One to Watch: Leyshon Resources Gearing Up For Well Completion

Thursday, Nov 08 2012 by
10
One to Watch Leyshon Resources Gearing Up For Well Completion

Leyshon Resources (LON:LRL) the dual listed (ASX:LRL/AIM:LRL) China focused resource company, has recently announced that the first well of a three well drilling campaign is due to reach its total depth by the end of November.  Operating through its recent acquisition Pacific Asia Petroleum Limited, which Leyshon acquired in August for US$ 2.5 million in cash and the issue of 10 million fully paid ordinary shares, the company is focused on the 708 km2 Zijinshan block located on the Eastern flank of the prolific Ordos Basin, which is China's second largest and regarded by Leyshon as one of the world's major gas producing basins. [1]

Leyshon Resources who operate from their Beijing base, was set up by its Managing Director Paul Atherley in 2003 as a direct result of China opening its mining sector to foreign investment, and is hoping to capitalise on the urbanisation of a large number of Central China's rural population into second and third tier cities.  The hope for Leyshon is that this urbanisation move will increase the capital infrastructure spending and in tandem the energy demands will also be a by-product of this demographic change which could see the urbanisation rate lifted to 51.5% of the overall population under China's latest Five Year Plan. [2]

The new operations management team led by COO Frank Fu, has 20 years’ experience with ConocoPhillips in China, and successfully drilled and appraised the nearby multi-Tcf Sanjiaobei and Linxing discoveries.  Pacific Asia Petroleum Limited has 100% interest in the project during the exploration phase of the  Production Sharing Contract with PetroChina holding a right to buy back a 40% interest at the should the project reach the development stage.

Leyshon Resources have other pursuing interests including a thermal coal project located in the Western Chinese province of Xinjiang, however due to the recent 30% fall in domestic thermal coal prices, the near term economics and potential financing has been impacted, Leyshon management are still believed to be monitoring developments at this project to assess whether there would be an attractive entry point for the Company.  Also of interest to Leyshon Resource shareholders is the Mt Leyshon project, however, although the ball mill scats drilling and preliminary test work programme has indicated that the project is viable, it requires significant capital investment and is not viewed as being economically worthwhile at this moment in time.  

Leyshon Resources are also in the process of buying back their own shares and have recently announced that it will increase this scheme from 5.5 to 24 million shares to be purchased between now and 12 September 2013.  The buyback will be funded from the Leyshon cash reserve which currently stands at around A$47.8 million equivalent to around 12p per share with the share issue standing at 249m.  The total cost of the current 3 well campaign for drilling, logging, casing, fracking and flow testing the three wells is estimated at around US$ 5 million. [1]

The initial three well programme to test for gas in similar formations to the adjacent discoveries within the Sanjiaobei and Linxing blocks will be targeting a 600 metre interval and drilling to a depth of approximately 2.4 kilometres.  Should the work programme prove a commercial resource, the drilled 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 which compares very favourable against the Henry hub spot price.

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I would not normally be interested in a pure gas play, however the lower expenditure when compared to say the Eagle Ford and the high well head price, coupled with the potential according to the MD in a recent interview for a resource valuation on a successful campaign of up to a possible NPV@10% of $1.1 billon (60%), means Leyshon Resources merits place on the research and watch list in my view. [3]

Ticker Code: LRL, Shares in Issue: 249m Current SP: 11.25p Market Cap: £28m 52WK High: 16.40p 52WK Low: 10.54p

twitter: @EliasJones1

Disclosure of interest: The Author of this article holds shares in Leyshon Resources.




Disclaimer:  

This content has been created for information purposes only, and is NOT, in any way, a recommendation to invest.  This communication is a snapshot of a certain aspect of a discussed business at a moment in time, and is merely a basic starting point for research.  The article/thread has been created with honesty and integrity in mind and is based on publically available information sourced in relation to the title, such as from, RNS announcements, published reports, management comments, analyst reports, media coverage etc.  To this extent the author who has written the piece in good faith accepts no liability for the accuracy of the information and urges all readers to verify the content independently.  Please note that the value of investments may fall or rise and you may not get back the amount originally invested, or in some cases your investment may be wiped off altogether.  When investing, bear in mind that past performance is not a guide to future performance and that qualified independent financial advice should be sought before buying or selling shares.  The Author of this article may hold shares in the companies discussed.


