LONGREACH OIL AND GAS LIMITED - Morocco Sidi Moktar Farm-in Agreement and Proposed Financing

/NOT FOR DISTRIBUTION TO UNITED STATES WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/

TORONTO, May 26, 2011 /CNW/ - LONGREACH OIL AND GAS LIMITED ("Longreach" or the "Company") (TSXV: LOI), a Morocco focused oil & gas company, is pleased to announce that a formal agreement has been entered into between Longreach and Maghreb Petroleum Exploration S.A (MPE) to farm-in for a 50% operated stake in the Sidi Moktar development licence located in the Essouaria Basin in Central Morocco.  Longreach is also pleased to announce the filing of a preliminary prospectus in each of the provinces of Canada, except for Québec, Newfoundland and Labrador and Prince Edward Island, to raise a minimum of CDN $ 25.0 million through the issue of new ordinary shares ("Ordinary Shares") by way of a "best efforts" prospectus offering (the "Offering") through a syndicate of agents led by Paradigm Capital Inc. and including Fraser Mackenzie Limited (collectively, the "Agents"). The Company has also engaged VSA Capital Limited as a special selling agent in Europe.  The Offering will be priced in the context of the market (the "Issue Price") with the final terms of the Offering to be determined at the time of pricing.

HIGHLIGHTS

  • Proceeds from the Offering are expected to provide necessary funds for the implementation of the Company's exploration and development programme of up to 5 wells across the Longreach portfolio.
  • The Sidi Moktar agreement is anticipated to be transformational for Longreach and enhances its existing Moroccan-focused asset portfolio by providing a 50% working interest and operatorship of 3 additional exploration licences.
  • The Sidi Moktar licences have produced to date 30.5Bcf according to ONHYM.
  • An independent resources study, completed in March 2011 by AJM Petroleum Consultants, Calgary, Canada, covering five existing fields within Sidi Moktar, attributed undiscovered gas initially in place of approximately 111 (low), 292 (best) and 776 (high) Bcf for Silurian sourced Triassic targets.
  • The onshore Sidi Moktar licence surrounds the existing producing Meskala field, with gas pipeline infrastructure in place that runs through the permit area.  Tie in to this pipeline is believed to be achievable, with gas expected to be piped to the town of Youssoufia, where major phosphate plants exist with unmet natural gas demand.
  • Longreach currently has interests in four exploration licences in southern onshore and offshore Morocco, covering 11.8 million acres.

DETAILS OF THE FINANCING

The Offering will be offered in all the Provinces of Canada, except for Quebec, Newfoundland and Labrador and Prince Edward Island.  The Ordinary Shares may also be issued on a private placement in the United States with certain institutional accredited investors pursuant to Regulation D under the United States Securities Act of 1933, as amended, as well as other eligible foreign jurisdictions pursuant to applicable exemptions from prospectus or other similar requirements under applicable securities laws in such jurisdictions.

The Agents will be paid a cash commission equal to 6.0% of the gross proceeds raised in the Offering.  The Company shall issue to the Agents broker warrants ("Broker Warrants") entitling the Agents to purchase up to the number of Ordinary Shares that equals 6.0% of the number of Ordinary Shares sold in the Offering.  Each Broker Warrant will have an exercise price equal to the Issue Price and expire 24 months after the closing date of the Offering.

The Offering is expected to close on or about June 30th, 2011 and is subject to certain customary conditions, regulatory approvals, including but not limited to the approval of the TSX Venture Exchange.

Proceeds of the Offering are expected to be primarily used to pursue the Sidi Moktar transaction as described in further detail below, and further development of the Company's existing portfolio. The Sidi Moktar programme is expected to include the acquisition of 100 km² of 3D seismic data and a two well drilling programme.  The Company expects to conduct seismic acquisition programmes on the Company's Zag and Tarfaya licences to further identify drilling targets of which the seismic programme is fully funded with existing cash balances.  Subject to available funding, the exploration programme also allocates a portion of the proceeds of the Offering to fund the drilling of one exploration well on the Company's Zag licence, an exploration well on the Company's Tarfaya licence and one exploration well on either of the Sidi Moussa or Foum Draa licences.

Bryan Benitz, Chairman and CEO of Longreach commented:

"We are delighted to announce this Offering which we believe will enable us to implement an exploration programme which marks a significant progression of Longreach. The team we have working with us on the share placing is highly experienced and well respected in the sector and I am confident we will be successful.

"The Sidi Moktar licence is an exceptional asset and the farm-in agreement is transformational for the Company which will see Longreach become operator of this prospective licence. The finalisation of the agreement is a credit to the strength of Longreach's relationships within Morocco and we look forward to implementing our planned exploration programme.'

DETAILS OF THE FARM-IN

Longreach has agreed to acquire a 50% interest by farming into the onshore Sidi Moktar licences located in the Essaouira Basin in Central Morocco. An independent resource study, completed in March 2011 by AJM Petroleum Consultants covering the four existing fields within Sidi Moktar, attributed undiscovered gas initially in place of approximately 111 (low), 292 (best) and 776 (high) BCF for Silurian sourced Triassic targets, which will be the targets of Longreach's planned development programme.  The terms of the agreement are for Longreach to fully fund MPE's commitment programme which includes the shooting of 100km2 of 3D seismic, and the subsequent drilling of 2 wells.

