) is US$126m or approximately 3.7p per share
with the un-risked upside of US$286m or 8.5p per share.
Our risked valuation of the contingent resources using a chance of success of 70%
equates to a risked NAV of US$5.8 per barrel versus Matras current market
enterprise value of US$0.75 per barrel. We believe that the market is over
discounting for the technical and funding risks and that the valuation gap presents
an attractive investment opportunity.
Matra received the 20-year Sokolovskoe Production Licence from the Russian
authorities in December 2010 and the Companys firm commitment to
development of the field is the only condition for converting the contingent
resources to recoverable reserves as per SPE guidelines. The Company, subject to
securing the necessary funds or a farm-out deal, is planning to acquire 3D seismic
and drill two production wells on Sokolovskoe during 2012. If successful, these
new wells together with re-commencement of production from the previously
drilled A-13 appraisal well could provide the technical premise for a full field
development plan.
This document was produced by Fox Davies Capital, a trading name of Fox Davies Capital Limited (FDC), 1 Tudor Street,
London, EC4Y 0AH. FDC is authorised and regulated by the Financial Services Authority (the FSA). This document is not
independent and should not be relied on as an impartial or objective assessment of its subject matter. Given the foregoing
this document is deemed to be a marketing communication and as such has not been prepared in accordance with legal
requirements designed to promote the independence of investment research and FDC is not subject to any prohibition on
dealing ahead of the dissemination of this document as it would be if it were independent investment research.

3.9p

Shares in Issue (M):

1,354

Market Cap (M):

9.82

EV (M):

7.60

52 Week range
0.53p

0.73p

4.6p

GBp

5
4
3
2
1
0
Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Valuation
Core NAV (p/share):

n/a

Total NAV (p/share):

6.0p

Price/Total NAV (x):

0.1

Analyst
Alexander Ogbechie
Tel:
+44 (0)20 3 463 5040
Email:
alex.ogbechie@fox-davies.com
Paul Singer
Tel:
Email:

+44 (0)20 3 463 5042

paul.singer@fox-davies.com

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Matra Petroleum (MTA LN)

17 January 2012

Table of Contents
Summary ........................................................................................................................................................................................................ 1
Investment Case ............................................................................................................................................................................................ 3
Background.................................................................................................................................................................................................... 4
Licence Portfolio ............................................................................................................................................................................................ 5
Resource Potential ....................................................................................................................................................................... 5
Timeline ......................................................................................................................................................................................................... 6
Valuation ........................................................................................................................................................................................................ 7
Risks................................................................................................................................................................................................................ 8
Reservoir Risk ............................................................................................................................................................................... 8
Political and security risk ............................................................................................................................................................. 8
Operational risk ........................................................................................................................................................................... 8
Licensing risk ................................................................................................................................................................................ 8
Financing risk ............................................................................................................................................................................... 8
Appendix 1: Valuation Summary .................................................................................................................................................................. 9
Appendix 2: Description of the assets........................................................................................................................................................ 10
Arkhangelovskoe Licence .......................................................................................................................................................... 10
Sokolovskoe Oil Field ................................................................................................................................................................ 11
Appendix 3: Key Personnel ......................................................................................................................................................................... 14
Appendix 4: News Flow .............................................................................................................................................................................. 15
Appendix 5: Capital structure ..................................................................................................................................................................... 16
Fundraising history .................................................................................................................................................................... 16
Debt............................................................................................................................................................................................ 16
Appendix 6: Resources classification framework ....................................................................................................................................... 17
Glossary........................................................................................................................................................................................................ 18
Research Disclosures ................................................................................................................................................................................... 19

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Matra Petroleum (MTA LN)

