long view, page-28

In portfolio management one must think logically at all times. The questions that must be answered are: where is a company going to go in the perspective future? and how is it going to get there?

VIL is an investment company, however, I view my investment so far in VIL as in investment in the Fausse Point project - inevitably run and coordinated by the directors from GGP. GGP have an outstanding board, with the managing director, Steve Graves, having transformed one company (Orchard Petroleum) into one that was taken over and had much experience managing companies for years - managing portfolios of over 1 billion dollars. His team, a highly specialised team of accountants and geologists, are on the board of many companies and are very respected in the business world. That board, unlike that such as GDN and CDU, are reliable and update the market with efficency and without BS. The market knows the main picture of what is happening and how the company is performing. That is a management team that I am confident with.

Now since I am confident with the management team but since I am investing in Fausse Point, the project must be evaluated. We have recieved previous flowrates of 0.5 mmcfg/d and the question needs to be asked, can this rate increase? what happens if it doesn't? and what are the company activities in Fausse Point in the future?

Firstly, I am of the opinion that the site has been prepared and substantial testing is currently occuring. Why do I think this? Becuase management are very nifty and skillful. Management obviously want to have a complete and comprehensive understanding of the formation of the well, and thus they would be using the 15 days (approx) to get ahead of the market and test FP#1 by changing choke size, testing flow rates, change the choke, test the flow rates etc etc. By getting ahead of the market management can report new findings to the market such as, increase in flow rates or a better understanding of what we have down there.

I expect that testing will see an increase in the flowrates. Consider this example:

As the gas condensate flow starts to move towards the well, it does not flow evenly through the rock - it might even become trapped and just release the fumes. Think of watching rain hit a pile of freshly dumped earth. At first, as the rain falls it runs evenly over the surface. But as it does it finds some layers of soil are weaker, and others have been compacted a bit more. And so the water erodes the softer, less compacted soil, and the water near those channels finds it easier to flow into them. And so after a while the water coming off the pile is no longer evenly flowing but is cutting grooves in the soil and all the water is coming out of those channels.
Water is heavier than gas, but gas condensate is heavier than water and thus, will act like water.

Now depending on the level of permability (how the rock formation moves), we may have tight gas or normal gas. Typical conventional natural gas deposits boast a permeability level of .01 to .5 darcy, but the formations trapping tight gas reserves portray permeability levels of merely a fraction of that, measuring in the millidarcy or microdarcy range. Tight gas has much older rock formation.

In addition, If oil condensate is down there (extemely high API oil) it will be heavier than water - as previously mentioned. So as we pump it out, it should seperate the shales and we will see increased flow rates for both oil condensate and gas.

Nevertheless, we can access this gas by horizonal drilling or directional drilling (potential future operation)- explained in article below. Thus, another method to increase flow rates - giving rock shales maximum exposure to release the gas to the surface of the oil well. Furthermore we can acidize the well (currently) - thus pumping the well with acids to disturb the rock formation.

http://www.rigzone.com/training/insight.asp?insight_id=346&c_id=4

this link explains acidizing:

http://www.rigzone.com/training/insight.asp?insight_id=320&c_id=4

Atlernatively, (currently) I believe that they can refracture the well. Also pump frac fluids down the well to deepen the perforations, so that flowrates can increase. Nevertheless, it is an interesting time ahead of us with what can happen. Overall, its easier to intercept the gas and whatever is down there by moving along the resevior line.. thus horizonal drilling.

The Next job, after evaluating the lower formation through lengthy testing, will be for management to decide where to drill FP#2, so the firm will conduct further siesmic testing of the well and its area - a location will then be decided.

Summary:

Overall, I am happy with the management that are running the show. Im pretty sure that management decided to put FP#1 into production, regardless of its ridiculously low flow rate, becuase hydrocarbon readings were so positive over the duration of the well - finding, oil, gas and condensate. Of course they want to check it out and find out what 'the story of FP#1' is.

I believe that they are currently testing the well and the site is fully prepared. This is becuase, GGP will then be able to have this 15 days or so to prepare the testing, THEN reporting to the market what the situation is, and THEN complete additional testing; finally coming back to the market on a decision of FP#1 and future plans.

Overall, I beleive in the management and am happy holding. Regardless of the economic environment we have a well with multiple hydrocarbon readings.

Remember the key to investing is patience and timing. And imo, what better timing!