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

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.

Big fall it was, the wheels have fallen off of this ramp now big time.

No fracking until late March most likely.

IC recommends SELL

www.investorschronicle.co.uk

Leyshon flow test disappoints:

Shares in China focused unconventional gas explorer LRL shed 24 per cent after tests showed the company's ZJS5 tight gas well could not produce commercial flow rates without fracking. Frack testing will now proceed as originally planned, but the practice will have to wait until after the Chinese New Year in February. The company's second well, ZJS6, is progressing well towards its target depth of 2320 metres. Wireline logging of the well is scheduled for mid to late January.

The shares have retreated below the 15p level at which we first advised buying them. We haven't written off the company's project just yet, and we see its cash backing of 10p a share (after taking into account well costs) as a potential support level for the shares.

There could yet be value here, but for portfolio purposes we are selling the remaining half of the shares (we said sell half at 28p before initial drill results came out). Sell at 14p.

The previous owner of this license (CAMAC) did not it seems receive an offer from Sinogas to buy this licenses, else Sinogas with their experience and resources already in this area would have purchased it. It is said that Sinogas think this area is not very prospective and so did not bother buying it from CAMAC, whether this is correct or not is unknown but that is what has been said in certain places.

So it fell to a coal/coke/gold mining company (LRL) to suddenly change course (mining into gas exploration) and buy the license from CAMAC.

Now, on first looks the small amount of cash plus shares in LRL as payment to CAMAC could have appeared to suggest CAMAC wanted to keep exposure to any upside.

However, given CAMAC have been selling their LRL shares it perhaps suggests that CAMAC accepted whatever they could get and have been happily selling their LRL shares to get cash ahead of potential failure by LRL.

The last holdings RNS involving CAMAC showed they had sold below the notification level - so any more sales and there will be no RNS, they can simply keep selling if they so wish to sell off all their LRL shares.

http://www.investegate.co.uk/leyshon-resources-(lrl)/rns/holding(s)-in-company/201211141518301435R/

CAMAC sold the license for not a lot of money and some LRL shares and have been selling those LRL shares.......... interesting.

.

Interesting RNS from LRL there.

http://www.asx.com.au/asxpdf/20130109/pdf/42cbq208n33kkc.pdf

Firstly we have confirmation of mid-March fracking start - as I have been saying late Q1 is the normal start date - shame on the rampers for telling everyone February.

Also a change in tune, I note they now say to the effect "fracking and if warranted then flow testing after fracking". I am sure the rampers were telling everyone about "commercial" after the last RNS, but this one confirms that only after fracking will there be any flow testing, IF fracking works and the wells flow.

Apart from that nothing exciting about hitting gas in the Ordos basin, thats a given - although this well appears to multiple thin layers, from the info in the RNS.

Long wait until June....

........."Significant results will be reported as they come to hand, however, depending on whether flows are achieved and if so whether long term flow testing is required, it is possible that the overall results will not be available until June."........

Looks like a much more cautious outlook now, flow testing maybe IF fracking is good, and even then getting flows will warrant long term flow testing then before overall results.

This is pretty much what I have been saying all along, striking gas and flowing gas initially mean jack here - its all about getting a well to flow and flow for a long time, to give recoverable amounts of gas. Based on Sinogas average of just 2BCF recoverable per well, its going to take long term flow tests with pressure readings for LRL to work out if any well will be commercial overall - that means they can recover enough gas from the hole before it stops flowing again to pay for drilling costs and make a profit..........

This is tight gas and in an area considered to be "less prospective" than the area's Sinogas has, until proven otherwise.

There is no point drilling holes in the ground if they only flow for a week or two and then stop - you must get enough out to pay for drilling/overheads and turn a profit - for this project to be viable.

So June is about right for an overall "ok its commercial" or "no its not viable overall".

Totally contrary to what the previous poster asserts, the actual flow test statement in the RNS includes -
"As in the case of ZJS5 some intervals may be tested for flow without stimulation ie: without fracking."

