LEN Leyshon Energy

TIDMLEN

RNS Number : 3533Z

Leyshon Energy Limited

10 December 2014

10 December 2014

Operations and Corporate Update

Leyshon Energy Limited (AIM:LEN) provides the following update on the interim testing programme at the Zijinshan gas project located in the Ordos Basin in central China and its progress on the acquisition opportunities in the region it has been pursuing together with an overall corporate update.

Zijinshan Gas Project - Interim Testing Programme

As previously advised the Company has been undertaking the interim testing programme which comprised flow testing the previously drilled ZJS5 and ZJS7 wells and the drilling of Well ZJS8.

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

The main programme is an exploration and appraisal programme which comprises drilling, fraccing 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.

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% however the flow rates were discontinuous and in some cases associated with significant water production.

These results have been well below our expectations for this area of the field. Based on the results, along with our understanding of well performance in nearby fields, the Company commenced the preparatory location and 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.

Acquisition of Oil and Gas Assets in China

As previously advised the Company 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 the Company's 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.

The recent steep fall in the oil price has in the Board's opinion 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.

Corporate Update

The Company has US$25 million cash on hand; this does not however take into account outstanding liabilities for the work in hand and previous creditors estimated around US$8 million.

Given the current environment and operational results, the Company has been cutting costs to the minimum and preserving cash reserves. Along with this, the Board has decided to eliminate Director fees.

The Buy Back approved at the Annual General Meeting has not commenced.

The Board is in consultation with its advisors and is actively considering strategic options to maximize returns to shareholders in the most cost-efficient and timely manner. Amongst the options being considered is a cash return to shareholders.

Chairman Kim Howell commented: "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. 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."

For further information please contact:

Leyshon Energy Limited

Peter Niu Company Secretary

Tel: + 86 10 8444 2882

admin@leyshonenergy.com

Cantor Fitzgerald Europe

David Porter/Rick Thompson/Sarah Wharry (Nominated Adviser)

Richard Redmayne (Corporate broking)

Tel: +44 (0)207 894 7000

The Qualified person, Ruby Wang, who has reviewed this update, has 15 years' experience in the oil and gas industry and is a member of the Society of Petroleum Engineers. She holds a Master degree in Petroleum Engineering from China University of Geosciences. Ruby is currently the senior Geologist and is based in the Beijing office. She joined the Company in 2013, prior to this she spent majority of her career with Anadarko Petroleum Corp in China.

   -   ENDS   - 

This information is provided by RNS

The company news service from the London Stock Exchange

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