Leyshon Resources LRL Commences drilling in Ordos Basin

  Leyshon Resources (LRL) - Commences drilling in Ordos Basin

RNS Number : 8868N
Leyshon Resources Limited
04 October 2012




                          LEYSHON RESOURCES LIMITED

4 October 2012



          Commences Drilling for Gas in China's Prolific Ordos Basin



Leyshon Resources  Limited  (AIM/ASX: LRL)  ("Leyshon"  or the  "Company")  is 
pleased to announce  that the  recently appointed management  team at  Pacific 
Asia  Petroleum  Limited  (PAPL),  which  Leyshon  acquired  in  July,  has 
commenced drilling at  the 708  km^2 Zijinshan  block located  on the  Eastern 
flank of  the prolific  Ordos Basin,  China's second  largest and  one of  the 
world's major gas producing basins.



The new management team, which  successfully drilled and appraised the  recent 
multi-Tcf gas discoveries on the  adjacent Sanjiaobei and Linxing blocks,  has 
designed an initial three well programme to test for gas in similar formations
over a 600 metre interval to a depth of approximately 2.4 kilometres.



The first two wells are expected to  be completed by the end of November  with 
completion of the third  expected early in  the new year.  The total cost  for 
drilling, logging,  casing,  fracking and  flow  testing the  three  wells  is 
estimated at around US$ 5 million.



The wells are located within  10 kilometres of a tie  in point on the  Lin-Lin 
pipeline which supplies the growing demand in Shanxi Province where well  head 
contracts have recently been struck in the US$ 6 - 7.5 per mscf range.



PAPL has a 100%  interest in the exploration  phase of the Production  Sharing 
Contract (PSC) with PetroChina, which has the right to buy back a 40% interest
at the development stage.



The Company has A$ 47.8 million in  cash (approximately A$ 19 cents per  share 
and 12 pence  per share)  and has extended  and expanded  the on-market  share 
buy-back up to 24 million fully paid  ordinary shares in the Company over  the 
next twelve months.



Managing Director Paul  Atherley Commented:  "The Ordos Basin  is the  beating 
heart of Central China, the world's  fastest growing major economy and is  one 
of the best  places in the  world to be  exploring for gas  right now. It's  a 
major gas  basin  which has  seen  some spectacular  recent  discoveries.  Any 
commercial gas discovery at  Zijinshan will be hooked  into one of the  nearby 
pipelines and sold into one of the world's fastest growing markets for gas."





New Management Team



The Company  is  pleased to  announce  that  PAPL has  recently  appointed  an 
experienced local  management  team with  extensive  operational,  geological, 
contractual and subsurface experience in the  Ordos Basin. The team, which  is 
based in Beijing and on site, is  led by new Chief Operating Officer Frank  Fu 
who has 20 years' experience with  ConocoPhillips in Shanxi province and  more 
recently oversaw the drilling and testing of the nearby Sanjiaobei and Linxing
gas discoveries.



Zijinshan Gas Project



Respected industry advisor RISC has advised that in its view PAPL's  Zijinshan 
Gas Project, located on the eastern  flank of the Ordos Basin, contains  gross 
prospective resources that are  potentially large due  to the confirmation  of 
the presence of unconventional gas, with  gas in place estimates in the  range 
of 1 to 3.8 Trillion Cubic Feet.



The main  analogous discoveries  are at  the adjacent  Sanjiaobei and  Linxing 
fields, which Frank Fu and his team have successfully drilled and tested  with 
eleven vertical wells that  have flowed gas at  impressive rates. The gas  has 
been reported to be very clean and dry, with low impurities and therefore  can 
be connected straight into local pipelines.



RISC does however caution  that whilst the  opportunity appears attractive  it 
contains significant  risk which  must  be mitigated  via the  acquisition  of 
appropriate data and completion of a  pilot plan. The Company plans to  retain 
RISC as its advisor in the exploration and development phase

of the project.



Well Established Pipeline Infrastructure and Strong Demand



The  Ordos  Basin  has  well  established  gas  pipeline  infrastructure  with 
substantial excess capacity and  strong and rapidly  growing local demand  for 
gas. Recently contracted well head gas prices have been in the US$ 6 -7.5  per 
mscf range, and the Board expects these prices to rise. The first of the three
Zijinshan wells  is located  within 10  kilometres of  a tie-in  point on  the 
Lin-Lin pipeline, which was completed in 2011.



