vil - pass petroleum, page-27

Hi charl,

I must admit I really don't understand your point nor do I understand your valuation logic. Sorry mate, maybe it's just me being thick.

What I find interesting in your calculation is that you value the 3.28% stake of Bongo that we will give to Pass holders at $2.2m which means your have placed a value of the VILs entire current stake in Bongo at $6.3mil. Your valuation of our Bongo stake is a 612% capital gain over what we paid for it only 6 weeks ago. A phenominal return on investment wouldn't you say ?

Despite giving our Bongo stake an extremely bullish valuation you take exactly the opposite view of the Pass assets. Bullseye Miogyp which is currently the only income producing asset of either company will give us at least $273,000 income PA yet you value that asset at only $1mil. If somebody offered me any asset that would return me 27.3% interest PA then I'd be very happy. Maybe your bank is more generous than mine.

Additionally you value the additional stake in FP at only $400k which means you believe the entire FP project owned by all 4 partners is only worth $13mil but at the same time you have valued the entire Bongo project as being worth $67mil. Neither are yet income producing so how do you come up with a value for Bongo which is more than 4 times higher than FP ?

Finally you place absolutely no value at all on the three additional Bullseye or Bowtie prospects. I find this amazing considering that one of the Bullseye prospects is the only proven income producing asset of the lot. You give Bongo a value of $65mil without yet producing enough gas to power my BBQ yet the prospects which sit alongside an asset actively producing gas (and money) is worthless to you.

I honestly don't understand how you come up with your valuations but they look so wildly unsupportable that it's hard to take them seriously. If you are merely playing devils advocate then I suggest you address your valuation methodology so we can have a serious conversation.

Can I also point out that there is no dillution in this deal. VILs primary current asset is FP. Without it VILs value is minimal. On a per share basis each existing holder actually ends up with a larger stake in FP as part of this deal as well as having the security of additional diverse assets and the cash flow that every company needs. We are not giving them $2.5mil, we are not giving them part of our major assets and we are not being dilluted as is the case with SI placements. In fact the cash flow will help to prevent future dillution which is the opposite of what you are inferring. I don't understand this point either.

Sorry dude, you lost me.