LGX Oil + Gas Inc ROAOF

RE: Josef Schachter Update

[tcorridor]

Maison Placements Canada Josef I. Schachter, CFA, CMA [phone] [e-mail] Brenda Asplund, B.A. [phone] [e-mail] Jason White, B.Sc., E.I.T. [phone] [e-mail] August 18, 2005 Oilexco Inc. OIL $3.55 Outperform Potential Upside 129% Target Price $8.12 2005 2006 2007 Estimate Estimate Estimate Production Reporting Periods Oil & Liquids b/d 272 8,625 28,075 Year-end: Dec 31st Natural Gas mmcf/d 0.08 0.00 0.00 Next report: Q3 Nov 10th Total 6:1 284 8,637 28,158 Shares O/S Volume Growth n/a 100% 226% Basic: 149M Per million shares 1.0 57.9 188.0 Fully diluted: 171M Gross Wells Drilled 11 10 10 Financial Data Volumes Mix % Market Cap $M: $529.0 Oil & Liquids 96% 100% 100% Enterprise Value $M: $529.0 Natural Gas 4% 0% 0% Enterprise Value per n/a Financials 2005 exit production $: Cash Flow/Share -$0.06 $0.93 $3.16 Reserve Life Index (years) Price/Cash Flow (59x) 3.8x 1.1x Proven: n/a Net Capital Exp $90M $230M $250M Established: n/a Cash Flow ($9M) $139M $471M Net Asset Value @ 10% BT CapEx/Cash Flow (10x) 1.7x 0.5x n/a Debt Commodity Prices Debt Line: $10.0M (SAMI forecasts) Estimate Estimate Estimate Debt Utilized: $0.0M US$ WTI $54.00 $54.00 $54.00 Insider Ownership 13% C$ AECO $8.00 $8.00 $8.00 Pres/CEO: Arthur Millholland 957k CFO: Brian Ward 125k Quarterly Results Director: Fraser Grant 345k Production (b/d) Cash Flow per Share 2005e 2006e 2007E 2005e 2006e 2007e Merrill Lynch Asset Management 15.4M Q1 291 280 24,700e (0.01) (0.02) 0.70 Meditor 15.2M Q2 283 280 27,700e (0.01) (0.02) 0.78 Service Providers Q3 280e 13,800e 27,950e (0.02) 0.39 0.79 Bankers: Royal Bank of Scotland Q4 280e 20,700e 31,950e (0.02) 0.58 0.89 RBC, Canadian Western Bank Exit 280e 21,000e 30,000e Auditors: Deloitte and Touche LLP Engineers: Sproule Associates Oilexco Incorporated. 3200 – 715 5th Avenue SW, Calgary, AB, T2P 2X6 Phone [phone] Fax [phone] Website: www.oilexco.comCompany History & Management Info: �� Oilexco Incorporated (OIL) created from its predecessor Oilexco Ltd. via a reverse takeover which in turn was created from Triple 8 Energy Corp. in March 1994 following a name change. Oilexco controls two fully owned subsidiaries, Oilexco America Inc. and Oilexco North Sea ltd. Oilexco currently trades on the London AIM exchange and the TSX. Oilexco’s primary focus is in the UK central North Sea, along with having some minor exploration and producing properties in the USA. OIL has approximately 25 employees with offices in Calgary and Aberdeen and is expecting to be able to handle most of its geology, geophysics and engineering in-house. �� Management: Arthur Millholland – CEO&Pres. Rod Christensen – VP Exploration Brian Ward – CFO Gerald Roe – Chief Operating Officer Michael Cairns – VP Corporate Dev. David Marshall – G.M. Oilexco North Sea Core Areas: �� The UK Central North Sea is Oilexco’s primary focus and home to all of their highest impact plays. The Brenda-Nicol field development is Oilexco’s company maker play with production coming on summer 2006. In contracting the SEDCO 712 Oilexco has been able to negotiate its way into some excellent prospects such as the MacCulloch, Blackhorse, Palomino and Tay fields providing growth opportunities beyond the Brenda-Nicol field. Key Impact Plays / Black Gold Wealth Creation: �� Brenda-Nicol – Oilexco has a 100% and 70% WI in the Brenda and Nicol fields respectively. These fields have been delineated with 14 assessment wells over the past year. Development of these pools will be done with 4 horizontal wells at E.Brenda, 1 horizontal well at Nicol and 1 horizontal at W.Brenda. The first of the development wells will spud Jan 2006 and production is expected Q3 2006. The target is 40o oil with an initial production rate of 20,700 b/d as a low estimate; the