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Leyshon to Acquire Stake in Zijinshan CBM Project

Source: www.gulfoilandgas.com 7/18/2012, Location: Asia

Leyshon Resources has announced that it expects to finalise terms shortly to acquire a company which holds a 100% interest in the Zijinshan Production Sharing Contract located on the eastern fringe of the prolific Ordos Gas Basin in Central China.

Respected industry advisor RISC has advised that in its view the Zijinshan Gas Project contains gross prospective resources that are potentially large due to the confirmation of the presence of unconventional gas, with in place estimates in the range 1 to 3.8 Trillion Cubic Feet. The Ordos basin generally offers one of the highest potential IRR's in China. RISC does however caution that whilst the opportunity appears attractive it contains significant risk which must be mitigated via the acquisition of appropriate data and completion of a pilot plan. The Company plans to retain RISC as its advisor in the exploration and development phase of the project.

Under the proposal Leyshon will acquire a 100% interest in Hong Kong Company Pacific Asia Petroleum Limited (PAPL) from Houston based CAMAC Energy. Leyshon is currently undertaking final due diligence and the parties are expecting to finalise a Share and Purchase Agreement to complete the transaction by the 27th July. PAPL is well established in the Oil and Gas Exploration sector in China and under the proposed terms of the acquisition its experienced technical team will be retained. The team has already completed four wells under the Zijinshan Production Sharing Contract, two of which have been cased, and acquired 160 kms of 2 D seismic data which has been used to identify several major gas exploration targets. The initial exploration focus will be on drilling several new wells to test extensions to nearby major shale gas discoveries and production testing the cased wells.

The Zijinshan Production Sharing Contract is with one of China's major oil and gas companies which has retained the right to buy back a 40% interest in the contract at the completion of the exploration phase and to jointly fund the project into production. As previously announced the Company remains firmly of the view that, in light of the expanding demand for all types of energy within Central China over the next ten years, high quality energy assets located close to transport and distribution infrastructure will become increasingly valuable over time. As a result, management is of the view that the acquisition and potential development of shale gas assets in the Ordos Basin has the ability to complement the Company's potential energy coal acquisition in Xinjiang.

Further announcements will be made in due course.

China now has the world's largest unconventional gas resources outside the United States

The Ordos Basin, located in Central China 500 kms west of Beijing, hosts the country's second largest gas resource. As part of its plans to reduce its dependency on imported oil and gas, the National Development and Reform Commission's (NDRC) latest Five Year Plan provides for a dramatic boost for the development and exploitation of unconventional gas in the eastern fringe of the Ordos Basin. Major pipeline infrastructure is already in place fuelling the escalating demand from nearby regional population centres and industry.

Shale gas is an unconventional type of natural gas that is formed by gas trapped within shale formations. With methane as its main ingredient, it is a clean and high-efficiency energy resource. While gas currently plays only a minor role in primary energy use in China at around 4 percent, in March of this year, the Chinese government announced a new shale gas development plan, one of the stated aims of which is to produce annually 6.5 billion cubic metres of natural gas by 2015. With consumption set to almost treble over the next eight years, China is expected to draw from all available sources to keep up with demand.

To tap the potential of its reserves, the Chinese government has unveiled a string of policies to boost production. At the end of last year, the State Council, or China's cabinet, defined shale gas as a type of mineral resource. In March, the government released the 2011-2015 plan for the shale gas industry. Major shale gas development zones will be established during the period. State-owned petrochemical heavyweights have tested the waters by making efforts to acquire and collaborate with overseas owners and developers.

China's natural gas consumption was 131.7 billion cubic metres in 2011, already a steep rise from the 2000 figure of 24.5bcm. However, consumption levels are predicted to soar even higher to reach 375bcm by 2020, thanks to the country's desire to increase share of natural gas in its energy mix. A senior official of the NDRC, said the shale gas industry should be open to all types of investors, adding that departments involved should offer tax and fiscal incentives to investors. Industry participants have suggested that production growth rates of 20% per annum will be required to meet future targets.

Cash Reserves

At quarter end the Company had A$51.0 million in cash, and is due A$0.7 million in term deposit interest for a total of A$51.7 million (GBP 33.5 million). This is equivalent to A$ 21 cents per share (14 pence per share).

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