VIRGINIA HILLS OIL CORP VFGGF

RE:Q3 results

[nlr2]

I would think that it would sell off on these results, which on a short term view is justified. The upside is that for Q4 the hedging losses will reverse with gains of $10+ per BOE unless differentials tighten up big time in the last month of the year. Current productive capacity is 3000 BOE/D when the shut in production is brought on line. So they should be able to hit the low end of guidance for exit. The incline in waterflood production should offset declines over the next month. If they cash flow 10 million for the quarter they should be able to get debt down into the 120-125 million range pretty easily, especially since they have no capital plans.

Positives that I saw were that the floods are all online when they said they would be.

Four more are in the licensing process and should be ready to go for next year.

The 3 Otter floods would appear to have waterflood intervention earlier in the lifecycle of the wells which according to the presentation makes a big difference.

Well costs are down again.

Optimization of operation costs are on track.

Things that bug me.

No individual well results for the 3 new drills.

Production randomly shut in always, weather is so fickle.

Blew past projected spending.

Another quarter of declining production.

Crazy high op costs.

Still looks like the plan is coming together for 2014 and we are in better shape then some of our peers.