Very good news today - confirms my best hopes - moving north

That should be the way... not like Egypt with Centamin... no wonder they are always protesting.

Interesting, a poster on III has said that on average Sino quote 2 BCF recoverable per well.

So using that figure lets work it out.

2 BCF from ZJS-05

After back in LRL are left with 60%.

60% of 2 BCF is 1.2 BCF net to LRL.

Lets say taking off uplift costs they get 6 US$ per MCF.

1.2BCF is therefore worth 7.2m US$ before tax and royalty.

So lets say 5m US$ after tax/royalty which is 3.1m GBP or 1.2p a share.

So its looks that ZJS-05 success = 1.2p a share to LRL.

So cash + 1.2p a share = 13.2p a share - then why is this at 18p a share BEFORE success at ZJS-05 and flow rates.

Each well they drill, that has success and can flow commercially will add a further 1.2p to the share price it seems, if they can get the "average' of 2 BCF recoverable from it.

And given Camac drilled 4 dusters - success is not a given.

Thats the trouble with very tight gas area's, the fraccing can only work so far from the well bore - and so you get very limited recovery per well drilled.

Wonder how the market will react if LRL say we have good commercial flow and can now extract 2 BCF of gas from this well - will it trigger mass sell off ?

All eyes should therefore not be on flow rates - all eyes should be on the company coming up with a recoverable figure for the ZJS-05 well.

Will they say the expect 2 BCF recoverable from it ? or more ? or less ? or will there be silence on it and nothing said ?

I think Sino are valued about $500m about 10x LRL although more advanced in drilling phase.
CAMAC wells are yet to be tested, LRL wells are in a different location. Neighbouring fields are 12 TCF.

Does not matter what neighboring fields have - why do you think this one was left unexplored and with 4 dusters drilled in it.

You will often find duff area's next to very good one.

RKH has lots of oil, DES drilled a load of dusters and found a pissy bit of oil.

RKH is valued very much higher than DES - are you suggesting DES should be valued the same as RKH just because its next door ?

Suggest you watch last weeks presentation.

http://www.leyshonresources.com/investors-centre/presentations

Does the presentation tell you how much recoverable gas there might be in the license area ?

Does the presentation tell you how much recoverable gas there might be from this well ?

If the answer to both is no then you have to use information from Camac and Sino.

Camac estimated there MIGHT BE, COULD BE, etc... 300 BCF recoverable in the whole license area.

Sino say they get on average 2 BCF of gas from each well, as the drainage area is small because of the tight nature of the play.


So I suspect this well will get "2 BCF of gas" IF IT flow commercially which is worth less than 2p a share by my calculations earlier.

How could they tell us that when they have not yet completed testing 'multiple gas pay zones'. I believe you have a history not least with FOGL now look at that.

2p per well would be very good, i think PA mentioned they could sink 90+ wells. Drilling is very cheap in the region and major PetroChina have a buy in option at 40% WI.

The drill team has 11 out of 11 wells drilled are all commercial discoveries in the area, they have left to joining LRL to undertake this drilling campaign.

You have to do some pretty basic arithmetic to get a handle on things and why Camac said possible 300 BCF as the potential total recoverable gas from the Zijinshan license.

Were they being conservative ? or optimistic and talking up their asset before selling it ?

Well the Zijinshan Production Sharing Contract located on the eastern fringe of the prolific Ordos Gas Basin in Central China, has gas in place estimates in the range 1 to 3.8 Trillion Cubic Feet (tcf).

Tight gas reservoirs generally have average recovery rates of 6% to 10% of the Gas In Place (GIP) as recoverable gas (the gas that can be extracted, the rest stays is the ground and is not recoverable).


So, where did Camac get their 300 BCF from ?

It looks to me like they have used perhaps a 3 TCF gas in place figure and a 10% recovery rate - so you end up with 300 BCF recoverable from the whole Zijinshan license area. But thats using pretty much top line figures........... eg its being very optimistic imo.

Lets run through :

Worst case - nothing recoverable - zilch.

Cases using available figures and success in flow testing -

6% of 1 TCF so max production 60 BCF needing around 30 wells.

6% of 2 TCF so max production 120 BCF needing around 60 wells.