17 January 2012

Investment Case
It is independently assessed that Matra has contingent resources (2C) of 15MMbbl in its Sokolovskoe oil discovery. This is a
significant resource base for a company with market capitalisation of about GBP10m. In our opinion, this is a reflection of
the operational problems that influenced the performance of the two wells drilled so far on Sokolovskoe structure and the
perceived technical and funding risks for monetising the asset.
Unfortunately, it appears that A-12 and A-13 were located on sub-optimal locations based on sub-standard seismic that was
acquired in 2004. Because of the time pressures of the drilling commitment under the exploration licence, Matra did not
have sufficient time during 2007 and 2008 to acquire additional seismic data to complement what was already available.
However, the Company has since acquired additional seismic from the regional operator TNK-BP for the neighbouring area
to the north of Sokolovskoe, which together with well data from A-12 and A-13 has allowed the Company to re-interpret the
seismic and to refine its geological model.
It is disappointing that only two wells have been drilled on Sokolovskoe in the past four years; however, it should be noted
that a legal challenge in 2008 and subsequent global financial crisis of late 2008 / early 2009 were significant impediments to
execution of the work programme. In our opinion, the potential of the field has not been fully appraised and more drilling
based on re-processed seismic and well data is warranted. The challenge for the Company is to secure sufficient funds for
its work programme of acquiring 3D seismic and drilling more appraisal wells during 2012. Indeed, we believe that the
investment risk is now about successful appraisal and development rather than exploration.
We believe that if the Company succeeds in demonstrating sustainable production in the next two wells, then there would
be a robust case for a full field development plan, which could be undertaken through both equity and debt funding.
However, our valuation compared to the market value of the Company indicates that investors are applying an excessive
discount factor for the appraisal and development risks.
Our risked valuation of the 2C resource of 15MMbbl is US$87m and is based on a CoS of 70%, which we consider is
appropriate based on the Companys work to date, the evolving knowledge of the field and the independent assessment of
the field. Our risked valuation equates to US$5.8 per barrel versus the Companys market value of approximately US$0.75
per barrel. This is a significant asset valuation gap and the Companys market value implies a CoS of only 9%, which is more
typical of exploration plays.
Of course, Matra requires further funding and we have accounted for this in our analysis. Our valuation per share assumes
2,105m shares, fully diluted, including a hypothetical 750m new shares to be issued to raise sufficient funds for the 3D
seismic and drilling of well A-14. On this basis, our risked NAV for the 2C resource base alone is 2.6p per share, which
compares with a current share price of 0.75p. Our total risked exploration NAV, including for prospective resources is 6.32p;
however, we believe that in the near-term the markets will only be focused on the appraisal and development of the 2C
resource base, which still provides almost 3.5 times upside to the current share price.
In conclusion, we note the difficult history of the Sokolovskoe field to date; however, we emphasise that only two wells have
been drilled so far and these have not fully appraised the potential of the discovery. Subject to the Company securing
further funding, we believe that on a risked basis, the Company presents a strong investment opportunity. We update our
coverage with a BUY rating and a target price of 3.9p.

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Matra Petroleum (MTA LN)

17 January 2012

Background
Matra is an oil and gas exploration and production company operating in the Russian Federation and is focused on building
a portfolio of development and producing assets in the Volga / Urals area of Russia. The Company was first incorporated in
England in February 2005 as Ming Resources. The Company was renamed and re-listed on AIM as Matra Petroleum in April
2006 after a reverse takeover of Inke Petroleum.
Matras initial asset was the Inke exploration licence in Hungary. However, 60% of this interest was farmed out to Aspect
International in return for their full funding of exploration expenditures, and was later entirely sold in December 2008 as
Matras efforts turned wholly to their interest in the Russian Federation. Matra acquired Limited Liability Company OOO
Arkhangelovskoe in 2007 securing the 100% interest in the Arkhangelovskoe exploration license in Orenburg, Russian
Federation.
Matras first well on the Licence was drilled in 2007 and discovered the Sokolovskoe oilfield. The well produced high quality
oil from a Devonian carbonate reservoir. This was appraised by well A-13, which completed operations in summer of 2010.
The Arkhangelovskoe Production Licence was awarded 22nd December 2010, and is valid to 31st December 2030.
Exhibit 1 below shows the Companys share performance compared to the AIM Oil & Gas Index since 1st June 2007. The
price has been volatile in line with the inconsistent production performance from A-12 and A-13.
The notable drop in the share price in June 2010 was due to the Companys operational update on well A-13, which having
encountered poorer quality reservoir tested oil at around 100bopd, significantly below the initial test result from well A-12.
The decline in share price during 2011 was primarily due to the issues of water cut for well A-12 and the failure of A-12 sidetrack to remedy the problem. The prognosis is that the technical issues were the result of poor quality well operations and
completion techniques, rather than the result of reservoir characteristics.
Exhibit 1: Share Price History

Source: Bloomberg

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Matra Petroleum (MTA LN)

17 January 2012

Licence Portfolio
Matras licence portfolio consists only of their 100% interest in the Licence covering the Sokolovskoe oil field. This was
originally an exploration licence held by OOO Arkhangelovskoe, which was acquired by the Company in 2007. In July 2009
validity of the Licence was extended through to the end of 2010 after successful renegotiation of terms resulting in a four
well commitment. Three of these wells have already been drilled, with the fourth no longer required. More importantly, the
Licence was extended north after analysis showed that the Sokolovskoe field structure extended past the existing boundary.
In the same negotiation, Matra relinquished areas on the eastern and western sides of the Licence which had proved nonprospective. Matra would have it known that the local authorities were very cooperative and extension was given without
further work/expenditure obligation.
Subsequent to the exploration licence extension and at the end of its term, Matra was awarded a Production Licence for the
Sokolovskoe Field through OOO Arkhangelovskoe for an initial term of 20 years through to December 2030.
The Licence was the subject of a court case during 2008. Kompania Gaz I Neft, previously a 100% shareholder in OOO
Arkhangelovskoe, instigated legal proceedings against Matra in June 2008, claiming that OOO Arkhangelovskoe had not
been formed in full compliance with Russian Federation laws and so should be re-registered with the Matra acquisition
nullified. Matra subsequently registered a claim against Kompania Gaz I Neft in the London Court of International
Arbitration in relation to the validity of the Share Purchase Agreement resulting in Matras acquisition of OOO
Arkhangelovskoe and the exploration licence. Kompania Gaz I Nefts claims against Matra were dismissed in the Moscow
Regional Court in July 2008.