The  combination   of   lower   drilling  and   lifting   costs,   established 
infrastructure, strong prices and rapidly growing demand makes the Ordos Basin
one the most attractive places in the world to explore for gas right now. RISC
has confirmed this view and advised that the Ordos basin generally offers  one 
of the highest potential IRR's in China.



Great Wall Drilling Company



The Great  Wall  Drilling  Company,  which has  been  contracted  by  PAPL  to 
undertake the drilling programme,  is a subsidiary  of PetroChina and  employs 
over 30,000  people in  28  countries, providing  services  to more  than  100 
companies all over the world including many international companies. It owns a
fleet of more  than 430 drilling  rigs with  a rated drilling  capacity up  to 
9,000 metres and provides integrated solutions from well design to  completion 
in various surface and subsurface conditions.



China Oilfield Services Limited



China Oilfield Services Limited, which  has been engaged to provide  technical 
services to  the  programme,  is  the  leading  integrated  oilfield  services 
provider in the China  market. Its services  cover each phase  of oil and  gas 
exploration, development and production. Its  four core business segments  are 
geophysical services,  drilling services,  well services,  marine support  and 
transportation services.



Well Placed to Benefit from Growing Demand for Gas in China



China is already the world's fourth largest gas market. The Government is  now 
targeting to increase domestic production over  the next five years more  than 
2.5 times to  meet growing energy  demand, especially from  Central China,  to 
meet near term clean  energy targets by reducing  the proportion of coal  used 
and to improve the country's energy import dependency ratio.



To achieve this target the Government is actively investing in  infrastructure 
and is  offering  a  range of  incentives  for  foreign as  well  as  domestic 
producers to explore and develop unconventional gas assets in these basins and
elsewhere.



By way of example, Shanxi Province's  current Five Year Plan includes a  major 
city gasification programme which will increase gas demand by 2.5 times.



Gas Pricing and Regulation



The International Energy Agency  in conjunction with  others and sponsored  by 
the British Embassy  in Beijing has  recently published a  report titled  "Gas 
Pricing  and  Regulation,  China's  Challenges  and  OECD  Experience"   which 
highlights that  in the  current 12^th  Five-Year Plan  (2011-15) the  Chinese 
government plans  to  double  the  share of  natural  gas  in  primary  energy 
consumption and reach consumption levels  of up to 260  bcm per year by  2015, 
twice the level of gas consumed in 2011.



Amongst the opportunities  highlighted in the  report, three are  specifically 
relevant to the  Company's investment in  the Ordos Basin,  namely gas  market 
liberalisation  and   hub  development;   enabling  third   party  access   to 
infrastructure along with  the development  of storage;  and liberalising  the 
upstream sector to allow for the development of China's substantial  resources 
in unconventional gas.



The Board  is of  the view  that these  represent rare  opportunities for  the 
Company, which is  well established  in China and  has a  management team  and 
advisory board with the necessary experience and relationships to  participate 
in the development and liberalisation of a world class energy sector.



Central China



The Eastern Flank of the Ordos Basin  is located in Shanxi Province, which  is 
one of eight Provinces  that make up the  economically defined Central  China. 
Central China has a  population of over 423  million people (i.e. larger  than 
that of the United States and similar to that of the 27 countries that make up
the European Union).



Despite the decade long  spectacular growth, Central  China's average GDP  per 
capita has only recently  reached US$ 5,000 compared  with US$ 48,000 for  the 
United States and US$  35,000 for the European  Union. Similarly, its  energy 
consumption per  capita remains  less than  one fifth  of that  of the  United 
States.



Shanxi Province itself has a population of 35 million with a per capita GDP of
less than US$5,000 growing at 13% per year.



The Board is strongly of the view that Central China, which is often  referred 
to as the world's fastest growing major economy, will grow rapidly into one of
the world's major markets for gas.



A Strategic Focus on Building an Increased Presence in China's Energy Space



As the Chinese economy rebalances away from a heavy dependence on fixed  asset 
expenditure towards a more consumer driven  economy and in doing so makes  the 
transition away  from  a  mineral  intensive phase  towards  a  highly  energy 
intensive phase of  more mature  growth, the  Company intends  to acquire  and 
invest in energy related assets in and around China.



