Longford Energy Inc.

Longford Energy Inc.

July 27, 2009 07:30 ET

Longford Energy Acquires Rights in Chia Surkh Block Production Sharing Contract in the Kurdistan Region-Iraq

CALGARY, ALBERTA--(Marketwire - July 27, 2009) - Longford Energy Inc. ("Longford" or "the Company") (TSX VENTURE:LFD) is pleased to announce that it has assumed from Forbes & Manhattan (Barbados) Inc. ("Forbes") a net 20% interest under an existing Production Sharing Contract ("PSC") with the Kurdistan Regional Government - Iraq ("KRG") for the exploration, development and production of petroleum resources of the Chia Surkh Block (the "Block") in the Sulaymaniya Governorate of the Federal Region of Kurdistan - Iraq. Forbes played an integral part of the negotiations and facilitated the assumption by Longford of this interest under the PSC by providing the necessary guarantees and support. Longford has not paid any consideration to Forbes in connection with the assumption of the interest in the Block.

Mr. Ahmed Said, the President and Chief Executive Officer of the Company, commented "Like our sister company, Vast Exploration Inc., we are delighted to get involved in a resource rich region with relatively low geological risk, reasonable commercial terms and a clearly established transparent contractual model and legal framework. This transaction delivers on the opportunity and support that our shareholders have provided to us. It is a significant milestone and represents the culmination of more than twelve months of evaluating international opportunities. We believe that the block covered by the PSC offers significant exploration upside and contains an undeveloped discovery from 1905."

Terms of the PSC

Longford will hold a 50% beneficial interest in a Barbados company ("Subco") that holds a 40% direct working interest in the PSC. Longford has an option to acquire the remaining 50% beneficial interest in Subco on terms to be negotiated over the next few months. Whether or not it exercises this option, Longford anticipates funding 100% of the commitments of Subco under the PSC. The Company expects to enter into a shareholders' agreement with Subco and its shareholders that will establish an acceptable dilution mechanism to adjust the Company's relative shareholdings in Subco in the event that the Company funds a disproportionate share of the commitments of Subco.

Subco has also committed to carry the 20% working interest in the PSC held by a private Turkish company for the minimum work program obligations during the first exploration sub-period. The KRG will also hold a direct 20% net participating interest that will be carried by the consortium. The remaining 20% interest in the PSC is a working interest held by Genel Energy. Any petroleum expenses incurred as part of the committed carry provisions will be recoverable by Subco as a part of cost recovery mechanism under the PSC from production operations.

Pursuant to the PSC, Subco has paid signature and capacity building bonuses to the KRG. Additional capacity building bonus is required to be paid within twelve months from the execution date of the PSC. Annual contributions will be made by the consortium to personnel, training, environmental and technological funds established by the KRG. Subco will also be responsible for paying its proportionate share of certain production bonuses in the case of commercial discovery.

The remaining minimum work program obligations represents an exploration commitment, expected to commence in the near future, which includes the acquisition, processing and interpretation of a minimum of 250 kilometres of 2D seismic data and drilling of two wells during the first exploration period. The Company expects to spend in excess of US$100 million dollars over the next three years on the Block.

The Block

The Block comprises three blocks, which were previously designated by the Kurdistan Regional Government as K46, K47 and K48. The Block is 938 square kilometers in size and is located southeast of the city of Sulaymania between the Diyala (Sirwan) River and the Iranian border. Apart from some mountainous areas that delineate the Iranian border, the area is generally of low relief with accessibility that Longford has deemed excellent for oil related operations. The area is mostly within the Foothill Tectonic Zone and the boundary with the High Fold Zone trends NNW along the Block's eastern boundary. The Foothill Zone, which is 160 km wide and characterized by long narrow anticlinal structures, contains most of the major oil fields of northern Iraq.

The Block offers both a field development opportunity and multiple exploration prospects. The existing discovery, Chia Surkh structure, trends NW-SE and is understood to cover a surface area of approximately 42 square kilometers with exposed Miocene Injana Formation (Upper Fars) surrounded by Pliocene Bakhtiari Formation (Bai Hassan and Mukdadiya). A well, which was drilled by the predecessor of Anglo-Persian Oil Company in 1902, discovered oil at a depth of approximately 700 meters in a fractured limestone unit of the Lower Fars Formation. After World War II, a deeper well recovered 41 degrees API oil from the Jeribe formation with indications that the hydrocarbon column may exceed 220 meters. The Company believes that the Chia Surkh reservoir is correlative to the fractured reservoirs in the Kor Mor field that is approximately 70 kilometers to the north-west, as well as the Asmari reservoir present in many Iranian fields. It is also believed that deeper unevaluated horizons could be prospective for oil and gas.

South of the Chia Surkh structure, the Company believes that the Chia Surkh South Anticline extends for 15 kilometers across the Block. This feature is understood to be the southeast extension of the Kirkuk-Kor Mor structure. A surface fault is identified by outcrops of Injana Formation against the younger Upper Bakhtiari Bai Hassan Formation and may indicate a deeper prospective structure. Additional anticlinal structures extend along the Iranian border and across the northern portion of the block. The Company believes that all of these features add to the exploration upside for this block.

About Longford Energy Inc.

Longford Energy Inc. is a junior Canadian oil and gas exploration and production company actively pursuing international crude oil and natural gas opportunities.

Forward-Looking Information Warning

Except for statements of historical fact relating to the Company, information contained herein constitutes "forward-looking information" under Canadian securities legislation. Forward-looking information includes, but is not limited to, statements with respect to the commercial terms of the Block, government relations, the prospective nature of the Block acquired and the ability to attract financing on acceptable terms. Generally, forward-looking information can be identified by the use of forward looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Information underlying forward-looking information herein includes the negotiations that the Company has had with the KRG and other members of the consortium and the experience of management of the Company in respect of previous negotiations. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Longford to be materially different from those expressed or implied by such forward-looking information. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. Longford does not undertake to update any forward looking information, except in accordance with applicable securities laws.

To view the Kurdistan Petroleum Blocks map, please click on the following link: http://media3.marketwire.com/docs/lfdm1.pdf

To view the Chia Surkh Block and Surrounding Fields map, please click on the following link: http://media3.marketwire.com/docs/lfdm2.pdf


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