19 Dec 2012 07:00
VIALOGY PLC ("VIALOGY" OR "THE COMPANY")
CEO OVERVIEW
London, UK December 19, 2012. ViaLogy PLC (LSE/AIM: VIY) In what has been a pivotal year for ViaLogy, the board sees value in offering this CEO overview to shareholders at the close of the year. This year we won contracts with large, sophisticated global operators, giving us the opportunity to demonstrate the efficacy of QuantumRD in diverse geological formations and geographical areas, to challenge best-of-practice conventional seismic techniques with our results, and to show that our technology can command revenues at premium prices. We have steered a deliberate course away from smaller US independents to large global players with the end objective of achieving large-scale industry use of QuantumRD, and major growth in revenue and shareholder value. Much has been achieved and much remains to be done.
Our contracts are for operational decision-making projects in key client assets in the real world of hydrocarbon exploration and production, a stick-with-what-you-know, risk averse industry where the take-up of new technologies must be earned. For our current fiscal year 2013 we indicated that our objectives would be successful contract performance, building client relationships and upselling, expanding our client base, growing revenues, and moving technology development forward - and accomplishing these objectives while holding costs steady. We are well aware that market expectations are focused on revenue growth; our progress is on track to meet our FY 2013 goals.
Another key objective has been to win those contracts that would subject QuantumRD to rigorous technical scrutiny and demonstrate its global reach. As we've said, this is a process, not an event. The strategy is high risk, high payoff, and we are advancing. Blue chip clients have the depth that resides in a cadre of top geophysicists to preside over evaluations that will gain respect industry-wide. Working in difficult, complex fields where QuantumRD is, so to speak, the technology of last resort; has the aim of becoming the solution of first resort in future projects. This strategy has had considerable hurdles (for example, the extended sales cycle we've encountered in selling to large corporations), but is being successfully implemented. This is because ViaLogy's value proposition - significantly offsetting capital risk prior to drilling or field development - as well as our mounting successful performance record, is compelling.
Our continuing work for Chevron is a good gauge of our progress. We are now working on their largest long term US prospect, the Delaware Basin. This work follows a seminal project success in which QuantumRD predicted a porosity trend in a sixty square kilometer field corresponding to the highest producing wells (know previously to Chevron, but blinded to ViaLogy), something not previously achieved using best-of-breed conventional analysis or geostatistical software. With Chevron's approval this success was jointly disclosed at the September international conference of the American Association of Petroleum Geophysicists. In this case, had the ViaLogy analysis been available prior to drilling, a significant reduction in the number of drilled wells would have resulted in cost savings. The work currently underway has equally promising results as it could figure in mapping optimal horizontal drilling paths through unconventional formations.
ViaLogy's typical contract performance period is about six months once seismic data of sufficient quality is received. Following the delivery of QuantumRD analysis, consultations occur with the client who then begins an internal assessment in which ViaLogy results are compared to and used with results from other techniques. Most large companies use standard workflows to make investment and drilling decisions. Experiments are rare, which is why patience is important in gaining acceptance of QuantumRD as a routinely used tool. ViaLogy's work for the Oil and Natural Gas Corporation of India (ONGC) is an example. The contract is a signal achievement - a non-competitive, sole source win because of the perceived value of the technology; an exceptional, national level decision to export specific offshore seismic data sets; the future business opportunity to bring QuantumRD to bear in further development of India's most important field; and, finally, a direct face-off with previously used analysis techniques. The first phase of the work extends into the spring of next year.
Our contract win with another of the Supermajors to discover and map near-arctic sandstone reservoirs is a major commercial milestone, and the opportunity to demonstrate a new capability that has not been available to this client. In an industry where large E&P firms normally confine outside contractors to a straightforward product delivery role, the ViaLogy project has been integrated into the client's structure and we have a level of customer intimacy, as well as an insight into evolving customer requirements, that is unusual. Identifying clients by name obliges ViaLogy to have their approval which some are unwilling to grant. This may hamper our ability to report fully to our shareholders, but it is a restriction to be respected.
Commercial contracts with three of the world's largest E&P firms are important building blocks for ViaLogy. Another essential building block central to scaling the business is QuantumRD software development - the task of incorporating the ViaLogy's patented Quantum Resonance Interferometry algorithms into robust, user friendly signal processing code capable of extracting hydrocarbon reservoir properties from ultra weak seismic amplitudes that have been traditionally filtered away and discarded, along with the valuable information they may contain. We have produced a good in-house tool, and our software platforms are at a point where we support multiple large projects. But this work needs to be accelerated and expanded.
ViaLogy entered the seismic interpretation and reservoir characterization business less than three years ago, an ambitious company with a disruptive technology that can make a fundamental impact on the economics of hydrocarbon discovery and production. Within the limits of our resources we are actively developing our sales pipeline, both with existing and new clients. A dialogue is underway with key Chinese firms, and ViaLogy has elicited interest from Brazil, West Africa, and the Middle East. We are taking steps to assure protection of our intellectual property in other major producing countries in anticipation of entry into those markets. We have been awarded patent rights in China, allowing us to begin marketing efforts there.
Finally, we are actively exploring potential partnerships to accelerate business growth. Better seismic data acquisition methods (for example, more sensitive geophones for both onshore and offshore data gathering) are in use or under development by the industry, especially the six or seven large services firms. Despite their capability to routinely pick up higher and lower frequencies, better data doesn't translate to better analysis. But such data can be leveraged by QuantumRD to produce better results.
In summary, ViaLogy has successfully concentrated its work with the largest exploration and production firms, is the subject of multiple paid, contracted operational vetting by elite industry players, and in these projects thus far has produced analysis results that have been applauded. Precedents in the industry for the uptake of new technologies, including the use of seismic data itself some fifty years ago, show a pattern not dissimilar to ViaLogy's. The board believes that 2012 has been a year of accomplishment positioning ViaLogy for major gains.
For further information contact:
ViaLogy PLC
Terry Bond, Chairman - UK & Europe +44 (0) 1235-834734
Nominated Advisor and Broker to ViaLogy PLC (Seymour Pierce)
Mark Percy / Catherine Leftley, Corporate Finance +44 (0) 20-7107-8000
Katie Ratner / David Banks, Corporate Broking +44 (0) 20-7107-8000
About ViaLogy:
ViaLogy provides reservoir characterization, geophysical imaging and hydrocarbon sizing services to global oil and gas customers based on proprietary, patented active signal processing technology. ViaLogy's QuantumRD platform assists clients in de-risking prospects over a broad range of subsurface lithologies and complex stratigraphies to generate drilling targets, position offsets and enhance recovery. ViaLogy's core technology rapidly and accurately detects weak signals buried in high noise background and clutter, and is applicable to active/passive seismic, electromagnetic and magneto telluric data. By exploiting normally disregarded noise variations induced by changes in porosity, fluid presence and permeability across the formation, and adding computer-designed noise to the data, ViaLogy is able to amplify subtle noise variations to enhance areal and depth resolution in complex lithologies that are not achievable through conventional means. For more information on ViaLogy, visit www.vialogy.com.