Resource Potential
A competent persons report (CPR) assessing resource potential at the Arkhangelovskoe block was commissioned by
Matra and prepared by Energy Resource Consultants (ERC) in October 2010. Pertaining to the hydrocarbon reservoir that
has been the target of well drilling so far, ERC estimated contingent 2C resources of 15.1MMbbl.
These estimates largely apply to the south west area of the licence, rather than the area into the north east, due to the lack
of well data over this extension. Table xx shows a full summary of the contingent resource estimates.
Table 1: Contingent Resource Estimates

STOIIP (MMbbl)
Recovery Factor (%)
Contingent Resource (MMbbl)

1C
28.7
20
5.7

2C
50.5
30
15.1

3C
88.6
40
35.5

Source: ERC Competent Persons Report

Due to lack of well data and the structural uncertainties in the north east part of the mapped area of the field, the above
contingent resource estimates have largely been attributed to the south west area containing A-12 and A-13 wells.
However, ERC additionally prepared a deterministic estimate of recoverable resource of 23.7MMbbl for the entire mapped
area of the Sokolovskoe field. ERC has stated that the confirmation of this estimate requires further seismic coverage and up
to two further appraisal wells in that area.
ERC also provided an estimate for prospective resources for deeper reservoir zones that have not yet been demonstrated to
be hydrocarbon producing, and undrilled areas where evidence has suggested the presence of patch reefs with higher
reservoir quality. ERC modelled the prospective resources for these two sources of upside separately and estimated a Best
Prospective Resource for the lower reservoir zones of 7.7MMbbl and Best Prospective Resource for the undrilled patch reefs
of 21.9MMbbl.

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Matra Petroleum (MTA LN)

17 January 2012

Timeline
The Company is planning to acquire 3D seismic and drill two possibly three appraisal / production wells on Sokolovskoe
during 2012. This work programme is subject to funding. Matra is also in the process of purchasing and installing downhole pumps and surface equipment for the re-commencement of production from A-13 well.

Exhibit 2: Recent and anticipated activities timeline

Source: Company Data and FoxDavies

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Matra Petroleum (MTA LN)

17 January 2012

Valuation
In our valuation we have accounted for a fully diluted base of 2,105 million shares. This includes our assumption of an
additional 750m shares issued in early 2012 to raise over US$6m at a placing price of 10% under current price. This amount
together with current cash reserves should be sufficient to fund the planned 3D seismic (US$2m) plus the next appraisal well
(US$4.5m).
We have applied discounted cash flow modelling to a 15MMbbl field development to derive an estimated NAV per barrel of
oil for the 2C resource base, which we have also applied to the prospective resources, albeit with a further discount to
account for an additional 2-year lead time to first production. Please refer to Appendix 1 for the valuation summary.
Our other assumptions include:

Oil price deck of US$85 per barrel in 2012 and escalated at 2% thereafter;
GBP-US$ exchange rate of 1.6;
Discount rate of 10%;
Production profile 2012: 440bopd; 2013: 2,120bopd; 2014: 4,540bopd; 2015: 6,750bopd; and declining in the
range 10-15% per annum thereafter;
Total capital expenditure of US$92m;
Variable operating expenditure of US$3 per barrel of oil produced and fixed cost of US$600k per annum
We have included the recently revised Russian royalty and tax regime

Our un-risked NPV(10) for this project is US$124m or US$8.2 per barrel.
We have applied a NAV of US$7.5 per barrel to estimate the risked exploration NAV of the prospective resources. This
value is based on the US$8.2 per barrel but discounted for a longer lead time to first production. The prospective resource
breakdown is:

8.6MMbbl upside for the north eastern portion of the Sokolovskoe field with a PoS of 60% (our assumption)
7.7MMbbl for the deeper 1B and 2B horizons in Sokolovskoe with a PoS of 60% (as advised by ERC)
21.9MMbbl of prospective resources for the reef play with a PoS of 32% (as advised by ERC)

The total risked NAV is the aggregate value of all risked assets and adjusted for the corporate costs and cash reserves. Our
total risked NAV is now estimated at 6.32p per share and is comprised of 2.6p per share for the 2C resource base, 3.7p for
the prospective resources and zero corporate adjustment; we have accounted for US$6m of corporate overheads over a 2year period and US$6m in cash funds following the assumed fundraising.
Our target price of 3.9p is set at 100% of the risked NAV of contingent resources plus 35% of the aggregate risked
exploration NAV (RENAV) of prospective resources. We are not including the full RENAV as we believe the market does
not ascribe to the full value for exploration assets. Based on our recent peer group analysis for exploration only companies
we would typically include 10% - 20% of RENAV in determining our target price. However, considering the relatively high
chance of geological success for Matras prospective resources (please refer to Appendix 1); close proximity to export
infrastructure; and the synergies of developing any upside resources using the same facilities as for the 2C resource base,
we are inclined to apply the higher factor of 35%. Table 2 summarises our most recent RENAV comparables.
Table 2: Comparable Valuation for RENAV Assets
Country

