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T.Lkhagvadorj: If government lights up a path, businessmen will find their way

Trans. by B.DUGLUUN

 The following is an interview with the Chairman of Board Directors of Wolf Petroleum T.Lkhagvadorj about the oil sector and investment environment of Mongolia. Wolf Petroleum is currently conducting oil exploration in Sukhbaatar and Bulgan Provinces.

Wolf Petroleum established a product sharing contract for Sukhbaatar oil field in Sukhbaatar Province in January 2013. How is exploration work progressing?

Many things have been accomplished since establishing the product sharing contract with the government but drilling work is yet to begin. Two to three million USD is required to set up a drill. Currently, 2D seismic survey and above ground exploration studies are being carried out. Setting up drills without any research or study results in complete failure as it brings a 100 percent risk. Considerably well conducted research studies is necessary to define drilling spots accurately. Despite being a considerably new company, we hired a US experienced advising company, named MNA, to work as project leader in order to work carefully. MNA is leading all exploration work and manages Mongolian companies operating the project. The data we accumulate is processed in the USA.

For seismic survey, MNA drills shallow holes, takes results to the USA for research on oil discovery probabilities and if there’s a probability of oil deposits, they research the oil quality. A report on analysis and processing is sent back to our company. Information and reports we receive are completely independent, without any sort of interference from third parties. Simply put, interferences are impossible. We’re very satisfied with the work results. Regardless of having no drillings, by evaluating from possibilities, it’s possible to get oil resources of one billion barrels. Drilling this amount of oil depends only on the company’s experience, and technological and financial capacity.

In May, Wolf Petroleum made preliminary reports stating that there are approximately 460 million to 2.2 billion barrels of oil reserve. Just now, you mentioned one billion barrel of oil. Compared to other Mongolian oil fields, how much of a reserve is this?

It’s possible to extract ten to 15 percent of identified oil resources. For example, PetroChina extracted 4.5 million barrels of petroleum in 2013 and are planning to extract approximately five million barrels this year. If we extract five million barrels a year, one billion barrel of oil resources can be extracted in 1,000 years. This amount is considerably small compared to oil extraction capacity of other big Mongolian oil fields like Oirkhi Dornod because on average, a petroleum extracting company extracts four to five million barrels a day when our company does it in a year. This may seem very little but it’s a huge opportunity for us. Resources should be identified carefully. Our main objective is to detect correct spots, drill, extract oil, and then analyze oil quality. If the oil is thick and of bad quality, it doesn’t jet out like oil from Oirkhi Dornod and requires different extraction technologies and more funding. Information about state-owned company of China, PetroChina isn’t open to the public and makes it difficult to know oil quality. In accordance with the product sharing contract, Wolf Petroleum hands half of the revenue to the government, making it possible for state budget revenue to increase.

After the reserve amount is identified and approved, will extraction amount be determined?

This depends on drilling, which requires a significant amount of time. Let’s take Oyu Tolgoi as an example. They successfully found abundant supply of copper after conducting 163 drillings. From one side, it’s a matter of luck, but from another, the success rate depends on experience and skill of experts.

When will drillings start?

We’re looking for partners. Although, there are many oil drilling companies all over the world, it’s difficult to find capable partners able to do proper drilling and find enough financial opportunities.

Are investors interested in Mongolian oil reserves?

Yes. However, we’re still searching for markets to supply our extracted petroleum. Our primary market is Mongolia. Although, petroleum product needs are increasing, the market is very small. Additionally, there aren’t any oil refineries in Mongolia. Investors are interested in places where extracted petroleum is transported to. Russia is ranked first in the world through oil resources. China has oil resources but imports oil in large quantities. Selling oil in world standard prices to China is a major work. Competing in such a large market will require a lot of intelligence.

Oil reserve of Wolf Petroleum has advantages of having well-developed infrastructure and being near China, right?

