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Eureka! Or Words To That Effect. - Vialogy (VIY)
21/1/2010
(119264)
Eureka! Or Words To That Effect
Congratulations to Dr Sandeep Gulati and all connected with Vialogy (VIY). The revolutionary QuantumRD technology has passed the toughest test yet and located oil in an especially difficult environment. That removes any lingering doubt about the technology, and is a major step along the way towards establishing it as the essential tool in every oil explorer’s kit.
You can read the details in an admirably clear news release today from the company. Basically, Dr Bob Hardage, oil guru at the University of Texas Bureau of Economic Geology, one of America’s leading technology centres for hydrocarbon exploration, set Vialogy a challenge. Co-operating with Fasken Oil and Ranch, he arranged for Vialogy to use QuantumRD to locate oil in the Strawn limestone formation near Midland, Texas.
Over 50 years, only three of 18 attempted Strawn wells in the prospect area showed production. Seven found oil at shallower Wolfcamp formation depths. Eight others were dry. Strawn limestone porosities are typically very low and only viable when porosity is at least 4%.
A key challenge for Vialogy was to locate oil at suitable porosity and in sufficient quantity. Vialogy succeeded in locating large continuous zones of 6% plus porosity. After drilling for three weeks and reaching 11,241 feet, the initial well log shows potential for multiple zones that could be high-graded, highlighted by an area of over 50 feet of significant porosity in the Strawn formation alone. It also appears that QuantumRD can increase the ability to detect oil in the Wolfcamp areas.
This means QuantumRD works at considerable depth, and in especially difficult formations.
Dr Hardage acknowledges this, calling the Strawn results ‘impressive.’ Fasken’s chief geologist agrees that Vialogy was set a very difficult problem. There is significant undeveloped acreage in the area, and the new technology could make a significant difference. Already Fasken – a substantial family company in the Laredo area which does not appear to have its own website - is looking forward to working closely with Vialogy to discover and develop deeper formations.
Clearly today’s news comes close to ‘The world is your lobster’ category, and means that Vialogy must be taken seriously by any major oil company.
There is more to come from Vialogy. We know several other wells are scheduled for drilling in the first quarter of this year, and we should hear more results in the next few weeks. Sooner or later, drilling will begin at Atascosa’s Escondido prospect. Fuller details of the Fasken well could emerge next week.
This success is absolutely crucial. It is likely to open the way for the company to raise further cash on the back of a much more confident share price. Now, at last, we could be shifting from a difficult downward spiral into a kind of virtuous circle. The more cash Vialogy can raise, the more it can invest in taking on new clients and new QuantumRD jobs, in turn boosting the share price to attract yet more capital at higher prices.
The Fasken job departed from the standard model the company has been trying to apply – modest upfront costs, plus a share of royalties from any oil discovered. It was taken on at a modest fee, simply because establishing credibility in such a difficult area and winning the support of Hardage was so important.
Vialogy should now find it easier to convince potential clients to accept that it deserves a share of discoveries, and perhaps there will be fresh talks with Fasken about proper rewards.
Today’s news is a massive endorsement of the technology. We know two international oil industry giants are already looking at Vialogy’s work. This result should make them look all the harder.
Today’s share price reaction – a rise to just short of 8p – is a trifle disappointing, but there was a substantial bull account building up and many will have fat profits to take. At 7.88p, the market capitalisation is £50m. That is quite demanding for a company with minimal revenues, but the potential is now so alluring (and the risks are virtually eliminated) that the shares look sure to go higher.
As ever, it is important to appreciate that there could be short-term volatility, and that even this stunning success does not guarantee that QuantumRD will succeed in locating hydrocarbons with every client well. Great expectations, though.
Once again, well done, Sandeep and the team.
I have a holding in Vialogy.
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