Oilexco said "hydrocarbon-bearing reservoir sands with a thickness of 605 feet were intersected in the Middle Jurassic Pentland and a further 219 feet were intersected in the Upper Jurassic Fulmar."

Oil and gas flowed during initial testing operations. But further testing work was hampered by a packer failure of the downhole test tools.

"Although initial indications are encouraging, the company has decided not to continue with the testing process of the Pentland sands at this time. Further testing will likely occur during the course of additional appraisal drilling in the future," Oilexco said, adding the consortium will be preparing a forward programme for the development of the site.

Oilexco is confident about the prospects of the field, saying Moth has the potential to be "very material" to the company.

monicca.egoy@thomsonreuters.com mbe

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Oilexco said it expects increased output in the second half of the year from Brenda, Nicol and Balmoral fields while the average daily production in the first half was 20,714 barrels of oil and gas.

The company said it plans to continue drilling at its Moth prospect and also additional exploration drilling at its Delta Block in which it has a farm-in with Premier Oil Plc. TFN.newsdesk@thomson.com man/sal

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It has also initiated on Addax at 'equal-weight' with a target of 3,540 pence, 39 percent implied upside.

The broker said it preferred increased exposure to the explorers for near-term relative performance as they have more short-term catalysts than the producers.

Oilexco is its preferred producer, as it offers a combination of near-term catalysts and material upside on the forward curve, said the broker.

It said sector risk-reward was skewed to the upside. The broker has raised price targets across the sector for 24 percent to 54 percent implied upside.

It said that while it was not making material changes to its net asset values, the shares are more likely to discount higher long-term commodity prices and the potential for future exploration success.

The sector is trading at a 55 percent discount to its NAVs assuming the forward curve.

Morgan Stanley said that sector performance has been driven by recent exploration success, leaving the full potential from commodity price gains still to be priced in.

It said that exploration activity levels remain high and it believes the E&Ps are well positioned to deliver continued performance over the next 12 months.

As well as Oilexco, its top picks are Tullow Oil Plc., on which it has an 'overweight' rating with an increased price target to 1,230 pence, from 1,090, and Soco International Plc., on which it has an 'overweight' rating and new price target of 2,960 pence, from 2,790.

It also has an 'overweight' rating on Cairn Energy Plc., Dana Petroleum Plc. and Premier Oil Plc., and has upped their respective price targets to 4,350 pence, from 3,150; to 2,360, from 1,920 and to 2,140, from 1,500. brian.gorman@thomsonreuters.com btg/slj

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The maximum flow rate achieved during the test was 24.4 Mmcf/d and 2,460 Bbls/d of condensate (6,526 boepd). Flow rates were severely restricted by the test equipment utilized for the test and the working temperatures and pressures encountered. No depletion was measured, nor was there water or sand produced during the test. Calculations of surface absolute open flow ("AOF") suggest that the Moth well could be capable of 44 Mmcf/d and 4,400 Bbls/d of condensate (11,800 boepd) with a properly sized production string.

"We are very pleased with the results of the Moth well, which has the potential to become a significant producing asset for the Company" said Arthur Millholland, President and CEO of Oilexco. "Oilexco will now evaluate the timing of additional appraisal of the Moth structure and development options in the near future with our co-venturers. Our objective at Moth is the same as our other exploration successes in the North Sea; an effective and efficient appraisal programme followed by early development to rapidly commercialise our expansive portfolio."

About the Company

Oilexco is an oil and gas exploration and production company active in the United Kingdom. The Company has been the most active driller in the UK North Sea for the past four years. Oilexco's producing properties, exploration and development activities are located in the UK Central North Sea, specifically in the Outer Moray Firth and Central Graben areas. Oilexco operates in the United Kingdom through its wholly owned subsidiary, Oilexco North Sea, a company registered under the laws of England and Wales. Oilexco shares are listed for trading on the London Stock Exchange (LSE) and the Toronto Stock Exchange (TSX) under the symbol "OIL".

Forward Looking Statements

This disclosure contains certain forward-looking statements that involve substantial known and unknown risks and uncertainties, certain of which are beyond Oilexco's control, including: the impact of general economic conditions in the areas in which Oilexco operates, civil unrest, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in commodity prices, foreign exchange or interest rates, stock market volatility and obtaining required approvals of regulatory authorities. In addition there are risks and uncertainties associated with oil and gas operations, therefore Oilexco's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amounts of proceeds, which Oilexco will derive therefrom. All statements included in this press release that address activities, events or developments that Oilexco expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements include future production rates, completion and production timetables and costs to complete wells, and production facilities. These statements are based on assumptions made by Oilexco based on its experience perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances.

SOURCE: OILEXCO INCORPORATED

Oilexco Incorporated
Arthur S. Millholland
President
(403) 262-5441
Oilexco Incorporated
Brian L. Ward
Chief Financial Officer
(403) 262-5441
Oilexco Incorporated
Rob Elgie
Manager Investor Relations
(403) 262-5441
Website: www.oilexco.com
Pelham Public Relations
James Henderson
Managing Director
44 (20) 7743 6673
Pelham Public Relations
Alisdair Haythornthwaite
Director
44 (20) 7743 6676