forging a future for oil sands in a world focused on … heater 7 confidential iyq upgrading – how...

Forging a Future for Oil Sands in a World

Focused on Clean Fuels: IYQ Upgrading

ETX Systems Inc. © 2016

December 2016

Executive Summary

It has become difficult to make money using “dilute & ship” for oil sands development, the move to a 0.5% sulfur cap for ship emissions on Jan. 1, 2020 is likely the last straw

Growing emphasis on clean fuels - investment required if bitumen production is to be maintained

With current technology and a “lower for longer” crude price environment, the bitumen discounts required to incent third parties to make required investment are not sustainable

IYQ Upgrading by ETX Systems is well positioned to usher in a new era of sustainable oil sands development and profit from the demise of the “dilute & ship” strategy

Progressing final development step – 14 kbpd Technology Demonstration Project (TDP)

New investment in ETX, to fund TDP, provides potential for unprecedented upside

ETX Systems Inc. © 2016 2 Confidential

Background

Decision made by International Maritime Organization (IMO) in October, 2016 to adopt 0.5% cap on sulfur emissions from marine transport beginning Jan. 1, 2020

Expect devastating impact on the markets, price for high sulfur resid components in crude oil

IMO decision threatens most investment made in oil sands over past decade

“Dilute and ship” strategy requires robust pricing of high sulfur resid


From IEA Medium-Term Oil Market Report 2016

3 Confidential

The Nature of Crude Oil

Crude oil is a combination of distillable and resid components

Crudes get heavier & market values decrease as resid concentration

increases!!!!

Discount depends on value of resid which is fixed by markets for resid


Distillable

Resid

Light Oil Heavy Oil Bitumen

4 Confidential

The Current Situation – A Global Perspective

Asphalt (2.0 mmbpd)

Global Clean

Fuel Refinery

Capacity

Resid (15.0mmbpd)

Distillable Liquids (64.0 mmbpd)

With increasing emphasis

on clean fuels, demand

for direct burn of resid is

now collapsing

Limited but stable

demand for resid

beyond markets

related to fuel value

Deep conversion

allows resid to be

refined to produce

clean fuels

Crude Oil (79.0mmbpd)

Deep

Conversion (6.0 mmbpd)

Direct Burn

in “Dirty Fuel” Market Bunker Fuel

(3.0mmbpd)

Power Generation, etc.

(4.0 mmbpd)

(Option 3)

(Option 1)

(Option 2)

Refinery Distillation

Tower

Must focus on strategies to improve performance and accelerate investment in

deep conversion in Alberta


Leveraging Deep Conversion

New technology for converting resid that maximizes the production of

stable distillable liquids with less capital scope is ideal way to promote

desired investment in deep conversion


Deep

Conversion

Distillable Liquids

Gaseous By - Product

Concentrated

Carbon

By-product Minimize and

sequester

Provide feedstock for

growing Petrochemical

Industry , reduce GHGs

Maximize production

of clean fuels

Resid (non-distillable)

6 Confidential

IYQ Upgrading by ETX Systems

Technology for full conversion of high sulfur resid in crude oil

Maximizes yield of stable distillable liquids with minimum capital scope

Eliminates need for diluent but unique in “partial upgrading” space for focus

on integrating bitumen resource with clean fuel infrastructure

Timely execution of 14 kbpd Technology Demonstration Plant (TDP) is key to

salvaging investment in oil sands previously justified using a “dilute & ship”

strategy


Scrubber

Reactor

Heater

7 Confidential

IYQ Upgrading – How We Do It

Combination of two commercially proven technologies

Plug-flow dryers

Fluid bed coking

Patented process approaches ideal deep conversion

Significantly higher yield of valuable

distillable liquids

Produces less lower value by-products

including light ends and coke

Fluidization gas

Cool

solids

Liquid feedLiquid feed

Hot

solids

Fluidization gas

and reaction products

Fluidization gas

and reaction products


60

70

80

90

100

Yie

ld (

wt%

)

Gas

Coke

Liquid

Less

More

Delayed Coking IYQ Upgrading

8 Confidential

Market Segments – Near term focus on Alberta


New Clean Fuel Projects at Refineries

New Clean Fuel Projects Downstream of Refineries

Heavy Oil / Bitumen Upgrading in Alberta

Retrofits for Existing Deep Conversion Capacity

1

2

3

4

Key Factors

Ability to source large volumes and add significant value

Ability to align with

parties seeking to slash GHGs from oil sands

Ability to address market access by

creating new, premium demand domestically

Ability to eliminate diluent and reduce

requirements for export pipelines

✔✔ Future

✔ Future

✔✔✔✔ Now

✔ Future

Extensive

9 Confidential

Strategy for Market Intervention


Understand Their Needs, Concerns

Value Chain

Initial Approach

Better Approach

Adopt a midstream model, “design one, build many” approach to initial commercial rollout Margin between “clean” products and “dirty” feedstock protected by technology

