A novel matrix stimulation concept, formation heat treatment (FHT), which involves the application of intense heat around the near-wellbore region for the treatment of water blockage and clay related formation damage in water sensitive formations previously was developed and presented in the literature. The FHT process involves the application of intense heat around the wellbore using a downhole heater. The heat is conveyed to the near-wellbore region using an inert gas flowing through a downhole heater. To understand the heat transfer and fluid-flow characteristics of the FHT process, a transient two-dimensional mathematical model has been developed and is presented in this paper. The model is based on coupling the momentum and energy-balance equations for the wellbore gas with the surrounding porous formation. The presence of the heater across the net pay (sandface) is taken into account in the energy equation as a localized volumetric heat source. A control-volume based finite-difference scheme is used to solve the model equations on a staggered grid. Parametric studies indicate that by injecting a suitable quantity of gas through the tube and annulus, and by adjusting the power input to the downhole heater, the temperature near the wellbore can be favourably controlled.