The appearance of gas bubbles in the fluid flowing through porous medium, is described by the kinetic theory of nucleation. Rate of gas exsolution is inversely proportional to the viscosity of fluid, and it is slow for heavy oils which are of interest. The foamy state is interpreted as a metastable state which starts developing at pressures below the bubble-point of a gas-fluid phase diagram. The amount of gaseous phase is determined kinetically, that is, by the rate of nucleation. Mass balance analysis for the compound foamy fluid gives the spatio-temporal evolution of the foamy zone which starts growing around the wellbore. Fluid pressure in the foamy zone exhibits a steeper gradient, compared to the nonfoamy flow. The conditions of sand production instability via tensile failure at the foamy front are also determined, and this constitutes a condition for liquefaction and loss of effective stress in the granular medium.