Australian mining junior Leyshon Resources said Monday that it has started drilling the second of three wells in the current exploration program at the Zijinshan onshore block in China's Ordos Basin.

The ZJS6 well is located 7 km southwest of the first well, ZJS5, and near the boundary between Zijinshan and the Sanjiaobei block, Leyshon said. The ZJS6 well will be completed in January next year.

ZJS5 had been successfully drilled to a depth of 2,155 meters and analysis of wireline logs and core samples is ongoing, the company said. Testing of the first of the selected potential pay zones is likely to be completed by the end of the month, it said.

All three wells in the exploration program are located within approximately 10 km of a tie-in point on the recently commissioned Lin-Lin pipeline which supplies the Shanxi province with gas from the eastern Ordos Basin, where wellhead contracts have recently been struck at $6-$7.50/Mcf, Leyshon said.

The company has 100% of the rights at Zijinshan in the exploration phase but state-owned PetroChina can come in with a 40% stake during development.

Leyshon acquired the 708 sq km block through its acquisition of Hong Kong company Pacific Asia Petroleum Limited from Houston-based CAMAC Energy in July.

Leyshon said at the time that industry adviser RISC had estimated the block's gas-in-place in the range of 1-3.8 Tcf, but with significant risk that must be mitigated through the acquisition of appropriate data and completion of a pilot plan.

SINO GAS & ENERGY DRILLING FINDS GAS PAY

Separately, Sino Gas & Energy, another Australian-listed explorer, said Monday that it had encountered significant pay intervals at the TB-11 well at the Linxing West block, which is directly north of Sanjiaobei. The company operates both blocks.

The Linxing, Sanjiaobei and Zijinshan blocks are all rich in coalbed methane and have similar geological formations, Leyshon has said previously.

Sino Gas said it identified 16 pay intervals across multiple zones, totaling 69.3 meters of pay gas through TB-11. It is now preparing to drill a another well, TB-12, nearby before the end of this month.

Sino Gas CEO Robert Bearden said the result from TB-11 "provides further confidence in the area's resources, not only for boosting gas flow capacity ahead of pilot program plans but also for Chinese reserve report submission."

Drilling is ongoing at Sanjiaobei and Linxing East, and extensive exploration and appraisal programs are being planned for next year, the company said.

Sino Gas is partnered at Linxing and Sanjiaobei by Hong Kong-listed MIE Holdings, state-owned China United Coal Bed Methane and CBM Energy Associates. The acreage spans nearly 3,000 sq km, with contingent gas resources estimated in January at 1.8 Bcf.

The partners said in August they expect to ramp up production within three years to a combined 450,000 Mcf/d from Linxing and Sanjiaobei. The gas will likely be sold to domestic users in the transport sector as CNG and LNG.