10% of 1 TCF would be 100 BCF needing around 50 wells.

6% of 3 TCF would be 180 BCF needing around 90 wells.

10% of 3 TCF would be 300 BCF needing around 150 wells.


Earlier calculations by me came to 1.2p per successful well for LRL, this is based on Sino figures who say each well can on average recover 2 BCF of gas (the draining area is very small per well due to the tight reservoir nature).

(2 BCF per well / After back in (if taken by PetroChina, LRL are left with 60%.
60% of 2 BCF is 1.2 BCF net to LRL.
Lets say taking off uplift costs they get 6 US$ per MCF.
1.2BCF is therefore worth 7.2m US$ before tax and royalty.
So lets say 5m US$ after tax/royalty which is 3.1m GBP or 1.2p a share.
So its looks that ZJS-05 success = 1.2p a share to LRL.)

But each well costs around 1.7m US$ to drill (100% basis) and then with corporate overheads, admin costs and any bonus payments, share plans etc... lets call it around 1.2m US$ per well net to LRL to drill taking in overhead/admin costs and a 60% cost contribution (PetroChina backing if for their 40% cut). Lets add this in to the equation.

2 BCF per well, after back in LRL have 60%.

60% of 2 BCF recoverable per well leaves 1.2BCF.
Lets say they sell this for 6 US$ per MCF after taking off uplift costs.
After tax, royalty lets say they are left with 5m US$, and now take off 1.2m US$ for costs of drilling the well, company overheads, admin, director salaries etc..
That leaves a pure 3.8m US$ profit per well which is circa 2.36m GBP.

2.36m GBP per well profit is 0.94p per share incremental rise in share price per successful well drilled (based on the assumptions stated).


So 12p cash in the bank.

If ZJS-05 well flows well it adds to this to give 12.94p valuation (12+0.94)

If the next 2 wells are also good this moves to 14.82p valuation (12+0.94+0.94+0.94)

If they just get 6% of 1 TCF then thats 12p cash adding on 30 wells at 1p each gives 28.2p extra totaling 40.2p a share after all the 30 wells on this case are drilled all over the license.

Their best case appears to be 150 wells drilled which would give 12p cash and then 150 x 0.94p per well totaling 153p a share, once 150 wells are drilled in ? years.

But at the early stage my my calculations each successful well is worth 0.94p to be added on to the cash of 12p a share.

And given this license already has had 4 non-commercial wells drilled on it, one success (if this well flows commercially) leaves it with a 20% success rate going forward, so assuming 30 wells or 50 wells or 100 wells in future would all be 100% success is rather optimistic.

Lots of assumptions and taking figures from Camac and Sino etc... but what else can you do when there is nothing else to use.

Key things moving forward to look for from LRL are :

Estimated Gas In Place on the license - upper and low GIP figures.
Recovery Factor estimates - 6% recoverable ? 10% recoverable ? Less ? More ?
EUR per well - do they think 2 BCF recoverable per well is about right ? Less ? More ?
Porosity figures - what are they ?
Permeability figures - what are they ?

The flow rate levels is not very important info, only commercial or not (unless of course the flow rate is very low in which case its a major issue imo), the key is the reserves, the recoverable gas and how much gas can be drained per well - that is the key to any valuation in my view. If you can only extract circa 2 BCF per well then it matters not too much if you get it out in 1 year or 5 years - only that the quicker you get it out then you have the cash to drill more wells, if its too slow in coming out then you will need to raise cash by fund raising to keep working cap up while you drill - so yes, it has some bearing to the overall economics and viability, but my case here assumes flow rates are very good and they can self fund the drilling from ongoing cash flow due to high flow rates - if thats not the case its not quite so positive.

If the currently being tested well yields commercial flow rates it will be positive, it will imo give a supported share price of 13p and open the door to a higher EV value - perhaps 18p to 20p a share will be supported taking into account the potential for future success.

However with presently a 0% commercial well rate in this license (0 commercial from 4 drilled) if this well does flow commercially then it moves to 1 success in 5 wells and that is not a very high success rate.

If they can move the success rate up to 60% or higher then its fair to say the market will start to value the share price higher - but that is going to take continued success, if they can get it with this first drill and carry on the run - and any failures will have a significant detrimental effect on confidence and sentiment.