I hope that wasn't a deliberate oversight.

You guys obviously know this [ LRL] Stock, but after all said and done, Director Paul Atherley has just spent £268k on a big wad of stock. Could it be that he does believe thee is gas there? Otherwise, why is he investing in what you appear to be saying is almost a dry area?

He currently owns 12% of LRL, inc. this latest purchase.

Is this a "stay-away", since it's based in Aus. and China?
EDIT(15March2013)- seems to be upward going - IC suggests the upside "huge" is worth the downside, since cash part-supports sp. Since China needs the gas I guess they will have Gov. support - glad I bt about 16p
EDIT (Jn2013). Ooops! sp falls to c.10p as well is deeded "dry" - but there are others.
EDIT(23Jy2013)-Another drilling a few km away from the Dry - sp12p, " in hope".

A reminder for Thursday evening, spaces still available if you would like to attend.

Mining and Resource Investor Evening- London – 25th April 2013


Following the resounding success of our previous evening events, Mining and Resources Quarterly and Shares Magazine are proud to offer another chance for you to meet, hear from and ask questions of key senior management figures from carefully selected companies in the mining, oil and gas sector.

This event offers an unique opportunity not only to hear about the latest plans from some of the most exciting companies in the sector, but also to put your questions to the people that matter. What is more, there is a free drinks and canapés reception where you can mingle with industry leaders and your fellow investors. Make sure you don't miss this unique opportunity to get the answers you need from the people who make the market.

The evening conference is tailor-made for private investors and professionals who already have exposure to mining and resources stocks, or anyone who is considering putting money to work in these exciting and dynamic industries.

Tickets are completely free but places are strictly limited so register now.

REGISTER NOW FOR LONDON EVENT ON 25th APRIL 2013

Date: Thursday 25th April 2013

Venue: Novotel Tower Bridge, 10 Pepys Street, London EC3N 2NR

Registration: 6.00pm

Presentations: 6.30pm followed by a drinks/canapés reception

Companies Presenting:


FOX MARBLE



Fox Marble Holdings PLC(FOX) is a natural stone extraction company operating in Kosovo and the Balkans region, with headquarters in the United Kingdom. Established in 2011, Fox Marble has access to over 300 million cubic metres of premium quality marble including white breccia and honey yellow onyx.





Speaker: Chris Gilbert, CEO



LEYSHON RESOURCES



Leyshon Resources Limited (AIM & ASX: LRL) has been fully engaged in China since 2003 and has its main operating office located in Beijing.

Leyshon, along with its partner PetroChina, is one of small number of companies exploring and looking to develop unconventional gas production on the Eastern Flank of the Ordos Basin in China.

"We are accelerating the 2013 programme for the Zijinshan Gas Project with plans to drill and test six wells, capture 300 kilometers of seismic data with the aim of delineating resources by the end of the year.”

Speaker: Paul Atherley, Managing Director



MWANA AFRICA


Mwana Africa PLC(MWA) is a pan-African resources company with operations in Zimbabwe and South Africa, and a broad range of exploration projects and interests in the Democratic Republic of Congo (DRC), Angola, Ghana and Bostwana. The group has a diverse asset base, including gold, nickel, copper, cobalt and diamonds.

In October 2005, Mwana Africa became the first African-owned, African-managed resource company to be listed on the London Stock Exchange’s Alternative Investment Market (AIM), through a reverse takeover of African Gold plc by a privately held mining company, Mwana Africa Holdings (Pty) Limited. Mwana Africa Holdings (Pty) Limited was itself formed in 2003.

The company intends to pursue further mining opportunities across the African continent, both independently and, where appropriate, in partnership with other stakeholders

Speaker: Donald McAlister, Finance Director



REGISTER NOW FOR LONDON EVENT ON 25th APRIL 2013

Dress code: business attire

Listen to Paul Atherley, CEO - Leyshon Resources on the panel of the recent BRR Media Thought Leaders series.

Click here to watch