The Kechoula field located in the Sidi Moktar licence which is currently shut-in, was discovered in 1957 and has produced 19 BCF of gas from the Jurassic formation. It surrounds the Meskala field which is one of Morocco's major producing fields, currently producing 3.5mmscfd, based on information provided by the current operator, Office National des Hydrocarbures et des Mines of Morocco (Moroccan National Office of Hydrocarbons and Mining, "ONHYM").  Four other fields within Sidi Moktar have also discovered gas from Jurassic aged reservoirs, of which 3 have produced but are now also shut in.  There is well, geological, and geophysical data available from previous operators that is expected to help in identifying further opportunities in the licence.

For additional information regarding resource estimates and related information contained in this press release, see "Special Note Regarding Estimates", below.

About Longreach

Longreach holds varying interests in 4 exploration licences in southern onshore and offshore Morocco, totalling approximately 11.8 million acres of exploration acreage, accounting for over 15% of the country's total licence area.

Upon completion of the Sidi Moktar agreement, Longreach will hold a 50% working interest in the Sidi Moktar licence located in the Essaouira Basin in Central Morocco, neighboured by the Meskala field, Morocco's major producing field.

Longreach's Zag licence is located in the Zag-Tindouf Basin Complex in southern Morocco, and is on trend with what are believed to be significant gas discoveries in Algeria.  The Company holds a 30% interest in the Zag licence.

The company holds a 30% interest in the Tarfaya licence. Multiple prospective structures have been identified based on current 2D seismic and which is expected to be supported by a 500km 2D seismic programme currently underway.

The Company holds a 10% interest in each of the offshore Sidi Moussa and Foum Draa licences. Multiple prospects have been identified on each licence, and as mentioned above, seismic reprocessing is currently underway and nearing completion.

Special Note Regarding Estimates

Volumes described above as undiscovered gas initially in place are an arithmetic sum of multiple estimates, which statistical principles indicate may be misleading as to volumes that may actually be recovered.  Readers should give attention to the estimates of individual classes and appreciate the differing probabilities of recovery associated with each.  The probability associated with the high estimate would be considered far less likely than the best estimate, and conversely, the low estimate would be expected to be much higher than the presented arithmetic sum.

Undiscovered gas initially in place is an undiscovered resource.  There is no certainty that any portion of the resources will be discovered.  If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.

Information regarding production estimates in the Meskala field described in this press release under the heading "Details of the Farm-in" is "analogous information" as that term is used in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook"). Longreach cautions readers that such production information has not been prepared by a qualified reserves evaluator or auditor in accordance with the COGE Handbook and was not prepared by an independent party.  The analogous information regarding production was provided by ONHYM, which as the Moroccan state energy company is one of Longreach's partners in respect of its licences, and is one of the parties with an interest in the Meskala field.

As used in the COGE Handbook, "undiscovered petroleum initially in place" means that quantity of petroleum that is estimated, on a given date, to be contained in accumulations yet to be discovered.

Special Note Regarding Forwarding Looking Statements

This press release contains forward-looking statements. These statements relate to future events or the Company's future performance. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "project", "potential", "targeting", "intend", "could", "might", "continue" or the negative of these terms or other similar terms. Forward-looking statements in this press release include, but are not limited to, statements with respect to the use of proceeds from the Offering, the completion of the Offering, the completion of the Farm-in agreement, the performance characteristics of the Company's oil and gas properties, capital expenditure programs, supply and demand for oil, gas and commodity prices, drilling plans, realization of the anticipated benefits of acquisitions.

Forward-looking statements are only predictions. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Some of the risks and other factors which could cause results to differ materially from those expressed in the forward-looking statements contained in this press release include, but are not limited to:  general economic conditions in Canada, the Kingdom of Morocco and globally; industry conditions, including fluctuations in the price of oil and gas, governmental regulation of the oil and gas industry, including environmental regulation; fluctuation in foreign exchange or interest rates; risks inherent in oil and gas operations; political risk, including political risk; geological, technical, drilling and processing problems; unanticipated operating events which could cause commencement of drilling and production to be delayed; the need to obtain consents and approvals from industry partners, regulatory authorities and other third-parties; stock market volatility and market valuations; competition for, among other things, capital, acquisitions of reserves, undeveloped land and skilled personnel; incorrect assessments of the value of acquisitions or resource estimates; any future inability to obtain additional funding, when required, on acceptable terms or at all; credit risk; changes in legislation; any unanticipated disputes or deficiencies related to title matters; dependence on management and key personnel; and risks associated with operating in and being part of a joint venture.

Although the forward-looking statements contained in this press release are based upon assumptions which management of the Company believes to be reasonable, the Company cannot assure that actual results will be consistent with its expectations and assumptions.  Undue reliance should not be placed on the forward-looking statements contained in this news release as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. These statements speak only as of the date of this press release, and neither the Company nor any of the agents undertakes any obligation to publicly update or revise any forward-looking statements except as expressly required by applicable securities laws.

Not an offer to sell or solicitation of an offer to buy securities in the United States

This press release is not an offer to sell or solicitation of an offer to buy securities in the United States of America or to any US person (as that term is defined in the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act").  The securities offered in the Offering referred to in this press release have not been and will not be registered under the U.S. Securities Act, or any state securities laws. Accordingly, such securities may not be offered or sold to, or for the account or benefit of, persons in the United States or U.S. persons.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Longreach Oil and Gas Limited

For further information:

Longreach Oil and Gas Ltd.
Bryan Benitz Chairman & CEO +44 20 3137 7756
Paradigm Capital Inc.
Kevin Smith   +1 403 513 1025
Pelham Bell Pottinger
Mark Antelme / Philip Dennis/Jenny Renton +44 207 861 3232

www.longreachoilandgas.com

Additional information on Longreach Oil and Gas Limited can be found at www.sedar.com

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Longreach Oil and Gas Limited

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