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Leyshon Resources Limitedis an Australia-based company. The principal activities of the Company consisted of gold and other minerals exploration. In August 2012, the Company completed the acquisition of Pacific Asia Petroleum Limited. As of June 30, 2012, the Company had 100% interest in the Zijinshan Production Sharing Contract (PSC) located on the eastern fringe of the prolific Ordos Gas Basin in Central China. The acquisition of Hong Kong based company Pacific Asia Petroleum Limited (PAPL) from Houston based CAMAC Energy Inc was completed on August 6, 2012. In January 2014, Leyshon Resources Ltd announced the demerger of the Company's energy assets has been implemented via the in-specie distribution of 100% of the ordinary shares of Leyshon Energy Limited. more »

Share Price (AIM)
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Change
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P/E (fwd)
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Yield (fwd)
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Mkt Cap (£m)
1.1



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13 Comments on this Article show/hide all

Warwick 8th Nov '12 1 of 13
2

Great prospect with strong economics and an excellent operational team.

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Warwick 10th Nov '12 2 of 13
4

Giving credence to previous comment, find below link for informative report / presentation for comparable company active in the same geography:

http://clients.weblink.com.au/clients/sinogasenergy/article.asp?asx=SEH&view=6602815

Outlines economics and the Chinese commercial regime over various slides. Excellent reading.

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Elias Jones 11th Nov '12 3 of 13

In reply to Warwick, post #2

Warwick, an interesting presentation from Sino Gas & Energy Holdings (ASX:SEH), as a matter of interest do you know what happened to the Linxing No.9 and No.5 that were spudding Aug? And the Linxing No.2 and No.8 that were spudding Sept? They were mentioned under the 2012 plan slide.

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Warwick 11th Nov '12 4 of 13
1

Commercial without Frac see below.

http://finance.boston.com/boston/news/read?GUID=18615937

The final flow rate achieved on TB09 significantly exceeds the longer term average commercial flow rate of 125,000 scf/day determined by RISC for an economic field development.

Refer to comments great prospect with fantastic economics.

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Elias Jones 11th Nov '12 5 of 13
1

Excellent thanks for that response, very interesting commercial rate in the basin without the need for fracking.

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Elias Jones 22nd Nov '12 6 of 13
1

Leyshon were up 12% on the AEX then:

-----------------------------------------------

LRL - Leyshon Resources Trading Halted, Pending Company Announcement

The securities of Leyshon Resources will be placed in trading halt session state, at the request of the company, until the earlier of the commencement of normal trading on Monday, 26 November 2012 or when the announcement is released to the market.

-----------------------------------------------


Guess we will find out very soon if the company have hit gas in China.

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Elias Jones 29th Nov '12 7 of 13
5

Leyshon Resources #LRL kept to their word for a November completion on the fist well, initial thoughts as a shareholder is that I am extremely pleased bearing in mind that the geological chance of success was quoted as a 1 in 6 although a neighbouring field recently yielded a 11 in 15 success rate.

Initial results indicated that about a 56.4 meters pay interval had been encountered, with around 30.8 meters of the 50.4m exhibiting relative high porosity measurements, which according to Leyshon Resources management indicate that these zones could have the potential to flow gas at commercial rates.

With a second well due to spud and with both wells located within approximately 10 kilometres of a tie-in point to supply growing demand in Shanxi Province where well head contracts have recently been struck in the US$ 6 - 7.5 per mscf range, it’s certainly going to be interesting to see how LRL progresses.


Managing Director Paul Atherley Commented:


"Frank Fu and his team have celebrated joining Leyshon by continuing their remarkable recent drilling success in the region with extremely encouraging logging results from the first well.

We are very much looking forward to the flow test results on the multiple prospective pay zones over the next few weeks.

The Ordos Basin is the beating heart of Central China, the world's fastest growing major economy and is quite simply one of the best places in the world to be discovering gas right now.

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."

 

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11410885

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Warwick 29th Nov '12 8 of 13

All progressing well. The operational cost of drilling is very low I'd like to see an accelerated program from the company in 2013.

