LGO 2014 FINANCIAL YEAR RESULTS

LGO Financial Year End 2014 Results:

Revenue increased 55.8% in 2014 vs 2013
Loss widened 89.8% in 2014 vs 2013
Current Ratio 0.56
Debt to Equity Ratio 0.51

Analysis of a small cap growth company is very different when comparing to other mid and large cap. More often than not, you can hardly expect any profit. This is because all earnings are reinvested into the business. LGO is not different.

Much of the profit decline has been due to Administrative Expenses and Depreciation.

Administrative Expenses include the settlement of a suit in 2014 amounting to 1.2 million Pounds. Also included is the payment to rig services provider for the drilling of 8 wells. In 2013 there were no drilling, only re-completion of existing wells.

LGO invested in 2 storage tanks in 2014 which increased the Depreciation charges for 2014.

I would expect LGO to improve its Current Ratio and bottom line 2015.

In the past, LGO would set off its debt through the placement of new shares, but this should stop in 2015 as they entered into an oil for debt swap with BNP Paribas.

Major improvements expected in 2015 vs 2014:

1) Lower cost of drilling and man days required per drill. This is due to the smaller Rig 70 which improved the drilling performance per well. Almost 40% savings per well.

2) Deployment of a 3 casing method vs the previous 2 casing method to improve well integrity and reduce high depletion rate among the wells. This will ensure the wells flow naturally over a longer period of time.

3) Production in 2015 is expected to increase by 1,400 bopd vs 2014 (200 bopd x 7 new wells).

4) The improvement in production will set off against the US2 million payment due to the previous vendor and licence holder of Goudron in the event production is maintained above 2,000 bopd over a 30 day period.

5) As production increases, the cost of Admin per barrel of oil is expected to decline drastically. Most of the Admin costs are fixed.

6) Inclusion of the new 4" pipeline, LACT meter and additional 5,000 storage tank to ensure continuous delivery of oil to Petrotrin. This will also improve the revenue stream and provide the infrastructure support for LGO to increase its production.

7) LGO will now embark on a continuous drilling programme with Pad 5 & 6 now under construction. Pad 6 will be drilled this year but production will likely be in January 2016. Application made to increase the number of wells from 30 to AT LEAST 60.

Besides the keypoints above, the much awaited CPR will be released in June 2015.

My disclosure: I am long LGO.