high estimate is north of 35,000 b/d! Production will be brought to market through the partially Oilexco owned (CNR operated) Balmoral floating facility. These fields have no royalty, and operating costs are estimated at £3.25 (~ US$6) including processing and transport. At our $54 WTI price, netbacks for this development are estimated to be C$46/boe. This development is expected to be financed with a £96M Royal Bank of Scotland finance facility. This strategy will reduce further stock dilution and could be paid off approximately 6 months after initial production. �� MacCulloch – OIL now has a 50% WI in the MacCulloch field extension following the drilling of an appraisal well. A horizontal development well is planned mid-2006, and the production estimated at 3000 b/d net to OIL will come on late 2006 or early 2007. �� Blackhorse – OIL is paying 60% of an appraisal well (spudded Aug 5th, 60 day drill time, £7M cost) to earn a 40% WI in the Blackhorse field and a 6,500 b/d Blackhorse well that has yet to be produced. The Blackhorse field will be tied into the Scott-Telford platform. �� Palomino – OIL will pay 84.2% of a £5M exploration well to earn a 50% WI. The target is a 40-60 Mb four way closed structure and if the stratigraphic interpretation is correct then over 100 Mb of oil could be recovered. The well is expected to spud late September and will take 30 days to drill. �� Tay and Muness – OIL will pay 95% of a £2.5M to earn a 65% WI in the Tay prospect. The prize is 26-57 Mb. If successful the pool will be exploited with 3 penetrations from the same well bore, thus increasing the efficiency and reducing the required rig time. Production could be brought on early 2008 and could be tied into the Clapham FSPO. Muness is a gas and condensate target in which OIL will pay 45% of a £5M well to earn 45%. The target is 350-940 Bcf of gas with 20-30 Mb of condensate and will be drilled following Blackhorse (30 day drill time). If successful, expect a tie in to the Britannia platform late 2007 or early 2008. Recent Operational & Financial Results: �� Environmental permitting along with pipelining, and facilities agreements have been confirmed for the Brenda-Nicol development. �� OIL is sitting on US$60M in cash, and has arranged for the RBS to finance the Brenda development. �� OIL is sitting on exploration tax pools in excess of £65M. �� Sedco 712 – OIL has the SEDCO 712 rig contracted from Mar 2005 to Mar 2007 at the now cheap rates of US$113k and US$140k per day for 05/06 and 06/07 respectively. Currently rigs are in high demand in the North Sea and the typical day rate is US$160k. This strategic contract has allowed OIL to negotiate for excellent exploration prospects on favorable terms and has prevented them from being bumped off drilling contracts by larger companies. �� OIL recently closed a financing in Q2/05 of 31M shares issued at $2.22 raising US$69M �� Using more conservative production numbers than Oilexco our 12-month target of $8.12 is based on 3.5X the Q4/06 annualized cash flow of $2.32 Balance of Evidence Growth Drivers Limits to Growth �� After methodically proving up the Brenda-Nicol fields, OIL is poised to bring on significant production and become a major player in the N.Sea. �� 2 year contract with Transocean will minimize drilling and development delays along with putting OIL in a strong bargaining position for future prospects �� High working interest in a strong portfolio of exploration and development prospects �� The shortage of skilled labour and professionals may slow Oil’s ambitious development program �� With 150M shares outstanding, OIL has significant share dilution without having material production onstream to date. �� Approvals in the UK for development of prospects may take more time then expected.