Chariot Oil
Bahamas Petroleum
Borders & Southern
Dominion
Argos Resources
Tower Resources
Falkland Oil & Gas
Horn Petroleum

Namibia
Bahamas
Falklands
Tanzania
Falklands
Namibia
Falklands
Puntland

NAV /
bbl *
($)

Net Unrisked
(MMbbl)
Prospective
Resources

CoS

Net Risked
Resources
(MMbbl)

Risked
Exploration
NAV (RENAV)
($ m)

EV ($ m)

EV as % of
RENAV

9.4
5.0
5.7
2.8
5.7
9.4
5.7
6.2

10,440
9,000
2,000
1,230
900
563
10,000
2,732

10%
10%
10%
10%
10%
10%
10%
4%

1,044
900
200
123
90
56
1,000
109

9,814
4,500
1,140
344
513
529
5,700
678

280
132
165
82
54
90
27
71
Mean
Median

2.9%
2.9%
14.4%
23.8%
10.5%
17.0%
0.5%
10.5%
10.3%
10.5%

* Note: These NAV estimates are either based on FoxDavies internal estimates or taken from Wood Mackenzie fiscal database.

Source: FoxDavies

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Matra Petroleum (MTA LN)

17 January 2012

Risks
Reservoir Risk
Operational problems causing water influx has resulted in disappointing performance from wells A-12 and A-13, although
the well control and recent seismic re-processing and re-interpretation indicate that both were drilled on the flanks of the
field. Despite an independent estimate of 15MMbbl of 2C resources, the Company needs to demonstrate commerciality of
the field, which in turn requires sustained oil production rates from future wells.
In our valuation we have applied a PoS factor of 70% to the 2C resource base, which we believe is conservative and
sufficiently accounts for the technical and operational risks. We believe this level of risking is appropriate until the
management has demonstrated satisfactory correlation between the geological model and well control.
Water ingress into production intervals has been an issue for both A-12 and A-13 wells and the management has stated its
plan to complete the wells above the OWC. However, we understand that in A-12 side-track the water ingress may have
actually originated from Frankski horizon above the Aphonenski oil producing interval due to a poor cement job and
completion. In our opinion this was very unfortunate and we consider the likelihood of this happening again to be small,
especially if you take into account the fact that the wells were drilled for solely exploration purposes. Future wells will be
designed as production wells thus avoid such technical problems.

Political and security risk

Russia is traditionally viewed as a challenging working environment for western companies as the government asserted its
influence and control over the energy sector and strategically significant assets. However, in Matras case the resource base
can hardly be considered significantly large to be considered as a strategic project. It is also re-assuring that the Company
has successfully defended its interests under the Licence in Russian courts. We consider political and security risk to be
insignificant.

Operational risk
Matra has encountered a range of drilling and completion problems. Some of these were unexpected such as the Nitrogen
Kick slowing down the A-13 operations and some due to poor completion techniques. However, the Company has the
benefit of having its asset close to oil storage and transportation infrastructure (15km to nearby depot) which should reduce
development risks. The weather conditions have also slowed down work progress during the winter months; however, the
Companys management has a few years of operational experience in the region and should be in a better position to
manage and mitigate risks.

Licensing risk
Licensing risk in relation to Arkhangelovskoe is deemed low as Matra has already successfully defended its ownership of the
licence through OOO Arkhangelovskoe in the Russian courts.

Financing risk
The Company will require additional funding for its 2012 work programme of acquiring 3D seismic and drilling programme.
We estimate the cost for this programme to be about US$11m (US$2m for the seismic survey and US$4.5m per well). In our
valuation we have assumed additional dilution in the shareholding based on Matra raising additional funds of US$6m, which
together with existing funds should cover the cost of the seismic programme and well A-14. Although we have considered
the likely dilution of further capital raisings, there is a risk that the Company fails to raise sufficient funds for its near-term
work programme. It is possible that the Company may consider the farm-out of a percentage of interest in the Licence,
which could lead to further dilution of the upside in developing Sokolovskoe field.

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Matra Petroleum (MTA LN)

17 January 2012

Appendix 1: Valuation Summary

MATRA
Date 1/17/12

Price (p)
0.8

risked
(m$)

per share un-risked per share

(p)
(m$)
(p)

Production

none

Appraisal & Development

none

Total

0.0

0.0

0.0

0.0

3.7

Discount
rate (%)

PoS
%

NAV
$/b

risked
MMboe

MMboe

Oil
(MMbo)

Gas
(Bcf)

Interest
%

0.0

0.0

0.0

0.0

Exploration & Appraisal

Russia

S'skoye 2C

87

2.6

124

Russia
Russia

S'skoye Reservoir
Zone 1B and 2B

39
35

1.1
1.0

64
58

Russia

Reef

52

1.6

Total

213

6.3

Debt

0.0

Corporate costs
Surplus Cash

10.0

70

8.2

10.6

15.1

15.1

0.0

100.0%

2
2

10.0
10.0

60
60

7.5
7.5

5.2
4.6

8.6
7.7

8.6
7.7

0.0
0.0

100.0%
100.0%

164

10.0

32

7.5

7.0

21.9

21.9

0.0

100.0%

410

12

27

53

53

-6
6

(0.2)
0.2

Core NAV
= Core NAV up/downside

0
n/a

0
n/a

Total NAV
= Total NAV up/downside

213

6.32
742%

410

12
1525%

n/a

7.8

0.0

0.0

0.0

0.0

27.4

53.3

53.3

0.0

Source: FoxDavies

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Matra Petroleum (MTA LN)