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highgate55 1st Dec '12 9 of 13

At yesterday's AGM , attendees were shown a presentation which was essentially the one Paul Atherley used in London at Oilbarrel and other meetings.

The main difference is the slide titled " Drill Target 600m Interval " has been superceded by one called " First well hits multiple Gas Pay Zones .." which shows the gas pay zones and some Wire Logging Graphs at three locations down the hole.

It seems that the graphs record the standard data such as ground resisitivity, density and the like but I have no idea how to interpret what is shown .

I think is is a sign of great confidence that the well is being cased for flow tests but I wonder oif there is anyone on this board who can give an opinion on the wire logs.

I have been a shareholder since June 2007 having accumulated shares at prices ranging from 27p down to 3p in April 2009 and look forward to some good discussion on this board .

regarding Warwick's comment on an accelerated program, at the AGM approval was given to allow the company to make a substantial placing ( I think up to 10% of the shares in issue ) - I wonder if this is to given them the means to accelerate the program ?

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Proselenes 2nd Dec '12 10 of 13
1

If your target zone is 600 meters and you end with with 5% of that as possible may flow gas (they got 30 meters but the jury is out on whether its commercial or not) then, well, 5% of your target coming in - what does it do to your expected "gas found" figure...........

I would guess they were not expecting so little (just 5%) to be worthy of testing...............

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highgate55 3rd Dec '12 11 of 13

It is not just the pay interval that matters. One also needs high porosity and high pressure to get good and sustainable flow rates.

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Elias Jones 5th Dec '12 12 of 13
2

It seems going by Paul Atherley’s recent presentation {ref 3 above} that they have quite an active programme focusing on exploration and hopefully appraisal leading onto the CRR (China Reserves Report).

It’s now a waiting game of a few weeks to see if what Frank Fu and his team regard as ‘encouraging logging results from the first well’ translates into a commercial acceptable flow test result.

Taking Sino Gas & Energy as an example and the quote made by Warwick above the average commercial flow rate determined by RISC for an economic field development seems to be 125,000 scf/day.

I am hoping to get a Leyshon Resource Management Q&A article done and uploaded onto Stockopedia late December/early January.

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Elias Jones 18th Dec '12 13 of 13

Disappointing news from Leyshon Resources today stating that the ZJS5 was unable to flow gas at a commercial rate in its current form and will now be fracture simulated and re tested (as per original plan).

The plan now is to conduct frack tests on ZJS5 and ZJS6 (currently at 800m with a planned TD of 2,320 metres) following the Chinese New Year. With regards to a potential Q&A I have been in touch with Paul Atherley today and hopefully we can get one done post frack test results. 

Completed Flow Testing ZJS5

18 December 2012


Leyshon Resources Limited (AIM/ASX: LRL) ("Leyshon" or the "Company") is pleased to announce that its wholly owned subsidiary Pacific Asia Petroleum Limited (PAPL) has completed flow tests on two of the previously identified potential pay zones in well ZJS5. The tests have confirmed that stimulation will be required to produce commercial flows.

Two zones totaling 25 metres had been identified as having the potential to flow without stimulation and the opportunity was taken to flow test them ahead of the planned frack testing in the spring. The local practice is not to conduct frack testing during the coldest of the winter months. Neither of these zones recorded sufficient gas flows and accordingly the frack testing will proceed as originally planned.

Well ZJS6 is currently at approximately 800 metres depth with a target depth of 2,320 metres and wireline logging scheduled for mid to late January. The plan is to test any zones that have the potential to flow without stimulation in ZJS6 and then conduct frack tests on both wells following Chinese New Year.

 

Full RNS:
http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11432154

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About Elias Jones

Elias Jones

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I invest in sectors that are of interest to me and tend to look for the penny share AIM companies that have the transformational potential, which also tend to be by nature high risk investments, some come off some fail. One key aspect of investing for me is the approachability, quality and integrity of management, once I fear those have gone or if the fundamental aspects take a nose dive, that’s usually it for me regardless of asset/future potential. I only invest in a clutch of firms and usually keep an eye on a few other potential firms which I may add at some stage. I don’t mind waiting around if there is potential, I still keep my Marconi certificate to remind me of what can happen, and to the day kick myself for not snapping up Next at 18p many moons ago when I was so close to buying! more »



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