China is seeing a boom in demand for so-called 'unconventional energy' as the world's most populous nation searches for new resources to feed its growing economy. Exploration and production of shale gas, tight gas and coal-bed methane is consequently strongly supported by the government, and Leyshon Resources (LRL) - a China-focused gas explorer with acreage in one of the country's largest unconventional gas basin - is well-positioned to exploit this opportunity.
Leyshon's land lies next to several recent discoveries that run into several trillion cubic foot (TCF) of gas, and independent consultant RISC estimates that the company's Zijinshan licence could hold from 1.0 to 3.8TCF of gas.
Yet prospective resources don't mean much until proven by the drill bit, so Leyshon is drilling the first of at least two wells into a formation hoping to find tight gas within layers of sand. The well is scheduled to reach its planned depth by the end of November, with the results to follow shortly after.
Like many small-cap exploration companies, Leyshon is overlooked by the City, so there is little research of its Chinese gas play. As a result, estimates for the net asset value of its Zijinshan licence are hard to come by. But off-the-record estimates from one broker suggest that the discovery of 1.0TCF could be worth around 11p a share, and a 3.8TCF find could be worth as much as 46p a share.
LRL Price at posting:
21.0¢ Sentiment: Buy Disclosure: Held
