VIRGINIA HILLS OIL CORP VFGGF

Hedges

[nlr2]

PRY as of tomorrow goes from being fully hedged in the mid 90's to having 500 bbl's hedged. The price of oil in Q4 means that Pinecrest should have shown a gain on the hedging program as opposed to the large loss in Q3. Hopefully debt will be down to 120 million for year end exit.

Going into 2014 the capital program should be released around the start of February. I'm hoping for 15 wells drilled so that in 2015 they will have at least 3 new waterflood projects to put on stream. This would cost about 51 million with another 9 million for conversions and maintenance. The other interesting thing will be the timing of the new drills vs the conversion of the 4 waterfloods for 2014. I would imagine PRY would only drill in Q1 and Q4 to avoid the weather constraints that plague the area. So if they could match the losses from conversion to water injectors with gains from new drills that would be best case scenario. 

Timing wise if they drilled 5 in Q1, waited for waterflood production to peak in Q2/Q3, converted the four new projects in Q3 then exited with ten wells drilled in Q4 they would best be able to show Q over Q growth and a pretty major year over year increase. The four new waterflood projects would show gains in Q1 of 2015 plus they could plan some new drills for that Quarter as well to prevent major production drops due to declines.

My guess would be that they exit the year at 3000 BOE/D if the Otter projects are showing a response and no weather disasters have occured. Hopefully this will also be with a sub 30% decline as no new drilling activity has occured in Q4. From that base we have waterflood inclines, new drilling using the open hole method, cost savings from electrification and pipelining and 4 new waterflood projects to look forward too. So on paper it looks pretty encouraging.

The caveat being that for 6-8 quarters this team has blown it repeatedly. The infilling to 8 wells per section, Spartan deal, 2013 original capital plan and exit, debt, production estimates and timing of waterfloods have all been disappontments. So to me it looks like baring a collapse in oil or the failure of the waterfloods we should have a good year and exit 2014 in the mid 3000's with no extra debt but the management track record makes me leery.

[ofirme]

I believe that pinecrest had about 83-84 drills over the last 3 years. they used in their 8 projects  only about 49 (5 x 5 + 3 x 8). they already applied for 4 more projects next year. Lets hope they can do some conversions after 1 year or before end of year 2. Bottom line is that they do not need high capex next year. They need to be able to show the concept works and then they could

[nlr2]

Ya I agree with all that for sure. The nice thing about waterfloods, assuming they work as planned, is that you take the production hit from conversion up front then the gains come on gradually independent of further activity. Takes away from weather or operational risks. Be nice once they have enough on that a real performance curve can be derived. When I do guesstimates I use 225 boe/d as peak

[ofirme]

The 225 number is not right. the way you look at production (as I read the expected graph): The first projects (5 wells each = 3 producers + 2 becoming injectors), I take 70% of beginning  flow as peak. peak flow of a well on original production was around 170.    0.7 * 170 = 120. 120 * 3 = 360. the production is over 97% oil, so boe/d = bpd.  it takes about 2 month to see

[bonjovi501]

I agree, everything looks good down the road but can Wade execute? He has missed time and time again. I hope he turns this around and if he does I will add more shares. I want to see what the 4thQ did before I jump on the band wagon.

[ofirme]

I wish I could answer that question... another question that we need answers to is the hedges.  In the past, the company hedged at $85 and this time they could upgrade to above $90 for 2014  and due to the future waterflooding (and its relative slow decline...) they could hedge a higher   percentage of their 2014 ( and maybe 2015 ) production. in theory, they could have done it

[nlr2]

Ya I wouldn't expect much from Q4. On November 27th they said they were producing 2650 with 350 shut in due to the weather. They had earlier said that they expected to exit between 3100 and 3400. So if they were able to bring that other production online they should be in the ball park. The biggest question for me is the timing of when they brought the 3 wells they drilled in the second half

[ofirme]

I tried to put the first 12 months of flow into a spreadsheet by the graph and it tells me 80 if you   assume first two month not flowing... I think their graph is too high as far as their flow. I will say the following: the reason why I like this company in comparison to others, is that they   kept it simple. not too much debt and they came in knowing that primary production

[bonjovi501]

nlr2...............I might be getting closer to get back on board once we get closer to .30 as Wade has always fell short of everything he said. I think Wade is the wild card and has lost a lot of respect. I lost a lot of money on this puppy but you guys will be ok long term if Wade does what he says. The debt is big and the decline rates need to steady out. I will make my decision once I see what