Ben Aris in Ulaanbaatar -

When Petro Matad announced it had struck oil in Mongolia's steppe, its London-listed shares soared, sending the company's market capitalisation from $30m to $300m in a matter of months. Mongolia was known to be rich in natural resources such as copper and gold; now it can add oil to the growing list.

Petro Matad is the exploration arm of the Petrovis holding company, which has a grab-bag of investments into everything from the Black Pearl restaurant to Prime General Insurance, but its main business is fuel. Established in 1997, the company bought NIC (Nefte Import Kompaniya) in 2004, the state-owned oil import company which owns most of Mongolia's petrol stations and was responsible for importing oil from Russia. "When we took over, NIC was in big trouble - inefficient and losing money," says Oyunbileg Bilguun, head of foreign relations and projects at Petrovis. "We put it back on its feet. We invested and expanded the gas station network to 400 all over the country, as well as building 40 oil storage depots."

Petrovis has successfully turned the company round and is now ploughing the profits back into developing Mongolia's energy resources.

AIMing high

Petro Matad, one of several companies exploring for oil in Mongolia, raised money to fund its exploration effort on London's Alternative Investment Market in 2008, with the EBRD paying $10m for an 18% stake. In the summer, the company confirmed a strike at its Davsan Tolgoi-1 well in Block XX, with initial reports saying the find could be as high as 122m barrels - enough to end Mongolia's dependence on Russia imports. "We know there is oil there and we think it is a lot, but we won't know for sure until the technical study results are available - sometime before the end of this year," says Bilguun, a burly man with excellent English, who was meeting investors on the sidelines of the Eurasia Capital summit in September.

The Soviets did almost no exploration for oil after they found significant amounts in western Siberia and Mongolia shares a very similar geography with the whole region. The Russians themselves are only now opening up eastern Siberia, where even more oil is thought to lie. There are already a few small deposits being worked in Mongolia; the biggest is operated by Daqing, a Chinese holding company, which is extracting oil from a small oil deposit and exporting some 1m-2m barrels a year to China.

A major discovery would only add to the country's growing economic momentum. Currently, Mongolia imports 800,000 tonnes of oil a year, but according to Bilguun there is a very real chance that Mongolia will go from a net importer to a net exporter of oil in just a few years, removing one of the biggest drains on the country's foreign exchange reserves in the process. Petro Matad has already drawn up plans to build the country's first oil refinery as it awaits details on the size of the oil deposit. "The government has issued lots of exploration licenses and said there are strong indicators of oil throughout the country. The energy minister says the indicators suggest that Mongolia will become the 33rd largest in the world in terms of deposits," says Bilguun.

If a sizable find is confirmed, then Petrovis will take Petro Matad back to the market with a secondary public offering before the end of this year, while an IPO for the holding company (probably in Hong Kong) is possible next year. "But it is still early days. We have a big group and we need to consolidate all the businesses first before we are ready to float the holding," says Bilguun.