OREANDA-NEWS. July 27, 2012. Leyshon Resources (ASX: LRL, AIM: LRL) is hoping to capitalise on the strong demand for gas in China with its move to acquire a shale gas project on the eastern fringe of the prolific Ordos Basin in Central China.

Leyshon was sitting on USD 52 million of cash at March quarter which is equivalent to AUD0.21 per share. Current share price is USD 0.175 indicating the company is trading under cash backing.

It has also been buying back its own shares.

The cash-rich company is finalising terms to acquire Hong Kong Company Pacific Asia Petroleum Limited (PAPL), which holds a 100% interest in the Zijinshan Production Sharing Contract, which respected industry advisor RISC believes could hold in-place gas of up to 3.8 trillion cubic feet of gas.

PAPL has already completed four wells in the PSC, 2 of which have been cased, and has shot 160 kilometres of 2D seismic data that has resulted in the identification of several major gas exploration targets.

Leyshon’s initial exploration focus will be on drilling several new wells to test extensions to nearby major shale gas discoveries and production testing the existing cased wells.

While the company is still progressing its interest in a thermal coal project in Xinjiang, it said the Ordos Basin acquisition would complement this project.

The Zijinshan PSC is with one of China’s major oil and gas companies, which 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.

Ordos Basin and Chinese gas demand

The Ordos Basin hosts China’s second largest gas resource and has major pipeline infrastructure in place, neatly meeting Leyshon’s view that high quality energy assets located close to transport and distribution infrastructure would become increasingly valuable over time.       

While gas currently plays a minor role in China’s primary energy use at around 4%, its consumption is set to treble over the next 8 years with the Chinese government announcing in March this year a new shale gas development plan that AIMs to increase production to 6.5 billion cubic metres by 2015.

Beside establishing major shale gas development zones, state-owned companies have being making efforts to acquire technology and collaborate with overseas owners and developers. China is also attempting to open up the sector to all investors by offering tax and fiscal incentives.