William C. Penttila
Exploration Associates International of Texas Inc.
Houston
Mongolia, formerly the Mongolian People's Republic, is working to open its exploration prospects to international operators as it emerges as the world's 15th largest independent nation.
The country, about the same size as Alaska with a population of 2 million, held its first free election in July 1990 (Fig. 1). The newly elected government drafted a constitution that took effect Feb. 12, 1992. The document modifies the previous government's structures to eliminate bureaucracy and allows for political pluralism.
In accordance with the new election law and constitution, the second free elections were held in August. The resulting government is formulating its administration and policies to fulfill the more than 90% voter mandate to move forward even faster to democratic reform and a free market economy.
At the same time, the government is formulating energy policies, state oil company structure, and resource development philosophy.
DOMESTIC CONSUMPTION
Mongolia has no oil or gas production and historically has relied on imports from the former Soviet Union for all of its petroleum products.
The country has imported by train 800,000-1 million metric tons/year (5.87.2 million bbl/year) of mainly gasoline and diesel-about 16,000-20,000 b/d.
However, because of the cutbacks on oil exports by the old Soviet Union, Mongolia in 1991 consumed about 600 tons/day (5,100 b/d) of gasoline and 700 tons/day (5,250 b/d) of diesel.
By February 1992, with tight rationing, gasoline consumption was reduced to 325 tons/day or less (about 2,760 b/d), and diesel fuel consumption was less than 400 tons/day (about 2,960 b/d.) Mongolia has suffered a serious energy shortage during 1992, and the winter of 1992-93 looms as a disaster.
Mongolia's present economy is based on its natural resources. Because of the country's isolation, it was not a participant in the world market and has not had access to modem technology to develop its natural resources.
Efforts toward democratic change and commitments to an open-door policy to attract foreign investment began with Mongolia's adopting a foreign investment law on May 1, 1990. To facilitate the development of oil and gas resources, Mongol Petroleum Co. (Mongol Gazryn Tos-MGT), a state oil company, was formed during April-May 1990.
MGT's initial philosophy and plan was two-fold.
First, MGT's objective was to educate and train its own personnel so the country can develop its two known oil fields and conduct its own exploration.
Second, MGT sought a range of international, independent, small and large oil companies to provide risk capital for exploring and developing Mongolia's undiscovered oil and gas resources, to assist in developing Mongolia's petroleum industry infrastructure, and to assist in educating and training Mongolians.
MGT-AMGOL AGREEMENT
Attempts to attract investment and technology for MGT to operate the rehabilitation of its two abandoned East Govi basin oil fields-Zuunbayan and Tsagaan-Els-were unsuccessful (Fig. 2).
During December 1991-january 1992, MGT and the Mongolian government entered into an agreement with Amgol Inc., Houston, for Amgol to be the oil field project restoration manager and to assist Mongolia in obtaining financing for the project.
The MGT-Amgol agreement area incorporates the present known boundaries of both Zuunbayan and Tsagaan-Els oil fields (Fig. 3). Subsequent to the agreement, MGT and Amgol agreed that the initial rehabilitation work will be within Tsagaan-Els field.
Geological, geophysical, and engineering studies of Tsagaan-Els field are to be prepared by Amgol to obtain the estimated $50 million project financing to develop, produce, and refine an estimated 7-15 million bbl of recoverable oil to partially meet the country's fuel needs. This could eliminate one third of the country's oil imports and thereby eliminate its annual deficit.
Amgol is a partnership of SOCO International, an affiliate of Snyder Oil Corp. of Ft. Worth; Exploration Associates International of Texas Inc., Houston; and CP&G, a Houston oil field equipment supply firm, with one-third interests each.
PREVIOUS OIL DEVELOPMENTS
In late 1941, Mongolian and Soviet explorationists discovered Zuunbayan oil field by stratigraphic core-hole mapping of a surface anticline and oil seeps.
The field was developed, and oil was produced from lacustrine siltstones and sandstones of the Lower Cretaceous Zuunbayan formation and the Lower Cretaceous-Upper Jurassic Tsagaantsav formation (Fig. 4). The field has 2.3-3 sq miles (6-8 sq km) of areal closure with about 200 wells, which produced a total of 550,000 tons (about 4 million bbl) of oil during the 19 years ending in 1969.
Within Zuunbayan field, the Lower Cretaceous Lower Zuunbayan formation and the Lower Cretaceous-Upper Jurassic Tsagaantsav formations are oil-saturated at the surface outcrops to a depth of about 700 m (2,300 ft), indicating a preexisting oil column within the field of more than 700 m.
