Longford Energy Inc V.LFD

Canaccord Recommendation. Good one.

[jmlguy]

ENERGY

Longford Energy Inc. (LFD : TSX-V): One box left to check; initiating coverage with a

SPECULATIVE BUY rating and
.45 price target

Daily Letter Summary | 2

30 May 2011

ENERGY

Longford Energy Inc. | Melanie Love, 1.403.508.3839

LFD : TSX-V : C
.22 | C$31.7M | SPECULATIVE BUY , Target C
.45

• One box left to check; initiating coverage with a SPECULATIVE BUY rating

and
.45 price target

Investment highlights

• Oil? Check. Longford will be drilling an appraisal well mid-2011 on the

undeveloped Chia Surkh discovery in the Kurdistan region of northern Iraq.

The CS-10 well will twin an old well that flowed at 4,875 bbl/d of light oil,

targeting 60 mmbbls recoverable (24 mmbbls net) in the Jeribe zone at

approximately 1,500m depth.

• Development plan? Check. Longford has a plan for an early production facility

for 5,000 bbl/d that could be on production in as few as six months from well

completion. We estimate that this small facility could generate annual cash

flow of $8.8 million net in its first year to help offset future exploration

expenses, assuming a $97.92/bbl received price. Thus a successful appraisal

offers early project cash flow.

• Significant exploration potential? Check. Outside of the Chia Surkh field, no

other exploration well has been drilled. This block has only moderate 2D

seismic coverage to date, which has identified several untested prospects and

leads with an estimated 200 mmbbls and counting.

• Money? The missing element. We expect Longford to raise $15-20 million

imminently to fund the CS-10 appraisal well and have assumed this dilution in

our estimates.

Valuation and Recommendation

We are initiating coverage on Longford Energy with a SPECULATIVE BUY

recommendation and
.45 12-month price target. We utilize a risked-exploration

valuation approach to Longford Energy to arrive at a risked exploration upside of

.54 per share risked and $1.97 per share unrisked based on a $100 flat real

price deck. Adjusting for their working capital position and in-the-money dilution,

we arrive at risked portfolio NAV of
.45 per share.

Longford must complete a fundraising in order to reach our target price.