LGX Oil + Gas Inc ROAOF

RE: CC has made us a buy - TEXT

[grommet]

Oilexco Inc. (OIL : TSX-V : C$3.20) - Buy - Target: C$4.70 Mark Redway Comment: Highlights from our recent Oilexco wellsite visit Oilexco invited a number of investors to visit its drilling operations on the John Shaw rig situated on the Brenda field in the North Sea and to witness the testing of its most recent well, 15/25b-12Y. Unfortunately, due to mechanical problems associated with the DST equipment, we were unable to see the testing at the time of the visit although this is now scheduled to take place at the weekend. The trip highlighted the proximity of Brenda East to the production facilities at Balmoral and the relative simplicity of the envisaged development plan. Early estimates of development costs are as low as £45 million, which means that should Brenda hold 60 mmbbls of recoverable reserves, it will be a more cost effective development than the larger Buzzard field against which we have made previous comparisons. Operating costs are likely to be higher at Brenda but we now feel comfortable in raising our valuation to $8/bbl from our previous assumption of $5.50. This could rise still further once we build a detailed development model. Assuming a successful well test, our confidence in the base case reserve estimate of 60 mmbbls will increase from 75% to 90%. Combined with our new per barrel valuation on the reserves, our new valuation for the company has increased from £1.49 to £2.31/share. Although an independent reserve assessment will not be available until next year, the risks associated with Oilexco decline with each well. We, therefore, feel comfortable in removing the 'Speculative' tag from our BUY recommendation below £1.50. Beyond that, the shares become slightly riskier but a £2.00 (from £1.50) share price is a very realistic near-term target.