The oil-saturated sandstones and conglomerates are strip-mined to a depth of 30 m (100 ft) throughout the field area for road surfacing material. The field was not abandoned by prudent conventional industry standards, so many of the wells are still periodically producing undetermined amounts of oil to the surface (see photos).
Because of the oil characteristics-23-38 gravity, 3-27% paraffin, and other geochemical evidence-Mongolian geologists believe the Zuunbayan field reservoirs have been sourced by several source rocks. Possibilities include the Lower Zuunbayan and Tsagaantsav formations and Lower Jurassic or Paleozoic rocks.
The total oil in place in Zuunbayan field was estimated by the Soviets to be 6.336 million tons (about 45.62 million bbl), and the total recoverable reserves were estimated at 1.7597 million tons (12.67 million bbl), leaving about 1.2097 million tons (8.75 million bbl) remaining to be recovered.
However, MGT geologists use a more realistic recovery factor of 15% and estimate remaining recoverable oil reserves in Zuunbayan field at less than 400,000 tons (2,882,880 bbl).
TSAGAAN-ELS DISCOVERY
During the development of Zuunbayan field, oil refining facilities were constructed nearby, together with a rail terminal for transporting refined products.
At the same time, exploration work within the area continued, resulting in discovery in 1953 of Tsagaan-Els field. The field, approximately 12 miles south of Zuunbayan, was the result of exploratory drilling of an anticlinal structure defined by seismic. It was partially developed before the field was abandoned.
Tsagaan-Els field is a southwest trending faulted anticline with silty sandstone, sandstone, and conglomerate reservoirs within the Lower Cretaceous Lower Zuunbayan formation and the Lower Cretaceous-Upper Jurassic Tsagaantsav formation.
The field has about 4 sq miles (10 sq km) of areal closure with 18 wells drilled to 1,300-1,400 m (4,264-4,592 ft). Two of the wells were junked and abandoned prior to reaching total depth. Six wells were dry holes. Ten of the wells were completed as oil wells during 1953-63.
Because of the lack of facilities and infrastructure, the 10 oil wells were partially and inadequately tested and were never put on production.
Oil flows from various tested intervals from the completed wells range from 200-400 l./day to more than 33 metric tons/day (250 b/d). Most tested intervals did flow without stimulation within the range of 2-33 tons/day (14-250 b/d) from the 10 completed wells.
The previous Soviet workers have assigned 950,000 tons (6.895 million bbl) of recoverable oil reserves to Tsagaan-Els field; however, Mongolian explorationists have placed the estimate at 7-15 million bbl.
OPERATIONS CEASE
Oil production in Zuunbayan field, development of Tsagaan-Els field, and oil refining ceased in December 1969 for several reasons:
- There was a steady drop in oil production from Zuunbayan field.
- The Soviet effort was diverted to the large oil finds in West Siberia and the Caspian regions.
- Production and refinery equipment failures, coupled with the lack of supplies and parts, caused the operation to become too expensive and inefficient.
- The refinery was badly damaged by fires.
- Oil was priced on the world market for about $2/bbl.
Consequently, Mongolia decided to purchase petroleum products from the old U.S.S.R.
The newly democratic country now intends to relieve part of its current fuel shortage by rehabilitating Tsagaan-Els field, targeting production of about 4,000 b/d to provide lubricants, gasoline, and diesel fuel.
EXPLORATION DATA
The first reported oil and gas investigations of Mongolia were conducted by Termer, a U.S. geologist, in 1931.
Subsequently, Soviet and East European geologists assisted in more extensive investigations, which delineated the sedimentary basins within the country by surface geological mapping; stratigraphic core hole drilling; electrical, gravity, and magnetic survey; and eventually seismic mapping.
Mongolia is situated on the southern margin of the pre-Cambrian Siberian craton (Fig. 5). Western, southern, and eastern Mongolian basins are Cenozoic and Mesozoic rift basins within accretionary microplates of Caledonian and Hercynian terrane that docked onto the Siberian craton.
Extensive post-accretionary rifting developed during the opening and closing during Paleo-Tethys and Neo-Tethys. The following rift and graben deformation during the Jurassic resulted in continental clastic, which included volcanics, breccias, conglomerates, sandstones, siltstones, and shales.
During the Upper Jurassic-Lower Cretaceous, lacustrine clastics continued to fill the rift basins. During the Upper Cretaceous wrench-rifting and compressive forces resulted in basin inversion and Upper Cretaceous continental sedimentation.
The Upper Jurassic-Lower Cretaceous lacustrine shale-sandstone sequence contains the known oil source and reservoir rocks within the eastern and southern Mongolian basins.