10 Confidential

IYQ Upgrading Delivers Full Value from Bitumen

Revenue from increased product yield and quality plus capital, operating &

transportation cost savings provide $15+/bbl of additional margin

11 Confidential ETX Systems Inc. © 2016

Lower CAPEX than Alternatives

ETX Systems Inc. © 2016 12

$170,000

$70,000

$30,000 $20,000

$10,000

$0

$50,000

$100,000

$150,000

$200,000

NWU Voyageur DC Stand Alone IYQ Stand Alone IYQ Integrated

Upgrading in Alberta - CAPEX (/bbl of whole bitumen)

Confidential

A Much Better Return …. For A Fraction of CAPEX and EPC duration

Competition I


Mild or No Conversion

Spending $$$ To Move Bitumen To Distant Markets That Don’t Want or Need It

Fractal Jet Shear SDA

Value Creation ADC HIQ (MEG) Visbreaking

Aquaconversion MSAR

Orimulision Petrobeam

+ Others

Rival TRU Ellycracking

Superior Upgrading Petrosonic

Supercritical

13 Confidential

Competition II


Deep Conversion

EBITDA

Capital Cost

Increasing yield of clean fuels with less capital provides better investment returns – IYQ Upgrading stands alone

Ivanhoe / Riser Coking Delayed Coking Fluid Coking Eureka Ultra Selective Pyrolysis LR Coking Resid FCC LC Fining H-Oil ENI-EST Exxon Micro Cat Chevron VRSH UOP Uniflex FCC Genoil Expander FTCrude

14 Confidential

Development History, Path to Commercial Rollout


ETX has spent $20+ million and rigorously executed the award-winning development of

IYQ Upgrading over the past 10 years

Ready for final development step - the 14 kbpd Technology Demonstration Plant (TDP)

Conception Feasibility Process Development Piloting Commercialization

15 Confidential

Technology Demonstration Plant


Compelling Opportunity

~$250 million

14,000 BPSD Plant

Integrated with Crude-by-Rail

Facility Completed $1 million Feasibility Study (2014) for integrating with sour

gas plant

MOU with operator of gas plant to port study over to new crude-by-

rail location

16 Confidential

Projected Cash Flow from Funding, Operation of TDP


Realistic - Attractive

14,000 BPSD

Three Year Project Payback

On its own, successful operation of TDP can create ~$500 million on NAV

$ mil 2016 2017 2018 2019 2020 2021 2022 2023 …

Inflows

Government Grants - 13 57 - - - - - -

Equity Raises 9 36 137 - - - - - -

Operations EBITDA - - - 30 50 75 75 75 75

Outflows (1) (20) (186) (45) - - - - -

NET 8 29 8 (15) 50 75 75 75 75

Cumulative 8 37 45 30 80 155 230 305 380

17 Confidential

2016 Commodity Prices, New Site, Improve Case


Easy Access Via Tanker Car

Underutilized Facilities

Close To Feedstock

Updating Feasibility Study to Reflect New Opportunities, Sites

18 Confidential

TDP Product Flow & Price Schematic


Diluent Recovery

Unit at crude-by

rail-terminal

Dilbit transported from oil sands to

Edmonton area

20,000 bbl/d

Dilluent removed and

returned to oil sands

producers

6,000 bbl/d

Bitumen from DRU to IYQ Reactor

14,000 bbl/d

IYQ Reactor

Sour Vacuum Gas Oil, moved by rail to

continental refiners

11,200 bbl/d

Dense coke sequestered in landfill

350 MT/d

Olefinic Condensate to

Alberta based facilty

1,120 bbl/d

Olefinic Offgas (C4 minus) to

Alberta based facility

1,120 bbl/d

19 Confidential

Risks


1 2 3

Economic

Low

Works at Low Barrel Price

Plenty of Feedstock

Low Overhead

Low Cost of Capital

Technological

Low

Proven

Protected

Government

Low

Encouraged

Supported/Incented

Environment = Priority

Risks Low and Easy To Mitigate

20 Confidential

Future Expansion


$560 million

Standard/Turn Key

28,000 BPSD Plant

New Plants

2021 2022 2023 2024 2025

Very Real Potential to Mitigate the IMO Edict Impacts

50+ Plants in Alberta

Design One, Build Many

21 Confidential

Shareholder Returns

Leverage IYQ Upgrading to accelerate investment in the infrastructure required to tie bitumen resource to clean fuel markets

Proprietary advantage for maximizing margins will be created when “dirty” feedstock is converted into “clean” products


Technology Demonstration Project

CAPEX for 14 kbpd $250 million

Grants (Expected) ~$70 million

NAV ~$500 million ($12.50/share)

Feed In 2019/2020

Annual EBITDA $75 million (90% Service Factor)

Commercial Rollouts

Greenfield CAPEX for 28 kbpd $560 million

Current “Dry” Bitumen Exports 1,500 kbpd

Commercial Potential 50+ rollouts @ 28 kbpd/plant

forging a future for oil sands in a world focused on … heater 7 confidential iyq upgrading – how...

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