Vialogy - some good technology but can it make money?

Following my request for further investment ideas outside the usual commodity plays, several readers have recommended AIM listed ViaLogy (VIY).

The company was originally founded in 1999 with the help of a small UK listed incubator, BioProjects International backed by investment guru, Jim Slater, and Angel investor Terry Bond. BioProjects ultimately merged with ViaLogy in 2003.

Intellectual property

This company has eleven US, and three European patents, that are based on a quantum algorithm which immensely improves the detection of minute signals in noisy backgrounds. These patents originally arose as a result of the work done at California's  NASA jet propulsion laboratories, who were trying to filter out weak signals sent back from spacecraft back to Earth from background interference.

Originally Vialogy tried to develop technology in several areas such as border security and surveillance systems before focusing on the oil and gas sector with its QuantumRD system in 2008. This was able to identify the density and extent of oil deposits as well as potential new drill targets. The key is active signal processing of seismic data; ViaLogy applies proprietary software that adds a synthetic signal to the seismic processing and analysis sequence.  Whereas conventional  seismic processing seeks to suppress noise that typically obscures a signal, Vialogy software creates synthetic quantum mechanical noise as the active signal.  ViaLogy is the first and only company currently capable of extracting information from conventional seismic data using interferometric active signal processing. The company claims that the technology is 10-100 times more effective at detecting signals in noisy environments than standard passive signal processing techniques.

In February 2010, the technology was successfully used to  identify a target well in the Strawn Field of the central Texas Permian basin – a region where 18 wells had been drilled previously, 15 of which turned out to be dry. In addition, ViaLogy has successfully completed its technology demonstration project on an offshore prospect for a global non-US major oil exploration company. 

ViaLogy has signed a master services contract with a major oil company for it to appraise the QuantumRD system.

Funding
ViaLogy raised £1.25 million in January 2011 through the placing of 41,666,664 new ordinary shares at a price of 3p per share. The proceeds of the Placing will be used in the further expansion of the company's energy prospects.

The number of shares in issue is 733,941,998 with a market capitalisation of £28 million. The current share price is 3.88p (52 week range 3.13-6.75p).

SWOT

Strengths

QuantumRD technology has had promising results in oil and gas sector projects to date

Good patent coverage
Appraisal deal signed with major oil company

Weaknesses

Long history of "jam tomorrow" to investors and little to show so far for all the promises

AIM listed and penny share volatility

Limited financial firepower

No major institutional shareholders

Opportunities

Oil getting harder to find and exploration companies looking to increase success rates given expensive drilling contracts

Threats

More fund raising likely within 12 months

Major deal not completed with partner company as promised to start generating substantial revenues

Share outlook

Investors in Vialogy have had to be patient, with constant promises of jam tomorrow. The fact that Jim Slater is an investor seems to have enticed private investors into this stock. It is encouraging that the company seems to be getting traction on its Quantum RD system with the oil and gas industry but the sector is highly conservative when its comes to adopting new technology on a widespread basis. Constant placings with institutional investors are always unwelcome, the last one being at the start of 2011. 

2011 could well be Vialogy's year if the constant promises of adoption of the QuantumRD technology come to anything. Terry Bond, the company's Chairman now needs to deliver. If the share price drops lower towards the placing price of 3p, this could be interesting, but I think only a small investment would be prudent so early in the evolution of this story. The NASA technology story always makes a company like this stand out from the crowd, but patents don't always mean a booming share price!

Sea of red today as fear stalks market

The FTSE 100 managed to regain some of its poise late in the session, finishing down 18 at 5,997 after being much further in the red in the morning. Worries about the Libyan crisis and poor results from retailer Walmart were offset by good consumer confidence numbers from the U.S. and encouraging news on a budget surplus in the U.K. last month. Looks like the VAT rise to 20% and the increase in capital gains tax from 18 to 28% is finally swelling the Treasury coffers!

Another dreadful day for the Contrarian Investor UK portfolio with all the stocks down and with the oil stocks feeling the pain despite the rising oil price. It was nice to see Bowleven finally rebound to finish up 2%  at 313p after falling below £3 this morning. I couldn't resist a top up at £3 with so much news to come from its Cameroon Sapele-1 well and other drilling activities. As for Rockhopper, I am gob smacked it is now at 232p after yet another 6% fall so I am well down on this. Fortunately there is no rush to sell at these levels, i'm holding firm for the results of the 14/10-4 well in mid-March. Crazy that its dropped £1.50 since the 14-10/3 well result and yet Goldman Sachs has its target price over £6. Institution selling plus private investors fearing for their lives. What's with the nonsense about a Sea Lion duster!! What next? Glad i derisked on Xcite last week with anothet 9p fall. Had far too much in Xcite until a couple of weeks ago. Shame I put some of it in Rockhopper, we're all human!!!

AIM sell off intensifes on news from Libya

Brent crude hit $108 a barrel today on fears on the disruption of supply from Libya. The FTSE 100 is currently down 40 points to 5,975 but was down over 70 points earlier in the session.

My AIM oil and commodity stocks took the change in sentiment badly with Xcite, Bowleven and Rockhopper all deeply in the red and trading below fundamental value. A combination of fear, stop losses being triggered and profit taking all took their toll. I didn't think I would be able to buy rkh at 225p and blvn less than 300p. But that's AIM for you, extreme volatility is the norm and you need to plan for it and have cash on the sidelines for weeks like this.