VIRGINIA HILLS OIL CORP VFGGF

RE: RE: Production won't be flat in 2013

[splurge]

I have been investing in light oil plays for over 22 years and have met some of these people on the new BOD many times over the years. They are money makers, good operators and extremely credible with no BS. Spartan has revised numbers up during the year and as at Nov was producing 4000 b/d with 14 wells to be tied in and a few more to drill by y/e with a large bank account expected at year end. Combined together they will start the year at around 9400 b/d and their guidance is to maintain it for 2013. Spartan has grown production 277 % y/y in q3 and Pinecrest 187% y/y for the nine months at Sep 30th. They now say they plan to keep it flat and pay the dividend but also state " the combined company's balance sheet will give it a unique competitive advantage that will enable it to generate measurable accretion, while maintaining a conservative debt to cash flow ratio". Upon combination they will be under levered given their recycling ratios! Any extra dollar spent will boost production and cash flow so the incetive will be there in 2013 to use debt a little more efficiently. Water floods should improve the recovery rate and the overall economics and slow the decline rate beyond 2013. This is a relatively low cost and conservative approach but granted, things sometimes go wrong although the first water flood appears satisfactory. I still believe there is a huge potential for them to exceed their targets in 2013 by a modest amount. Of course, if you believe WTI is going to decline and expect another forest fire and more wet weather and a flood and believe management are not conservative in their numbers and that costs per BOE have no room to go down under a combined entity, then maybe you are right in which case all oil stocks should be avoided. I agree, this is a tough business, but given that these guys have executed in the past over the many years I think they have a shot at exceeding their current guidance, by a modest amount. Beating investor expectations (in this case ever so slightly) is how one makes money and I believe this company in its new form has the potential to do so. No...it is not "100%" guaranteed but it is not "pushing incredulity" as you stated.

cheers