Leyshon Resources (LON:LRL) is a dual listed (ASX/AIM:LRL) China focused resource company focused on the 708 km2 Zijinshan block located on the Eastern flank of the prolific Ordos Basin, which is China's second largest and regarded by Leyshon as one of the world's major gas producing basins.  Leyshon Resources are operating the block through its recent acquisition Pacific Asia Petroleum Limited, which Leyshon acquired in August 2012 for US$ 2.5 million in cash and the issue of 10 million fully paid ordinary shares.

Following the first two drills and the Chinese New Year break, Paul Atherley the Leyshon Resources Managing Director has taken time out to discuss various aspects of the business, including, operating in China, the Zijinshan block, 2013 work programme and funding.

As always, when looking at oil and gas exploration activity the risk element is high, and a dry or non-commercial well almost certainly results in a severe share price drop. Oil and gas exploration activity is also very costly business, hence the future economic outlook and the ability of an exploration and dev elopement company to raise future capital to fund licence commitments along with its overheads also needs serious consideration, alongside factors such as oil/gas price risk, political risk, country/region stability etc.

Q1. Briefly, could you describe Leyshon Resources business model and mission?

We are seeking to generate very high shareholder returns by making investments in early stage exploration and development projects in the energy sector that demonstrate potential to become world class projects.

Q2. Why the focus on China? And, how do you find operating in China?

China is the major driver in world growth and is the biggest consumer in the energy sector. In short it is where the demand and demand growth is, making it the ideal place to be. However, there are very high barriers to entry for foreign companies in China and it takes considerable time and effort to understand how to be successful in business. We have been based in China for nearly ten years and have built a talented Chinese team with a good track record and an excellent depth of knowledge of doing business in China, which we view as a key element to being successful. We have already made $50 million from developing and selling a gold project so we are confident we know what we are doing and how to create value.

Q3. What are the environmental and social considerations for Leyshon Resources in its operating region?

We operate to the world's best practice and standards at all times and across all aspects of our business, with regard to our social and corporate responsibilities. This is integral to our business strategy and we believe that this is an important part of our future success, particularly with the shift in focus internally in China to more environmentally and socially friendly practices. Our vision is to set the bench mark for best practice in China.

Q4. What attracted Leyshon Resources to the Zijinshan block in the Ordos basin and how did Leyshon come about acquiring the asset?

We underwent a large scale evaluation process where we looked at over 400 projects. We had more recently invested for nearly two years in a major coal project which provided us with unique insight to the phenomenal growth in demand in the energy sector in general and the gas sector in particular. China is now the world's largest energy consumer but still only consumes 25% of the world's major economies on a per capita basis.

We underwent an extensive due diligence programme on the Zijinshan gas project, which met all of our requirements in terms of geological potential, being located in one of the most prolific unconventional gas basins in the world and proximal to rapidly growing end markets; supportive legal framework and strong government support; experienced work force with a deep knowledge of the regional geology; as well as a well established and growing infrastructure network.

To date all three wells in the current programme are ideally located within approximately 10 kilometres of a tie-in point on the recently commissioned Lin-Lin pipeline which supplies the growing demand in Shanxi Province. Recent discussions with potential off-take partners suggest that local well head prices are continuing to rise with prices expected to exceed US$9 mscf within the next few years.

The Shanxi Provincial Government has recently reported that gas demand in 2012 increased by 38% and was the fastest gas consumption increase in China. Its regional gasification programme is designed to increase demand by over 2.5 times current levels and is one of the most advanced in China. Installed gas pipelines now total over 3,000 kilometres with a total capacity of over 10 bcm per year.

Q5. Can you please outline how the PSC works?

We have a 100% interest during the exploration stage and our partner PetroChina, one of China's largest and leading oil and gas companies, has the right to buy back 40% in for its share of the accumulated expenditure at the development stage.

Q6. Since acquiring the Zijinshan, two wells have been drilled, could you please sum up the exploration campaign and initial results to date?

As previously announced drilling at both ZJS5 and ZJS6 had intersected multiple potential pay zones, with strong initial results indicating that ZJS5 encountered nine potential pay zones with a total thickness of 56 metres and ZJS6 encountering 15 potential pay zones with a total thickness of 80 metres.

Flow tests to determine whether commercial flow rates can be established from selected pay zones are expected to commence mid-March as planned, depending on the weather.

Both wells ZJS5 and ZJS6 are part of an initial programme designed to explore and test the potential for commercial gas production in a highly prospective and unexplored 380 km2 central depression area that appears to demonstrate good continuity with the neighbouring Sanjiaobei discovery.

We are really pleased with the results from the drill programme so far, which have exceeded our initial expectations, so much so that we have accelerated our exploration and appraisal programme ahead of schedule. We are confident that we will continue to deliver positive results lead by our excellent technical team as we look forward through 2013, which will be a transformational year for Leyshon Resources.

Q7. Could you please explain the forward programme for the Zijinshan gas project and a set out a rough timetable of key activities?

We have recently launched an accelerated exploration and appraisal programme, built on our recent success on the PSC, which will focus on a number of key work streams during 2013.

It's important to note that we are fully funded for this next stage of the programme, which has a total estimated cost of up to US$20 million. For us now, the main focus is to define a resource sufficient to delineate and submit a Chinese Reserve Report (CRR), which will be a major milestone for us.

The main components of the accelerated 2013 programme comprise:

?We have an aggressive drill programme in place which will see us drilling up to six holes. Three of the wells are committed and the additional three subject to results and PSC partner agreement.

?We will be flow testing wells ZJS 5 & 6 and wells ZJS 7-12 as they are completed. The duration of testing will be dependent on the success of the tests and in particular whether long term flow testing will be required.

?We will be identifying additional well sites for an extended exploration programme to further unlock potential on the PSC  through the acquisition of 300 km 2D seismic.

Q8. How do you see the financial demands relating to capital expenditure and working capital being met during 2013?

The Company is well placed to carry out its 2013 exploration and appraisal programme with a strong cash position of U$47 million (unaudited), as at 25 January 2013. With 249 million ordinary shares on issue this represents approximately A$18 cents per share and 12 pence per share.

Q9. Over the past 12 months the Leyshon share price has ranged from around 11p to 28p, what do you make of the market sentiment relating to Leyshon and do you feel the current share price is a fair refection of where the company is at?

The dramatic increase in liquidity since we announced the deal is testament to the high level of interest in the story. As the more speculative short term holders move on to next hot story, longer term investors are increasingly taking an interest and in particular we are receiving requests for presentations from major funds. We expect that the stock will trade more in line with the added value of the underlying business as these investors begin to dominate the stock.

Q10. Could you briefly explain Leyshon Resources intent and interest with regards to the Mt Leyshon gold project in Queensland and whether you will be looking to add any other projects to the portfolio at some stage?

We are focussed on energy and the development of the Zijinshan gas project and we do not see Mt Leyshon as a core holding for us. For now we plan to allocate our management, technical and cash resources to creating value on the PSC, which has enormous potential. We do continue to assess and evaluate additional opportunities; however the acquisition of additional projects is not core strategic objective for Leyshon Resources at this point in time.

Q11. Finally, what can shareholders look forward to over the next 12 to 18 months?

The level of interest has been terrific and with a $20 million exploration and appraisal programme underway shareholders can expect lots of news!

Thanks Paul for taking the time to discuss the various business aspects and for sharing your thoughts.