The Petro Matad (LSE:MATD) share price has been on a bearish trend this year, falling by over 30%. Yet zooming out for the last 12 months, the oil exploration stock is actually up by over 40%. Having said that, the firm valuation is down over 80% from its listing price.

Petro Matad was recently awarded Exploitation Licence over a 218 km² area in Block XX, which is the third Exploitation licence that is awarded in Mongolia’s history after the approval of a proven serves and Plan of Development for the Heron-1 discovery by the Mineral Resources Professional Council.¹ 

Financially, the company is currently unprofitable but has prospects of feature earnings considering the production sharing contracts, which it owns 100% in Mongolia. Therefore, is the Petro Matad share price getting ready to surge?

Key Points 

• Petro Matad’s share is up 100% in the past eight months. 
• Petro Matad was awarded an exploitation license which secured a 218 km² area around Heron discovery for 25 years.
• New Mongolian refinery under construction. 

What does Petro Matad do? 

The company’s history dates back to 2005 when Petrovis LLC established Petro Matad LLC. After raising $6m seed capital from Citadel, an American Investment Fund, Petro changed to its present form in 2007, Petro Matad Limited. And it was successfully listed on the London Stock Exchange on May 1, 2008, as an AIM company. 

Petro Matad is a holding company that operates through its subsidiaries, Capcorp Mongolia LLC, Petro Matad LLC Central Asian Petroleum Corporation Limited, Petro Matad Invest Limited, and Petro Matad Singapore Pte. Ltd. The firm explores and develops crude oil in Mongolia but is headquartered in the UK. 

It has drilled a total of 16 exploration wells and 4 stratigraphic coreholes, acquiring over 6000 km and 300 km² of both 2D and 3D seismic data.

A recent operational update from management reveals that the spud date for Velociraptor 1 well is slated for June 2023.² Meanwhile, there is an ongoing construction of a New Mongolian refinery under construction which is sponsored by about a $1bn soft loan from India.³ From the foregoing, it can be seen that the company is set for continuous progress in 2023. Let’s examine whether the Petro Matad Share Price is On Track To Surge. 

The bull case for the Petro Matad share price 

Petro Matad seems to be getting on its feet after struggling for a while, though it has been progressive in development, albeit slow.

One of the progressive highlights of 2023 is that the spud date for the Velociraptor 1 well has been confirmed for June 2023. Fieldwork has started to ensure that there is an available water supply well that will be used to supply operations when it kicks off.

The company has 100% production-sharing contracts in some oil blocks in Mongolia. Interestingly, the Ministry of Mining and Heavy Industry has started the paperwork to certify the Block XX Exploitation Area as special purpose land.

This is yet to be submitted to the cabinet for approval. But Mongolia’s government is quite supportive of ensuring increased investment in the upstream oil sector. This speaks volumes that the company’s revenue could skyrocket shortly. At least, that’s what I think.

Furthermore, Petro Matadstarted a new Mongolian refinery construction which is financed by India. Contracts have been awarded for site preparation, and the infrastructures are already in place. Therefore, despite the drop in valuation, I think that Petro Matad is off to a great start this year in various aspects.

The business is seemingly strategic in its operations to ensure that all its resources are maximized for profit. This could further bring a surge in the Petro Matad share price as the company could become more attractive to investors and shareholders.

A bear case for Petro Matad’s share price 

Despite the highs of the Petro Matad share price, the firm is still exposed to certain risks. These risks include inflation and high exchange rates, which can affect its loan facilities.

Since it raises capital through fundraising, the company may experience a lack of funding which may lead to slow developments or temporary shutdown in operation. In extreme cases, it could even lead to insolvency.

The consequences of these risks should not be overlooked by the investors. Where these risks are not properly managed, the financial fundamentals of the company will drastically decline. Afterwards, the share price will be bound for a downward trend. Apart from that, the business of exploration and development of crude oil doesn’t look so promising due to the goal of Net-zero emission by 2050 as well as the rush for alternative energy. 

Petro Matad’s Share price prediction 

As a tiny enterprise, there aren’t many analysts closely monitoring what’s going on with the Petro Matad share price. However, the overall consensus does indicate an optimistic outlook with an average share price forecast of 18.9p. Compared to today’s price, that suggests there could be exceptional growth potential ahead.

Having said that, such aggressive predictions do require a lot to go right for this business. And sadly, there are never any guarantees that this will come to pass. Therefore, personally, I think it’s unwise to make an investment decision based solely on this forecast.

Should I buy Petro Matad shares today? 

I don’t see myself adding Petro Matad shares to my portfolio. As much as the big oil industry players have been doubling their incomes recently, I see the industry dwindling in the long run. Most of the big players are already venturing into alternative and renewable energy solutions.

Apart from that, there are many ethical concerns in the industry. While the business appears to have prospects for a short time, I don’t see it as a long-term player, and for that reason, I will not be buying any Petro Matad shares today. 

Article Sources

1. Petro Matad Limited. History and Key Developments
2. Petro Matad Limited. Operational Update dated 3 April 2023
3. The Diplomat. India to Finance Mongolia’s Greenfield Oil Refinery Plant

Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.