Primarily, the focus will be on developing oil and gas assets that supply  the 
China market via infrastructure located either within China, its neighbours or
its supplying countries.



The  strategy  draws   heavily  on  management's   experience,  contacts   and 
established presence in China over the past eight years and it recognises that
China has an energy deficiency even whilst its economic growth matures.



The heavy focus on unconventional gas by the Chinese government in the current
Five Year Plan is to make up  for a growing shortfall of conventional gas,  to 
reduce the country's dependency on coal  to meet the self-imposed 2015  carbon 
targets and to reduce the country's increasing dependence on imported oil  and 
gas.



Advisory Board



The Company has recently made two appointments to its Advisory Board who  hold 
senior positions  in  the  Government and  state-owned  petroleum  enterprise, 
respectively. Their  addition  will  strengthen the  Company's  strategic  and 
decision making processes and  assist with maintaining relevant  relationships 
in Beijing.



Xinjiang Coal



The recent 30% fall  in domestic thermal coal  prices has materially  impacted 
the near term economics  and potential financing  arrangements of the  thermal 
coal project located  in the  Western Chinese  province of  Xinjiang that  the 
Company has been pursuing over the past twelve months.



The National Development and Reform  Commission (NDRC) has recently  announced 
that it will now take more control over thermal coal prices by intervening  in 
the spot market whenever  the price movement  in any cycle  is more than  10%. 
Whilst this is positive in terms of price stability it is however a  potential 
cap on price recovery as the NDRC is expected to attempt to converge the  more 
volatile spot prices with longer term contract prices.



The project  remains  an important  part  of  the country's  energy  plan  and 
development is expected to commence  shortly. Management continues to  monitor 
developments and to assess whether there is an attractive entry point for  the 
Company.



Mt Leyshon



The ball mill scats drilling and preliminary testwork programme has  indicated 
that the project is viable but  requires significant capital for a  relatively 
modest return, even at current gold prices. Management's view is that in light
of focus of the Company's strategy and  given the scarcity of risk capital  of 
this nature the returns do not warrant  the investment at this stage but  will 
review the project's development  in the event that  the price of gold  should 
continue to rise. The Company continues to review high quality gold investment
opportunities in China and elsewhere.



Buy Back



The Company has 251 million ordinary shares on issue. It purchased 5.2 million
shares on market in  the previous on  market share buy back  (Buy Back) at  an 
average price of A$ 19 cents per share.



The Company has extended  the Buy Back  for a further  twelve months and  will 
increase the maximum number of shares to be bought to 24,000,000. The Buy-Back
will resume immediately  and no  shares will  be bought  beyond September  12, 
2013.





Forfurtherinformationplease contact:



LeyshonResourcesLimited

Paul Atherley-ManagingDirector

Tel:+8613718001914 admin@leyshonresources.com



SeymourPierce

JonathanWright(Nominatedadviser)

RichardRedmayne(Corporatebroking)

Tel:+44(0)2071078000



Pelham Bell Pottinger

Charles Vivian - Director

Tel:+44 (0)20 7861 3126

James MacFarlane - Account Director

Tel: +65 9450 7574



Background



http://www.leyshonresources.com



Leyshon was on  the ground  in 2003  when China  opened its  mining sector  to 
foreign investment. It has been fully engaged in China since then and has  its 
main operating office located in Beijing.



China's latest Five Year Plan emphasizes  the planned urbanisation of a  large 
number of Central China's rural population  into second and third tier  cities 
lifting the urbanisation rate to 51.5% of the overall population.



This will  result  in significant  increases  in infrastructure  spending  and 
energy demand.  The Company  is planning  to invest  in high  quality  energy 
assets in China to meet this growing demand.



Managing Director Paul Atherley is an Executive Committee member of the  China 
Britain Business  Council and  serves  on the  European Union  Chamber  Energy 
Working Group.



The statements of resources in this Release have been independently determined
to Society of Petroleum Engineers (SPE) Petroleum Resource Management  Systems 
(SPE PRMS) standards  by internationally  recognized oil  and gas  consultants 
RISC Operations Pty Ltd and NSAI.

                     This information is provided by RNS
           The company news service from the London Stock Exchange

END


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