Although there is no known published data, Mongolian geologists maintain that the Paleozoic sediments do exist at depth in the southern and western basins and that they have some evidence that these basins do contain Paleozoic oil and gas source and reservoir rocks (Fig. 6).
The two adjacent basins in China, the Hailar and Erlian basins, both contain oil fields under development. Both fields are reported to be producing about 20,000 b/d of oil from the Lower Cretaceous-Upper Jurassic sequence.
RECENT ACTIVITY
The sedimentary basins of Mongolia are virtually unexplored for oil and gas. More than 80% of the exploration subsurface well data within the country is in the Zuunbayan-Tsagaan-Els field areas of the East Govi basin.
Table 1 lists basin location and the amount of the known existing usable seismic and exploration well data within the country. This listing includes 1,500 km of speculative seismic data acquired in 1991-92 by Western Geophysical in the Choibalsan basin (240 km), Tamtsag basin (645 km), and East Govi basin (615 km). During the past 3 years MGT has entered into joint venture agreements with various technical contractors to assemble, evaluate, and market Mongolian geological and geophysical data.
The first of these ventures was with Exploration Associates International of Texas Inc. to prepare a report on the petroleum potential of Mongolia, which was a compilation of available preexisting Soviet and Eastern European studies and reports. This study was completed in December 1991.
Custom Digital Inc., Houston, prepared a well log data package of wells drilled in eastern Mongolia. LCT Inc., Houston, has prepared and is continuing to prepare gravity and magnetic data packages covering the eastern Mongolian basins.
Stratigraphic Services International Ltd. (U.K.) in cooperation with Geolab Nor (Norway) and Exploration Associates have prepared biostratigraphic, petrographic, and geochemical data reports of the south-central Mongolian basins.
Earth Satellite Corp. (Maryland) has prepared two reports from satellite imagery data covering the eastern and western Mongolian basins.
CONTRACT OFFERINGS
Mongol Petroleum Co., in cooperation with Exploration Associates as technical adviser, formulated a petroleum law, which was ratified on Feb. 13, 1991.
Regulations for implementing the law and a model form of a production sharing contract were subsequently drafted and adopted. Petroleum exploration contract areas within Mongolia were then delineated and designated (Fig. 7). The south-central and western sedimentary basins of Mongolia were included in 10 contract areas as shown in Table 2.
The areas were open for application as Round 1, commencing May 1, 1991. After the opening of applications, Contract Area I (Uvs) was withdrawn because of the Mongolian government's concerns for the area's pristine environment. Contract Area I includes Mongolia's largest lake, Uvs Nuor, which covers about 3,350 sq km.
At the closing of Round 1, two companies, one French and one from the U.S., had submitted applications for a total of three contract areas: VIII Hongor, IX Nomgon, and X Tokhom. Active negotiations between MGT and the applicants are continuing.
However, MGT will now accept out-of-round applications for those Round 1 contract areas in western and south-central Mongolia not currently under negotiations.
The Round 2 offering of contract areas in eastern Mongolia was opened on June 1, 1992, and included the areas shown in Table 3.
Closing of Round 2 applications will be Dec. 31, 1992. At present, MGT has received applications for the following eastern Mongolia contract areas: 14 Zuunbayan, 19 Toson Uul, 20 Matad, 21 Tamsag, and 22 Buir.
Contract area applications are outlined in Annex 1, Basic Information, and Annex 2, Contract Area Application, of the Regulations for Implementing the Petroleum Law. They are to be submitted to Dr. D. Sengee, president, Mongol Petroleum Co., Uildverchnii Evleliin Grudamj, Ulaanbaatar, Mongolia.
CONTRACT TERMS
Petroleum exploration contract areas will be awarded for a period of up to 5 years, which can be extended twice for 2 years each time.
The term of any oil and gas development will remain in effect for a period of 20 years, which can be extended twice for not more than 5 years each time. MGT favors a production sharing contract with a royalty, to be negotiated, payable to the state. In the event a production sharing contract is to be agreed upon, MGT may pay the royalty and taxes on behalf of the contractor.
The amount of oil a contractor can claim for recovery of its costs of exploration and development is negotiable but cannot exceed 40% of the total annual production. Profit oil sharing is to be on a sliding scale, negotiated between MGT and the contractor.
Mongolia can request that the contractor deliver its share of production for domestic consumption at the international market price. The repatriation of after-tax profits or the export of the contractor's share of petroleum and the import of equipment, material, and supplies required for petroleum operations will be exempt from customs duty or transfer tax.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
