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Leyshon despairs over disappointing Ordos Basin drills onshore China

10th December 2014

Leyshon Energy has received disappointing results from well testing at its Ordos Basin drills in central China, and has failed to attractive further investors

Leyshon Energy has received disappointing results from well testing at its Ordos Basin drills in central China, and has failed to attractive further investors
Leyshon feels that the risks going forward are such that it is not a good use of company resources to bear the full costs of drilling the ZJS8 well, but it has failed to find a partner for the project

The interim testing programme involved flow testing the previously drilled ZJS5 and ZJS7 wells and the drilling of Well ZJS8.

The testing of three zones in Well ZJS7 and one zone in Well ZJS5 was undertaken over an extended period and employed a number of techniques to establish stable commercial flow rates.

In all cases the zones flowed flammable gas with methane contents of up to 99 per cent however the flow rates were discontinuous and in some cases associated with significant water production.

These results were below Leyshon’s expectations for this area of the field.

Based on the results, along with the company’s understanding of well performance in nearby fields, Leyshon commenced the preparatory location, design work and land preparation for the drilling of well ZJS8 in an area of the block which it felt might be more prospective.

However, it also felt that the risks going forward are such that it is not a good use of company resources to bear the full costs of drilling the ZJS8 well.

Accordingly the company commenced discussions to farm out its interests in the ZJS block with various entities, including a number of companies operating in the wider area with a view to establishing a farm out for the remainder of the interim testing programme as well as the main exploration and appraisal programme.

Although several of these discussions have now reached an advanced stage of negotiations, to date they have been unsuccessful. Discussions are in hand with our partners on the best way forward for the project with this in mind.

"Although the company has been very active in pursuing growth, the sharp fall in oil prices has made it very difficult for us to pursue operational expenditures and acquisitions that would add value for shareholders,” said Kim Howell, Leyshon Energy chairman.

“At the same time, the testing results on the ZJS block have been very mixed and we have been unable to establish an economic flow of gas.  With these results, the company is now carefully examining what is in the best interest of shareholders going forward."

The purpose of the interim testing programme was to evaluate the project with a view to making a decision whether to commit to the USD 17m main exploration and appraisal programme which is scheduled to commence in 2015.

The main programme is an exploration and appraisal programme which comprises drilling, fracking and flow testing multiple wells with the remainder of the costs covering PSC maintenance and geological costs.

The number of wells to be drilled will be determined based on results progressively achieved and will to a large extent determine the overall expenditure on the programme.

 

Leyshon has been actively pursuing a number of acquisition and investment opportunities in the oil and gas sector in China.

The company has made three substantial bids for major assets on a fully funded basis.

In each case the company was either outbid or the transaction failed to complete due to circumstances outside its control.

The company was until very recently in active discussions with potential vendors of assets in the region in line with the acquisition strategy previously outlined and in the normal course of business.

Leyshon has said that the fall in oil price has made these assets unattractive investments and accordingly all discussions have now ceased.

The fall in oil price has made it very difficult for the company to continue its pursuit of attractive acquisitions.

Many projects have become marginal or uneconomic, and as a result funding for acquisitions has now become very difficult to obtain, according to Leyshon.

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