17 January 2012

Appendix 2: Description of the assets

Arkhangelovskoe Licence
The Licence is located in the administrative region of Orenburg Oblast in Russia. This region is to the south east of Moscow
on the border with Kazakhstan and comprises part of the Volga Urals basin, an established petroleum province with
production achieved from horizons in Middle Devonian, Carboniferous and Permian formations. Exhibit 3 shows the location
of the Orenburg region and Exhibit 4 shows the full extent of the Volga Urals basin and the distribution of known oil and gas
fields. Whilst Orenburg Oblast is relatively underexplored compared to its neighbouring regions in the Volga Urals, the
largest oil producer in the region, TNK-BPs subsidiary Orenburgneft is still operating over 88 oil and gas fields.
The production licence itself covers 87.68km2 and lies approximately 20km north of the regions main city, Orenburg. The
giant Orenburg gas field lies to the South of the Licence and a number of producing fields surround the Sokolovskoe field
including Mayorskaya, which is currently producing light oil with a previous peak production rate of 900bpd under natural
flow.
Exhibit 3: Location of Orenburg region and the Arkhangelovskoe licence

Source: Matra

Exhibit 4: Oil and Gas Fields in the Volga Urals Basin

Source: Matra

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Matra Petroleum (MTA LN)

17 January 2012

The initial Arkhangelovskoe Exploration Licence covered an area of 158km2, incorporating areas to the east and west of the
current boundaries with two potential targets, the Laptevskaya prospect and the Sokolovskaya propect. The western areas
were relinquished after well A-11 was plugged and abandoned. This had been drilled in the first half of 2008 to test the
Laptevskaya structure, but although good quality reservoir rock was encountered during drilling, oil flow failed in both the
upper and lower intervals. Earlier in 2007, well A-12 had already been drilled on the Sokolovskoe structure.
Exhibit 5: The Outline of Arkhangelovskoe Licence

Source: Matra

Sokolovskoe Oil Field

The first well on the block, A-12 was drilled and reached a total depth of 3,898m in Nov 2007 encountering a Devonian
carbonate reservoir. Open-hole Drill Stem Test (DST) of the well indicated production rate of 960 bopd with skin damage
1
of +10 . Following completion, the well was put on production at a significantly reduced rate of 100 bopd; however, the skin
damage was observed to be higher at +30. Following an acid treatment in May 2008, A-12 produced at 820 bopd; however,
water cut of 20% was observed in July 2008, increasing to 40% in September 2008 and subsequently the well was shut-in.
The A-12 well was initially mapped as being near to the crest of the Sokolovskoe structure. However, subsequent review of
the seismic data in April 2008 provided a number of concerns, particularly with respect to the static corrections applied to
the pre-existing data set. The main concern was the uncertainty of the depth map and the extent and morphology of the
structure mapped. A single key seismic line was used to study the statics problem and resulted in perturbing the depth map
causing a compression of the structure to the south-west. This placed the A-12 well on the flank rather than near the crest of
the field. A study of the local well and field data combined with a geological review of such carbonate reef reservoirs shows
that reservoir quality and net thickness should improve at the crest of the reef.
The new interpretation and resultant depth maps supplied by Matra were reviewed by Senergy and considered to have less
uncertainty than in the previous review in April 2008. Additional and better quality well time/depth data, incorporating the
A-11 and A-12 wells, provide depth conversion which is considered more reliable with these wells providing better spatial
velocity coverage of the area.

Skin damage is caused by the invasion of foreign substances into the area of formation adjacent to the wellbore during drilling and completion and is
expressed in dimensionless units with a positive value denoting damage and a negative value indicating improvement.

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Matra Petroleum (MTA LN)

17 January 2012

A-13 spudded in October 2009. Drilling operations were hindered by an unexpected nitrogen kick resulting in mud losses.
When drilling was completed to a depth of 3718 m, logging and coring showed a net oil interval of 7 m in the main reservoir,
with the test interval of 5 m producing clean oil at a rate of 110 bopd. The success at well 13 validated the extension of the
Sokolovskoe structure as suggested by the re-mapping, but the fact oil was encountered at a deeper level (see Exhibit 6)
than expected also suggested the field covered a greater area than thought, prompting another programme of seismic
remapping. Reservoir porosity and permeability were actually poorer at Well 13 than in Well 12, and Matra initiated well
stimulating acidizing to correct formation damage.
Exhibit 6: Schematic Diagram showing deeper oil water contact at Well 13 in comparison to Well 12