Infrastructure from Sukhbaatar field in Sukhbaatar Province to China is well-developed. Nevertheless, we don’t plan to give everything to China. At current conditions, it’s necessary to ultimately supply domestic markets.

Apart from Sukhbaatar field, your company operates at two other fields. Have product sharing contract been established for those fields?

We have joint petroleum survey contract with the government. This contract has been valid for three years. In five years, exploration and study of oil fields will become possible. If we want to conduct a large-scale exploration work, we can request for product sharing contract. The legal environment was slightly unclear before because it took companies two to three years, or more, to establish product sharing contract, which lessens risks, with the government. Any investor would be fed up from negotiating contract conditions for uncertain period of time. A new law was approved which set the time limit to 180 days. This makes it more understandable and convenient for investors who’re taking up risks to organize work and financial schedules. We still need to discuss when to submit the proposal and establish the contract. Product sharing contracts will be established soon.

Where are these two fields located?

Jinst field is in Bayankhongor and Gobi-Altai region and Baruun-Urt field is in Sukhbaatar Province.

Is it possible to make estimations of their reserve?

It’s not yet at the stage for identifying resource amounts. Geological formations that suggest oil reserve have been detected. The field is enormous. Sukhbaatar field takes up 23,000 square kilometers. Jinst field covers 41,000 square kilometers. Doing exploration work for such a big land is a major work.

The long awaited new petroleum law was put into effect in July 1 this year. How effective is this law?

We can notice that a clearer environment was created by revising the law. The new law clarifies several unregulated aspects including time limit for investment and time limits for the establishment of product sharing contracts and how much tax should be paid. This is its merits.

In September, a large conference will be held for the first time for the oil sector. What are your anticipations for the conference’s outcome?

The oil sector requires huge amounts of investment and gives off profit several times higher. Wolf Petroleum is making preparations for the conference. We’re looking for investors and parners. Many companies interested in investing are also inquiring about the conference. It was supposed to be held in last spring but due to the Petroleum Law approval, it was postponed. All matters will not be resolved in one conference. The conference is significant as it’ll reveal information about the Mongolian oil sector and influence decisions of investors.

In the first half of 2014, foreign direct investment fell by 70 percent. How do you assess the current investment environment of Mongolia? To return lost investments to investors, what should the government do?

Only after losing and winning, we were able to reach stability. Mongolia has had a free market economy for only 25 years. Mongolia did show a “newly rich” attitude and bragged about discovering mineral resources. While making amiable investment environment, Mongolia became arrogant as if to say that we don’t need them and that we can find money from anywhere and kicked out investors. After overcoming many hurdles, Mongolia is now at the stage to accumulate experience. Even if investment environment is improved, investments will not revive so easily. Now, our two neighbors are expressing their interests to invest first. They may have been waiting for this situation. The world economy is darkening at the moment.

Money doesn’t disappear; it transfers from one place to another and circulates in the market. During this difficult time of economic crisis, investors should select places to invest after evaluating available opportunities on how stable it is and whether returns will be high. Everything will not become better by establishing international major agreements or by shaking Oyu Tolgoi. The foremost important duty of the government is to make business environment for private businesses stable and then receive taxes from them. If these conditions are met, within the next two to three years, investments will revive. A few days ago, I watched Bloomberg channel and liked the phrase, “If the path is lit, people will find their way.” Just like this, the government should light up the path.

Compared to the first half of 2014, has the stock value of Wolf Petroleum increased or decreased at the Australian Stock Exchange?

It’s constantly dropping. Currently, it’s stagnating. At first, it was sold at 20 cents at the exchange but now it decreased by four-fold and doesn’t even reach five cents. But we will not give up. We have deposits with abundant amount of oil resources and several investors that want to invest. Only research work for legal, technical, and personnel related issues are consuming time.

 

Source: Unuudur http://mongolnews.mn/w/53843

 

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Posted by on Aug 5 2014. Filed under Топ мэдээ. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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