Longer contract periods, an extended exploration phase and the possibility for more negotiation for better production-sharing contract (PSC) terms could lure oil and gas companies in search of shale oil to Mongolia.

The changes to the regulatory terms, which were passed this summer, are boosting investor confidence for the country, according to GlobalData, a U.K.-based research and consulting firm.

“This is an important step for Mongolia, where there is growing interest in oil shale resources. The government has already started to sign agreements with investors for shale oil extraction pilots, envisaging conversion to a PSC once commerciality is established,” Will Scargill, GlobalData’s upstream fiscal analyst, said in a prepared statement this week. “The law also offers longer contract periods for unconventional compared to conventional operations, which are likely to prove an incentive to investors. The exploration phase can last for up to 15 years—three years longer than normal—and the production phase is extended from 25 to 30 years.”

Other changes involve development of conventional hydrocarbons. The royalty was lowered to 10% from 15%.

Also, as part of the new law companies can have PSCs signed and approved by the government within 180 days of their request.

“Mongolia reports proven reserves of 2.4 billion barrels of oil,” Scargill said. “When compared to countries with similar levels, such as Colombia, Gabon and Uganda, which all have reserves of 2 [billion] to 2.5 billion barrels, the Mongolian PSC is the most favorable to investors across all field sizes when other factors are assumed constant.”

Some companies are already pursuing potential shale resources in the Tamtsag and East Gobi rift basins, described by the U.S. Energy Information Administration (EIA) as resembling northeast China’s oil-producing basin, containing lacustrine mudstone and coaly source rocks within the Lower Cretaceous Tsagaantsav and equivalent formations. The EIA estimates Mongolia has an estimated113 Bcm (4 Tcf )of risked, technically recoverable shale gas resources and 3.4 Bbbl of risked, technically recoverable shale oil resources. However, troughs of the shale basins were characterized as “relatively small and disrupted by extensive faulting.”

“Within the 4,690-sq-mile [12,147-sq-km] high-graded prospective area of the Unegt and Zuunbayan troughs in the East Gobi Basin, the Lower Cretaceous Tsagaantsav Formation contains an estimated 300 ft [91 m] [net] of organic-rich lacustrine shale at an average depth of 8,000 ft [2,438 m],” the EIA said in its report, “World Shale Gas and Shale Oil Resource Assessment.” “TOC averages an estimated 4% and is oil-prone. Porosity may be significant [6%]given the silty lithology. The reservoir pressure gradient is normal.”

Spanning 14,090 sq km (5,440 sq miles), the prospective area within the Tamtsag Basin is larger with an estimated 76 m (250 ft) of organic-rich lacustrine shale at an average depth of 2,134 m (7,000 ft) in the Lower Cretaceous Tsagaantsav Formation, according to the EIA. The porosity is believed to be similar to the East Gobi Basin, with a slightly lower TOC—averaging an estimated 3%.

While most of the country’s shale development potential is seen for the country’s south and west sides, an area near Mongolia’s northwest border with Russia could have both conventional and shale oil potential, the EIA said, cautioning that public data are limited and the Devonian deposit is nonproductive and poorly defined.

Aside from the geological hurdles and learning more about the potential resource, Scargill pointed out another challenge, one that shale explorers in neighboring China continue to battle.

“The lack of infrastructure to commercialize reserves is a significant problem,” he said. “Combined with the relatively unexplored nature of much of the country, this means that significantly increased competition for acreage is unlikely in the medium term and should keep the negotiated fiscal terms in conventional PSCs relatively stable.”

Genie Energy is already expanding its acreage in search of finding hydrocarbons in wake of the legislation’s passage. The company announced last week that its subsidiary, Genie Oil Shale Mongolia, signed a prospecting agreement with the Petroleum Authority of Mongolia covering 25,000 sq km (9,653 sq miles) in central Mongolia, bringing the company’s total shale exploration acreage in Mongolia to nearly 60,000 sq km (23,166 sq miles).

The two entered a five-year oil shale development agreement in 2013, focusing on the commercial oil shale potential of a separate 34,470-sq-km (13,309-sq-mile) area, also in central Mongolia. The latest agreement establishes the framework under which Genie can purse commercial production if adequate amounts of resources exist, according to the release.

“Our analysis of the available geological evidence suggests that this license area may contain world-class deposits of thick and rich oil shale well-suited for our in situ extraction technology,” said Yuval Bartov, chief geologist for Genie.

D. Gankhuyag, minister of mining for Mongolia, added, “The recently passed petroleum law created a favorable environment for investment in conventional and unconventional petroleum sectors, increasing competition and encouraging sustainable long-term activity.”

Wolf Petroleum, which claims to hold the most acreage in Mongolia with assets in three blocks, also responded positively to the government’s move, saying in a news release, “The new petroleum law simplifies the application for [the] production-sharing contract, minimizes bureaucracy and creates a more competitive and investment-friendly business environment. The company believes the new petroleum law will play a significant role in [the] development of the industry and further open more investment opportunities in Mongolia.”

Contact the author, Velda Addison, at vaddison@hartenergy.com.