Source: Matra

Well 13 exhibited some problems with water leakage; however, by February 2011, this water zone had been successfully
isolated. The water problems at well-12 have been far more pervasive with remedial cementation failing to resolve the
problem and the Company instead deciding to undertake a side track.
In April 2011, the company were able to announce that production had commenced at both wells, although neither had
stabilised; Well 13 was flowing at approximately 65 bopd and the sidetrack at well12 was producing approximately 100-150
bopd. Acid well stimulation encouraged higher production rates at Well-12 in June 2011 at over 1000 bopd, but a second
workover became necessary after a leak allowed water to enter the well and hamper performance. This problem remains
ongoing and the current situation with regards to Well-12 is that workover operations have been suspended. The difficulties
in dealing with these persistent water leaks have been exacerbated in this most recent instance by the fact that this is a side
track in close proximity to the original hole.
The problems with water leakage are mitigated to some extent by the fact that both Well 12 and Well 13 were drilled to
meet licence obligations as exploration wells. Future production wells should be able to avoid these operational difficulties
as these will be terminated above the oil water contact, allowing for good cement bonding and zone isolation.
Well 13 is currently suspended awaiting installation of production equipment and an electrical submersible pump to boost
production rates. The commission of these equipment should allow the Company to generate a positive cash flow for the
well. Renewed production at A-13 is to accompany a future development plan of:

Delineating the full extent of the Sokolovskoe structure, indicated to be larger than previously thought by the
deeper oil water contact found at A-13 well. This will involve a full 3D seismic survey to commence in Q1 2012.
Drilling of A 14 to appraise the north eastern extension of the oil field.

Specifically, the A-14 well is set to investigate the existence of patch reefs in the Licence (see proposed patch reef model in
Exhibit 7 and 8). Seismic data and core data from Well 13 has suggested that, rather than a typical Devonian barrier reef
extending away from A-12 to the east and north, the area is a gently sloping shelf with smaller, discrete patch-reefs. These
would provide better quality, thicker reservoir units. The Company is also anticipating further resource potential in those
permeable horizons that proved water bearing at A-12 and A-13 but rise above the oil water contact in other parts of the
prospect. These layers are referred to as IB and 2B. Prospective resources in 1B and 2B are shown schematically in the cross
section in Exhibit 9.

p12

Matra Petroleum (MTA LN)

17 January 2012

Exhibit 7 & 8: Schematic patch reef model of the Arkhangelovskoe licence

Source: Matra

Exhibit 9: Cross Section showing layers 1B and 2B above the oil water contact

Source: Matra

p13

Matra Petroleum (MTA LN)

17 January 2012

Appendix 3: Key Personnel

Non Executive Chairman
Sir Michael Jenkins BA,KCMG, CRAeS
Sir Michaels diplomatic career with the foreign office included many senior postings in Europe, Washington and Moscow, and
when retired from the diplomatic service in 1993, he was British Ambassador to the Netherlands. During his subsequent
business career Sir Michael became Vice-Chairman of Dresdner Kleinwort Wasserstein (DKW) and then President of Boeing
UK; during his time at DKW, Sir Michael focussed on investment banking and advisory activities in continental Europe
(including Russia) as well as on the energy sector. He is currently a Director of two small, entrepreneurial companies: Geopark
Holdings, a South American focused E&P company, and Frontiers Capital, a boutique private equity house.
Managing Director
Mr Peter James Hind BSc.
Peter is a qualified Petroleum Engineer who has held senior positions in the oil industry since 1972. After his extensive
technical and operational experience, Peter has specialised in business development in recent years, focussing on South East
Asia, Australasia and the Middle East. Most recently he was General Manager of Business Development for Premier Oil plc.
and has been responsible for technical and project management, significant acquisitions and divestments, inter-company and
inter-government commercial negotiations, company strategy, finance and investor relations.
Exploration Director
Dr Neil Andrew Hodgson BSc. PhD.
Neil has 25 years experience in oil and gas exploration and a proven record of finding hydrocarbons in many parts of the
world. After working with BP and British Gas, Neil became General Manager of Exploration at Premier Oil in London. Neil has
a first class honours degree in Geology from Manchester University and a PhD in Geochemistry from Leicester University.
NonNon -Executive Director
Mr. Gideon Tadmor LLB.
Gideon has over 16 years of extensive experience in initiating and managing E&P projects world-wide. He is President & CEO
of Delek Energy Systems, and is one of the founders and managers of the "Yam Tethys Project" in Israel, which is a 1.1 TCF
natural gas field producing offshore Israel. He has served for the last 20 years as a director in public and private companies in
the fields of real-estate, E&P and financing.
NonNon -Executive Director
Mr. James William (Bill) Guest.
Bill has had an extensive career in the oil and gas industry with 35 years of International E&P experience in technical, business
development and senior management functions. Bill has held a variety of senior management and advisory positions in the UK
and US Independent sector, focussed primarily in NW Europe and the Middle East and has more recently established Guest &
Associates to provide international business development advisory services to the upstream sector. Bill is also on the board of
Hurricane Exploration plc.

p14

Matra Petroleum (MTA LN)

