Unconventional gas explorer
The company's maiden exploration well, ZJS5, encountered 56.4 metres of gas intervals on its way to reaching a target depth of 2,155 metres. At least 30.8 metres of this had high porosity readings, suggesting multiple zones that could have the potential to flow gas at commercial rates. The company has installed production casing that will allow it to conduct flow tests shortly, with testing of the first potential payzone expected to be concluded by the end of the year.
While the results are still preliminary, this is a very positive start for Leyshon, as any production wells could quickly and cheaply be tied into the Lin-Lin pipeline a mere 10kms away. The company expects to spud its second well, ZJS6, shortly.
Leyshon's managing director, Paul Atherley, told Investors Chronicle: "You can infer from the words in the announcement that we feel very positively about the discovery. We've cased the well, which gives you a clue that we think there's a reasonable chance of the gas flowing successfully."
Speculation about the results drove Leyshon's share price to a high of 28.25p last week from 11p two weeks ago, before the company's shares were suspended from trading in both Australia and London. They've since fallen back to 21p after trading resumed.
We first recommended Leyshon as a speculative buy at 11p a share in the inaugural monthly edition of Drill Watch on 7 November, arguing that the company offered an unparalleled risk-reward exploration profile. We then recommended Leyshon's shares at 15p on 15 November, before advising online readers to sell half their holdings at 28p on 22 November and hold the rest in the run-up to the drill results announcement. We believe Leyshon's licence still offers significant upside, and with news flow set to increase and several potentially significant catalysts expected over the next few months, we continue to 'hold' the remaining shares.
Last IC view: Take profits, 28p, 22 Nov 2012