LGO announces that the Company has now started mobilization for the construction of the first drilling sites following the Certificate of Environmental Compliance ("CEC") for 30 new development wells having been formally issued by the Environmental Management Agency of Trinidad and Tobago.  The work at its 100% Goudron Field will start almost immediately and LGO expects to spud the first new well on Goudron since the 1980's as soon as the preparatory works are completed.

Highlights:

·    CEC to drill 30 new wells at the Goudron Field formally approved.

·    Goudron Field has 2P oil reserves of 7.2 million barrels ("mmbbls") and further contingent oil reserves of 63 mmbbls, with an oil-in-place of 127 mmbbls (2P).

·    The first new well, H-18E J-7, will be drilled to approximately 4,000 feet and is targeting net oil sands of 250 feet in the Gros Morne sandstones and a further 100 feet in the Lower Cruse sandstone.

·    Infrastructure improvements to handle the increase in oil production at Goudron are nearing completion.

·    An additional 2,000 barrels of oil sales capacity has also been approved with the CEC.

Neil Ritson, LGO Chief Executive, commented:

"The next phase of our re-development at Goudron is about to get underway.  This is a very exciting phase for the Company and the drilling of these new wells will result in a substantial increase in the Company's oil production.  The minimal facilities that were in place when LGO acquired the asset in 2012 have been significantly upgraded to support the 65 well reactivations carried out so far and the 30 new wells that we are about to drill.  The approval in this CEC of an additional 2,000 barrel sales tank is also critical to medium term growth."

Drilling Update

The 30 new wells approved for the Goudron Field will be targeting known productive intervals in the Goudron, Gros Morne and Lower Cruse sandstones. Each new well is expected to take 7 to 10 days to drill.  Well evaluation and final completion will be undertaken after the rig has been moved to the next well and initial production is planned to commence within 60 days of spudding each well.

A drilling contractor has been selected and other services are being contracted at this time.  The chosen rig is currently undergoing upgrade work and is expected to be available to mobilize to Goudron in late February 2014.

Drill pad construction contracts will now be awarded in conjunction with completing the access road repairs currently underway to accommodate the transport of heavy machinery. A permanent camp, including workshops, offices and off duty rest accommodation has been constructed and is currently being commissioned in readiness for the commencement of the drilling program.

Infrastructure improvement work at the field continues with the reactivation of Tank Battery Station No. 207 nearing completion where the existing tanks have been refurbished to provide an additional 1,000 barrels of storage and water treatment in preparation for the expected increase in oil production.

The first well, provisionally designated H-18E J-7, lies within an area of the field where unrecovered oil is expected to be present in the Gros Morne and Lower Cruse sandstones.  The Lower Cruse at a depth of 2,800 feet sub-sea is the primary target of the well, which will then be deepened to approximately 4,000 feet to ensure all productive horizons are intersected.  Based on the offset wells; including GY-188 (250 feet to the north-east) and GY-64 (170 feet to the north-west), net oil sand of 250 feet is prognosed in the Gros Morne and a further 100 feet in the Lower Cruse. 

LGO is now evaluating the merits of drilling the 30 wells in a continuous program.  Previously, only 2 wells were intended in the next phase to be followed by the balance of the wells after an evaluation phase, however, the deferred start, presence of adequate funding and various economies of scale suggest that a longer continuous drilling program will give improved economic returns.

Goudron Field Reserves

In July 2012, Challenge Energy Limited ("Challenge") independently assessed the Proven and Probable (2P) recoverable reserves from primary production, prior to new drilling, of 7.2 million barrels (mmbbls) and Proven, Probable and Possible reserves (3P) of 30.4 mmbbls.  Challenge's estimates are tabulated below.

It is anticipated that the execution of this 30 well development campaign will move the majority of the 2P reserves to the Proven category and a new competent persons report will be commissioned in the second quarter 2014, once new drilling results have been obtained.

No secondary or enhanced oil recovery, such as water-flooding, had been assumed in these previously reported reserves; although nearby analogous fields in Trinidad have had successful water-flood projects.  Overall recovery without water-flooding is estimated to be just 10% of the oil-in-place which has been computed to be up to 350 mmbbls in the 3P case.  Challenge recognizes a further 63 mmbbls of Contingent Resources associated with a future water flooding project.  If such a project was undertaken it is believed that the overall recovery factor would rise to about 30%.

IPSC with Petrotrin

LGO has a 100% working interest in the Incremental Production Service Contract ("IPSC") granted by the Petroleum Company of Trinidad and Tobago ("Petrotrin") which gives LGO rights to produce oil from the 2,875 acres (11.4 square km) Goudron Block down to 5,000 feet subsea.  The Goudron Field is be operated by Goudron E&P Limited, a wholly owned subsidiary of LGO.

The IPSC was effective from 18 November 2009 and had an initial term of 10 years. On 14 August 2013, LGO successfully concluded an agreement with Petrotrin to reduce substantially the overriding royalty rates associated with oil production from Goudron and to extend the contract by at least five (5) years to November 2024 in consideration for LGO undertaking additional drilling.

The revised IPSC agreement, effective from 1 August 2013, included a reduction of overriding royalty rates for existing and future production in order to incentivize further development and exploration in the Goudron Block.  The 30 well re-development program commencing in 2014 is a direct result of that agreement and will meet, and greatly exceed, the additional commitments made at that time. The new agreement provides that oil production between the First Tranche Oil, which is currently approximately 40 barrels per day ("bopd"), and a rate of about 150 bopd (reducing annually by 2%) will receive a relative reduction of approximately 20% in the overriding royalty paid to Petrotrin. Production above 150 bopd, which Goudron is already exceeding, has a more significant reduction equivalent to approximately 45% of the previously applicable rate at the current oil price.

Language was also included in the revised IPSC that, subject to mutual agreement on work programs, will allow the IPSC to be extended for a period of 5 years in 2019. This extension is significant as it will allow the Company to effectively instigate Enhanced Oil Recovery programs in order to bring the 30 mmbbls of Possible (P3) reserves and some of the 63 mmbbls of Contingent Resources in to Proven (P1) and Probable (P2) reserves over the coming years.

LGO holds a 100% interest in the Goudron Field and all such estimates therefore both gross and net to the Company.

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