A novel nano-catalytic in-situ upgrading technology (ISUT) using hot fluid injection for heavy oil and bitumen production and recovery has been proposed recently (Pereira-Almao et al., in-situ upgrading via hot fluid injection, US Patent US20150114636A1). In this method, a vacuum distillation unit is used to separate the vacuum residue of the produced oil. The nano-catalysts are then dispersed into the vacuum residue (VR) and are re-injected in the reservoir, along with hydrogen. However, because of the difference in the interface forces in the residue/gas mixture, segregation of gas is possible. A practical hydrogen to VR ratio of 120 Scc/cc is employed to study the physical separation possibility within actual reservoir/well geometry. VR and hydrogen are injected at 357 and 100 degrees C, respectively. Computational fluid dynamics (CFD) is employed to model the VR + H-2 injection using the volume of fluid (VOF) method. Sensitivity analysis on reservoir pressure, mixing layout, and hydrogen solubility is also conducted.