All of course, IMO, NAG, DYOR !

http://www.youtube.com/watch?v=2n2wVzGF2nM

Again i don't know where you get your figures from. LRL have had independent valuations and await revised CPR. Current net figures to LRL given info to date by independent parties gives a NPV of $1bn and that is taking into account PetroChina's 40% back in rights.

http://www.youtube.com/watch?v=vrvyQVyUreY

Keep twisting the facts though Prolenes, your history across all the boards is there for all to see. 4 wells previously drilled on the other side of the block have not yet been tested if you read the RNS. 11 drills in the area and 11 commercial wells drilled by Frank Fu and team 20yrs experience at Con Phillips and now at LRL. The SinoGas field next to LRL Zijinshan field which Frank Fu recently drilled/ appraised is currently a 12TCF discovery.

LOL lizard, you seem to be getting sucked into the ramp.

So they purchased this license from Camac for less than 3m GBP equivalent and then overnight it has an NPV of 1 billion dollars.

Wow - they really can get blood from a stone.

Or are you missing the word "potential"...............


If I buy a lottery ticket I have a potential net worth (if it wins) of many millions of pounds............... You want to buy shares in my 1 GBP lottery ticket, they are only 10 pounds each, by lots of shares in it from me, potential NPV is many millions of pounds..................

LOL. CAMAC seemed happy enough to take a significant stake in LRL as part of the agreement.

And have they sold those shares ? ;)

News out in Oz.

Nothing much, just spud and testing started.

Down over 3.5% in Oz on the news.

http://finance.yahoo.com/q?s=LRL.AX

.

The news contains nothing new but the reason its over 3.5% down in Oz is likely imo to what appears to be a 4 week delay to the next well.

In todays RNS in Oz they say ( http://www.asx.com.au/asxpdf/20121210/pdf/42btn203h3h6rn.pdf )

...........The second well in the current three well program, ZJS6, has commenced drilling and completion is scheduled for late January 2013......


But only a few days back they said ( http://www.investegate.co.uk/leyshon-resources-(lrl)/rns/zjs5-well-at-td-multiple-potential-gas-pay-zones/201211280730041458S/ )

....The second well in the program, ZJS6, is expected to spud shortly with well completion scheduled towards the end of the year.....


So what is happening, why a few days ago was the next well due for completion end of the year and now its end January ? All looks a bit strange........

Believe so. LRL have $50m in cash and this three well drill campaign will cost just $5m.
two wells spudded, one flow testing potential pay zones, results due shortly.

This should be re-named RAMPING RESOURCES

All imvho

who's ramping?, take it you have seen the Sinogas results today?

Bad news out - BIG BIG FALL COMING.

Now, let me say again.

Each well, if its able to flow (and this license area is nothing like the Sino area, this area is VERY TIGHT) and ITS A BIG IF, will only be able to DRAIN a very small area.

CAMAC (who called this correct flogging the licenses of for a small about to LRL imo) estimated that for all the gas in the whole license the MOST recoverable would be 300 BCF IF ANY GAS AT ALL IS RECOVERABLE.

If they are lucky and they get flow, in my opinion, they will be very lucky to get 2 BCF per flowing well. They might only get 1 BCF or 0.5 BCF per flowing well before it dies and flows no more.

This area is VERY VERY TIGHT based on all the wells so far, so even if you frac the penetration of the frac will only get you a very small area in my view which can be drained, much smaller than what Sino are getting in their sweet spots.

To exploit this area based on this VERY LOW PERMEABILITY (no gas flow at all in their test) you might even be looking at having to drill 300 to 400 wells to get out 300 BCF, if its there at all.

Wonder if LRL will go back to looking for Thermal Coal in China or Gold Mining or all the other things they have done/said they would do, and give up on the gas after these 3 wells ?

I think when people look for really small companies they should go for something like TRAP (Trapoil).

Undervalued, cash/assets (waiting for Athena deal) pretty much equal to market cap, currently drilling Romeo in the North Sea, drilling a lot more wells in 2013.

Lots of upside, minimal downside, conventional oil, close to home North Sea - simple and safe.

Just imo.