U.S. INDEPENDENT SIGNS MONGOLIAN E&D PACT

Mongolia's Mongol Petroleum Co. (MGT) and Nescor Energy Co., Austin, have signed a joint venture agreement giving Nescor exploration and development rights in the East Govi basin of Southeast Mongolia.

Nescor's area of interest, covering five blocks, includes Mongolia's only significant hydrocarbon discoveries, Zuunbayan and Tsagaan Els. Nescor and MGT will concentrate first efforts on starting production from Tsagaan Els.

Nescor is reprocessing several hundred line miles of old Soviet seismic data. Western Geophysical, Houston, recently completed a 1,500 line km seismic survey in Southeast Mongolia and is expected to conduct more survey work soon.

Meantime, Nescor is negotiating with Chinese petroleum officials to drill a delineation well in Tsagaan Els before yearend, if weather allows. Successful delineation of the reservoir could lead to a development involving 40-80 wells at a cost of $50-100 million, said Nescor Managing Director Neil Salsich III. Production could begin within 18 months, Salsich said.

Nescor estimated original oil in place in Tsagaan Els at as much as 100 million bbl. The company expects to return to Mongolia soon to negotiate a production sharing contract (PSC) involving some of the area of interest acreage.

Financing likely will be sought from international agencies such as World Bank and Asian Development Bank.

OTHER ACTIVITY

Zuunbayan and Tsagaan Els were the centerpiece of an agreement with Amgol Inc., Houston, that recently expired (OGJ, Dec. 7, 1992, p. 39).

Amgol is a partnership of SOCO International, an affiliate of Snyder Oil Corp., Fort Worth; Exploration Associates International of Texas Inc. (EAIT), Houston; and CP&G, a Houston oil field equipment supply firm.

Last month, Snyder's SOCO Mongolia signed what it said was the first PSC in Mongolia, covering Contract Area XXII (Buir), a 2.8 million acre tract in the Tamtsag basin of far eastern Mongolia (OGJ, Apr. 5, p. 28).

SOCO International Pres. Ed Story cited an encouraging sign from China concerning Mongolia's petroleum prospects. Officials of state oil company China National Petroleum Corp. said they were willing to buy any crude found in Mongolia, he said. That would eliminate the need for a costly export pipeline to the Chinese port of Dalian, Story said, thus removing a major roadblock to commerciality of Mongolian discoveries.

Mongolia's Tamtsag basin is much like China's Hailar basin, EAIT noted. The Chinese are expected to open an adjacent Hailar basin block for application in first quarter 1994, EAIT said.

China is stepping up efforts to expand foreign participation in exploration and development of its vast, remote, interior basins, some of which border or extend into Mongolia.

BACKGROUND

Mongolian and Soviet explorationists found Zuunbayan field in 1941. It produced about 4 million bbl of oil during 1950-69. A small refinery was built nearby, along with a rail terminal to ship products.

Tsagaan Els is a 1953 discovery. Although 10 wells were completed as oil producers, none was placed on production due to lack of facilities.

Because of equipment failures, a fire that severely damaged the refinery, and a shift in Soviet exploration emphasis to western Siberia and the Caspian Sea in a low oil price climate, Mongolia abandoned efforts to boost oil production in favor of importing subsidized products from the former U.S.S.R. Oil development, production, and refining halted in Mongolia in 1969.

The 12 blocks offered under Mongolia's second PSC bidding round were concentrated in eastern Mongolia. That round closed Mar. 1. Nine blocks in western and South Central Mongolia were offered in the first round, drawing bids from two companies for three contract areas. Negotiations are continuing on the first round blocks.

MGT said it will accept bids for all first and second round contract areas not currently under negotiation or that did not receive bids.

EAIT said Mongolia's parliament is considering revising the country's foreign investment law to better define its provisions. Mongolia's new petroleum law, which took effect Feb. 13, 1991, related petroleum regulations, and the PSC model aren't expected to be revised, however, EAIT said.