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Leyshon Resources (LRL)

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Monday 17 June, 2013

Leyshon Resources

Update on Well ZJS6 And Well ZJS7

RNS Number : 1516H
Leyshon Resources Limited
17 June 2013



17 June 2013

Leyshon Resources Limited

Update on Well ZJS6 And Well ZJS7


Leyshon Resources Limited (AIM/ASX:LRL) ("Leyshon" or the "Company") provides the following update from its Zijinshan Gas Project, located on the eastern fringe of the prolific Ordos Gas Basin in Central China.


Its wholly owned subsidiary Pacific Asia Petroleum Limited (PAPL) has discontinued the testing of well ZJS6, the second well drilled in the current programme, located on the southern boundary of the licence due to technical problems.


The well has a total depth of 2,320 metres with 80 metres of cumulative potential pay interval intersected across 15 potential pay zones.  Several of the zones tested, which elsewhere in the field are dry, have produced water.


It has not been possible to isolate or to accurately define the source of the water nor to determine whether these are issues specific to well ZJS6 or more general to this area of the licence. Accordingly the decision has been made to discontinue testing on the well for the time being and to focus exploration and appraisal efforts on the upcoming programme.


It is possible that the well may be revisited at later date to attempt to isolate the water and to test different zones. However very useful information on the target zones has been gathered which will be valuable for testing future wells.


Following the successful flow test on well ZJS5, located more centrally in the licence, where one of the target zones recorded a free gas flow rate of 160,000 scf/day, formation pressure testing is ongoing with results expected in the next few weeks. Several additional zones have been identified for flow testing later in the year as part of the overall appraisal programme.


Interpretation of the recently acquired 318 kilometres of 2D seismic data has been completed and the location for well ZJS7 has been selected as approximately three kilometres to the north of well ZJS5.


Negotiations on access, farmer compensation and local approvals are underway and it is expected that the rig will be mobilized shortly and the well spudded during the first or second week of July, subject to unexpected delays, with approximately a four week drilling time.


Well ZJS7 is the first of three wells committed to be drilled as part of this year's accelerated exploration and appraisal programme. A further three wells are planned to be drilled based on favourable results. An additional rig will be mobilized to enable all six wells to be completed by the end of the year. All wells are expected to be flow tested in the event they intersect zones that warrant testing.


Managing Director Paul Atherley commented " ZJS6 was the second well in an 8 well programme, with not every well to be successful. We are however confident in the full potential of our project, particularly following the positive results from well ZJS5, and in the ability of our team to unlock value from the license area going forward."


We remain focused on the outcome at the end of the accelerated exploration and appraisal programme. Accordingly the attention now turns to well ZJS7 and subsequent wells as we progressively gain a better understanding of the potential and as we work to de-risk the project."


Initial Exploration Programme


All three wells, ZJS5, ZJS6 & ZJS7, are part of an initial programme designed to explore and test the potential for commercial gas production in a highly prospective and unexplored 380 square kilometre central depression area that appears to demonstrate good continuity with the neighbouring Sanjiaobei discovery.


PAPL has a 100% interest in the exploration phase of the Production Sharing Contract (PSC) with PetroChina, which has the right to back into a 40% interest at the development stage. The wells are ideally located within approximately 10 kilometres of a tie-in point on the recently commissioned Lin-Lin pipeline which supplies the growing demand in Shanxi Province. Recent discussions with potential off-take partners suggest that there continues to be a shortage of locally sourced gas to feed the pipeline and as a result prices are continuing to rise. Locally based major industrial users are reportedly paying around U$ 12 per mscf.


Following the encouraging results from the programme to date the PSC partners have accelerated the 2013 exploration and appraisal programme, with a total estimated cost of up to US$20 million, with the main objective to define a resource sufficient to delineate and submit a Chinese Reserve Report in mid 2014. The Company is well placed to carry out its 2013 exploration and appraisal programme with a strong cash position of US$40 million (unaudited). With 249 million ordinary shares on issue this represents approximately A$17 cents per share and 10 pence per share. The cash position does not take into account interest due nor all of the liabilities for the first two wells.


For further information please contact:

Leyshon Resources Limited

Paul Atherley - Managing Director

Tel: +86 137 1800 1914

[email protected]


Cantor Fitzgerald Europe

David Porter/Rick Thompson (Nominated adviser)

Richard Redmayne (Corporate broking)

Tel: +44 (0)207 107 8000


Pelham Bell Pottinger

Charles Vivian /James MacFarlane

Tel:+44 (0)20 7861 3232




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 overtook the United States as the world's largest energy consumer in 2010, however on a per capita basis it still only consumes about 25% of the energy of the most developed nations. The government has recently described the country's increasing dependence on foreign energy sources as one of the "Grave challenges to energy security".


Its main policy response to this challenge is the rapid development of domestic unconventional gas resources, with a particularly focus on the Eastern Flank of the Ordos Basin. The aim is to rapidly increase the output of unconventional gas from the currently very low levels to an annual production of 6.5 billion cubic metres by 2015.


Leyshon, along with its partner PetroChina, is one of small number of companies exploring for and looking to develop unconventional gas production in the Eastern Flank of the Ordos Basin. Managing Director Paul Atherley is the Vice Chairman of the China Britain Business Council and serves on the European Union Chamber Energy Working Group.


The qualified person, Frank Fu, who has reviewed this update, has 21 years' experience in the oil & gas industry and is a member of the Society of Petroleum Engineers. He holds a BS in Geology and Exploration in Shanxi Mining College in Taiyuan, Shanxi. Frank is currently the Chief Operation Officer for Leyshon Resource and is based in Leyshon's Beijing office. He joined company in 2012, prior to this, he had spent the majority of his career at Conocophillips China and Conocophillips overseas gas and oil projects.


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

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