17 January 2012

Appendix 4: News Flow

16 November 2011 Matra announce the second stage of a placing with Delek Energy Systems Ltd of 70,000,000 new
ordinary shares at 0.5p per share to raise 350,000. With the first placement also taken into consideration, this increases the
total raised to 1.2 million.
11 November 2011 - Matra announce a placing, through Fox-Davies Capital Limited, of 170,000,000 new ordinary shares at
0.5p per share to raise 850,000 before expenses.
3 November 2011 Matra provide an operations update and the suspension of Well-12.
20 July 2011 - Matra announce the completion of the planned workover of Well 12 and the return to production with an
averafe of 352 bpd and a water cut of 42% approximately. The production packer had not stopped water production as
intended.
1 June 2011 - Matra provide an operations update, announcing that Well 12 was successfully treated with acid resulting in
rate in excess of 1,000 bopd. However, another water leak has developed in the well.
5 April 2011 Matra announce that production has commenced from both well in the Sokolovske Field, although neither
have stabilised and further treatment is expected to be necessary.
8 March 2011 Matra report that production equipment has been installed at Well 13 allowing for clean up flow production,
and side track drilling at Well 12 is also complete.
9 February 2011 - Matra announce a placing of 50,000,000 new ordinary shares at 3.1p per share to raise 1.55 million
before expenses. Delek-International Energy has agreed to subscribe for 14,516,129 Placing Shares.
2 February 2011 Matra report that the water zone has been successfully isolated at Well 13 and that the well is due to be
shut-in in order for pressure to accumulate.
23 December 2010 Matra announce that they have been awarded the Production Licence for the Sokolovskoe Field
through their subsidiary OOO Arkhangelovskoe for an initial term of 20 years.
25 October 2010 Matra report that a CPR has been completed by Energy Resource Consultants for the Sokolovskoe Field
and indicates Contingent Recoverable Resources (2C) of 15.1 million barrels.
23 September 2010 Matra announce that Well-13 has been completed, perforated and acidized to maximize the production rate.
However water production from a deeper zone and behind the casing has been identified similar to that seen in well12.

p15

Matra Petroleum (MTA LN)

17 January 2012

Appendix 5: Capital structure

Table 1: Major shareholders
Company
Delek-International Energy Limited
TD Waterhouse
Barclays Nominees
HSDL Nominees
LR Nominees
James Capel Nominees
HSDL Nominees (IWEB)

% owned
29.29
11.53
9.45
6.24
5.61
4.48
4.15
Source: Matra Petroleum

Fundraising history
Table 2: Fundraising
Date
11/11
02/11
11/09
07/09
04/06
03/05

Shares Offered (mil.)

240.0
50.0
66.7
123.1
160.0
47.0

Price (GBp)
0.5
3.1
3.0
1.0
5.0
2.0

Total Raised (GBP

(GBP mil.)
1.20
1.60
2.00
1.23
8.00
0.94
Source: Bloomberg

Debt
The Company has no outstanding debt.

p16

Matra Petroleum (MTA LN)

17 January 2012

Appendix 6: Resources classification framework

Source: Society of Petroleum Engineers

p17

Matra Petroleum (MTA LN)

17 January 2012

Glossary
1C

Denotes low estimate scenario of Contingent Resources

1P

Proved reserves

2C

Denotes best estimate scenario of Contingent Resources

2P

Sum of Proved plus Probable reserves

3C

Denotes high estimate scenario of Contingent Resources

3P

Sum of Proved plus Probable plus Possible reserves

AMI

Area of Mutual Interest

bbl

Barrels

bcf

Billion cubic feet

bcfd

Billion cubic feet per day

boe

Barrels of oil equivalent

boed

Barrels of oil equivalent per day

bopd

Barrels oil per day

DCF

Discounted Cash Flow

E&P

Exploration & Production

EUR

Estimate Ultimate Recovery

G&G

Geology & Geophysics

GOR

Gas / oil ratio

LNG

Liquefied Natural Gas

Mbbl

Thousand barrels

Mcf

Thousand cubic feet

mD

Millidarcy

MMbbl

Million barrels

MMboe

Million barrels of oil equivalent

MMscfd

Million standard cubic feet of gas per day

MMstb

Million stock tank barrels

NAV

Net Asset Value

NPV

Net Present Value

OOIP

Original Oil In Place

P&A

Plugged & Abandoned

P10

The quantity that has at least 10% probability of being exceeded

P50

The quantity that has at least 50% probability of being exceeded

P90

The quantity that has at least 90% probability of being exceeded

PSA

Production Sharing Agreement

tcf

Trillion cubic feet

p18

Matra Petroleum (MTA LN)

17 January 2012

Research Disclosures
Alex Ogbechie
Alex joined FoxDavies in 2011 having previously worked at Deloitte Petroleum Services. He has 5 years experience in the oil
& gas industry after gaining his M.Sc. in Petroleum Engineering from Heriot Watt University in Edinburgh and a B.Eng. in
Mechanical Engineering from University College London (UCL).
Tel: +44 (0)20 3 463 5040
Email: alex.ogbechie@fox-davies.com
Paul Singer
Paul joined the Fox-Davies Capital research team in July 2010. Prior to this, Paul became an equity analyst in 1986 after a
decade in the oil & chemical industries, with BP and ARCO Chemical (division of Atlantic Richfield), where his roles included
scientific research and strategic planning respectively. He has worked on the sell-side for Credit Lyonnais, Enskilda, Metzler
and Morgan Stanley, the latter for seven years. He was rated for pan-European chemicals research and has also assisted in
the coverage of metals and oil & gas. More recently he worked on the buy-side for Barclays as a senior global resources
equity and commodity analyst for six years. He joins us from Edison Investment Research, where he was responsible for their
coverage of industrials and oil & gas support services. Paul has an MBA from Cranfield School of Management and Bachelor
of Science Honours in Chemistry from Southampton University.
Tel: +44 (0)20 3463 5042
Email: paul.singer@fox-davies.com

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All research is issued under the regulatory oversight of Fox-Davies Capital Limited. Each Investment Analyst of Fox-Davies
Capital Limited whose name appears as the Author of this Investment Research hereby certifies that the recommendations
and opinions expressed in the Investment Research accurately reflect the Investment Analysts personal, independent and
objective views about any and all of the Designated Investments or Relevant Issuers discussed herein that are within such
Investment Analysts coverage universe.
Fox-Davies Capital Limited provides professional independent research services and all Analysts are free to determine which
assignments they accept, and they are free to decline to publish any research notes if their views change.

p19

Matra Petroleum (MTA LN)

17 January 2012

Research Disclaimers
Research disclosure as of 17 January 2012

Company Name

Disclosure

Matra Petroleum

1, 2, 7, 8

Investment Research Disclosure Legend:

1.

2.
3.
4.
5.

6.
7.
8.

In the past 12 months, Fox-Davies Capital Limited or its affiliates have had corporate finance mandates or managed
or co-managed a public offering of the Relevant Issuers securities or received compensation for Corporate Finance
services from the Relevant Issuer.
Fox-Davies Capital Limited expects to receive or intends to seek compensation for Corporate Finance services
from this company in the next six months.
The Investment Analyst or a member of the Investment Analysts household has a long position in the shares or
derivatives of the Relevant Issuer.
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derivatives of the Relevant Issuer.
As of the month end immediately proceeding the date of publication of this report, or the prior month end if
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A senior executive or director of Fox-Davies Capital Limited or a member of his or her household is an officer,
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Fox-Davies Capital Limited makes a market in the securities of the Relevant Issuer.
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The Investment Analyst who is responsible for the preparation of this Investment Research is employed by Fox-Davies
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The Investment Analyst who is responsible for the preparation of this Investment Research has received (or will receive)
compensation linked to the general profits of Fox-Davies Capital Limited.
Research recommendations
Fox-Davies Capital uses a five-tier recommendation system for stocks under coverage:
Buy Recommendation implies that expected total return of at least 15% is expected over 12 months between current and
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p20

Matra Petroleum (MTA LN)

17 January 2012

Fox-Davies Capital Coverage

Fox-Davies corporate client & coverage universe as of 17 January 2012:

Company

Recommendation

Date

Target Price

Last Price

UNDER REVIEW

16.11.11

0.13

0.04

BUY

26.11.10

1.50

0.72

UNDER REVIEW

1.11.11

5.50

0.78

Oil & Gas

Aminex
Borders & Southern Petroleum
Bowleven
Circle Oil

BUY

25.10.11

0.90

0.26

Desire Petroleum

UNDER REVIEW

29.03.11

0.40

0.23

Enegi Oil

UNDER REVIEW

18.11.10

0.25

0.15

BUY

01.04.11

2.50

0.47

Falklands Oil & Gas

Gulf Keystone
Gulfsands Petroleum
Hardy Oil & Gas
Heritage Oil

BUY

21.11.11

3.00

2.79

UNDER REVIEW

07.01.11

3.50

1.80

BUY

25.08.11

2.50

1.85

HOLD

30.03.11

4.20

1.79

BUY

17.01.12

0.039

0.01

Max Petroleum

BUY

02.03.11

0.50

0.10

Petrokamchatka

UNDER REVIEW

14.01.10

C$0.15

C$0.005

BUY

29.04.10

A$1.50

A$0.16

Matra Petroleum

Po Valley
Red Emperor Resources

TRADING BUY

30.11.11

0.19

0.22

Range Resources

BUY

18.11.11

0.27

0.12

Rockhopper Exploration

BUY

10.11.11

6.00

2.98

San Leon Energy

BUY

17.11.11

0.50

0.10

Sterling Energy

HOLD

06.07.11

0.30

0.38

Tower Resources

HOLD

09.07.10

0.04

0.03

Victoria Oil & Gas

BUY

29.11.11

0.13

0.04

p21

Matra Petroleum (MTA LN)

17 January 2012

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Please note that unless otherwise stated, the share price used in this publication is taken at the close of business for the previous day.

p22

Matra Petroleum

(MTA LN)

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