Creating value and efficiency
for heavy oil resources
Corporate Presentation
June 2013
Disclaimer
Confidential Business Summary
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Investment highlights
Fractal Systems Inc.
Developing field solutions to heavy oil challenges
Canadian company - offices in Calgary, Alberta & Sherbrooke, Qubec
Currently commercializing first technology JetShear
Developing new, value creating technologies for heavy oil
JetShear Technology
A proprietary technology that has a significant cost advantage over
alternatives in the transportation of extra heavy oil
Technology has been successfully piloted in Canada; also operated
1,000 bpd capacity facility in 2012 on heavy oil site in eastern Alberta
Received product patent in May 2011 and process patent in January 2012
Completed feasibility study on large capacity, commercial plant for SAGD
with multi-national producer in 2012
Executed technology development agreement with major oil sands
producer in January 2013; commercial demo agreement executed in May
2013
3
Investment highlights (contd)
Experienced team with proven track record
Joe Gasca, CEO
30+ years of industry experience, most recently serving as CEO of Ivanhoe
Energy
21 years in major leadership positions at Texaco
Dr. Esteban Chornet, Founder
Inventor of JetShearTM technology
Professor of Chemical Engineering at Universit de Sherbrooke (Qubec,
Canada), affiliation with NREL
Michel Chornet, VP Engineering
14+ years of engineering and technology development experience in the oil
& gas and renewable energy sectors
Shell and H-Power
Marcel Matte, VP-Projects/Operations
23 years of process engineering and project management experience
Most recently established and led Calgary office for Fransen Engineering
Committed investors with energy domain experience
Rho Ventures and Braemar Energy Ventures
4
Bitumen and heavy oil challenges
1. Difficult to transport to market due to high viscosity
Once the oil is to the surface, it cools and the high viscosity
becomes a challenge; producers use diluent (very light oil;
typically condensate) to blend with the heavy oil
2. Priced lower than conventional (light) oil
Due to the heavier, longer chain molecules in heavy oil, it is
more costly to refine into products such as gasoline and jet
fuel
3. Difficult to get out of the ground due to high viscosity
The Bottom Line
Netback to producer
Cost of gas for steam generation (challenge 3)
Other operating costs
Royalties to Canadian govt
Transportation expense (challenge 1)
Heavy oil differential (challenge 2)
Basis WTI = $89/barrel
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Excerpt from Alberta Oil Sands Presentation
July 2011
Focus of JetShear Technology
Challenge 1 Difficult to transport
Diluent* required for transportation of heavy oil is expensive
Diluent -
purchased
@ C5+ price
plus tariff
added to
Bitumen/
Heavy oil
DilBit -
sold
@ blend price
less tariff
- produced
Bitumen & Heavy Oils are dense (<12 API) and highly viscous
(100,000+ cSt) requiring significant diluent to meet transportation
quality specifications; often as much as 30% blend ratio
Netback to the producer for their bitumen/heavy oil is highly volatile
*
Diluent is a light hydrocarbon (typically a natural gas liquid or condensate C5+) that is used to
dilute the heavy oil in order to improve its transportation characteristics (lower viscosity)
6
JetShear reduces diluent by ~40%
Results from pilot facility bitumen
Dramatic reduction in viscosity
Without Jetshear
1200
With JetShear
20.5
20
1000
19.5
~91%
reduction
800
cSt
600
~2.5 API
increase
19
18.5
18
400
17.5
200
Pipeline 17
Specifications
16.5
16
Viscosity
API Gravity
density (inverse)
May 2010 Monthly Average Results
Bitumen-Diluent blend provided by a SAGD producer
7.5 API feedstock, 70 API ~25% blending ratio
Heavy oil industry value chain
Midstream
Upstream
heavy oil producer
heavy oil producer
truckers
blending terminal
blending terminal
JetShear
application
Downstream
Pipeline Key
Bitumen/HO
Diluent
Upgraded oil
refinery
Integrated
producer/upgrader
The image cannot
be displayed.
Your computer
may not have
enough memory
to open the
oil sands mine
integrated upgrader
The Canadian heavy oil market
Athabasca
Oil Sands Region
Mining Projects (currently 4)
Thermal Oil Sands in-situ
Fort
McMurray
10 API
8-9 API
SAGD Projects (currently 13)
Peace River
Oil Sands Region
Conventional Heavy Oil (cold)
Cold Lake
Oil Sands Region
Thermal Oil Sands in-situ
10 API
Conventional Heavy Oil (cold)
Edmonton
Hardisty
12+ API
Lloydminster/Provost
Heavy Oil Region
Canada - A growing oil sands market
Target volume to more than double in 5 years
From Canadian Assoc. of Petroleum Producers June 2012
Bitumen blend is primary target
of business development
Upgraded oil does not need Fractal technology
There are a limited number of potential
opportunities in the conventional heavy oil market
Leads to growing diluent demand
000 barrels per day
Nearly C$10 billion* market in 2012
* - 2012 avg. diluent (condensate)
price in Canada = $100.79/barrel
Enbridge Forecast
July 2011
Supplied from
Canadian natural
gas industry
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A very simple system
Process utilizes heat + cavitation
Flue Gas
Simplified process flow diagram
Heater
Air
Fuel
Heat
Recovery
Jet Nozzle
Assembly
Densitometer
Diluent
Transfer Pump
Diluent Pump
Viscometer
to Pipeline
Filter
Heavy Oil
Transfer Pump
Heavy Oil Pump
Cooler
Flowmeter
Temperature
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Various pictures 1000 bpd DEMO
12
Commercializing JetShear
Demonstrating progress
300 bopd Pilot Facility
Successfully validated
lab results (Aug 09);
processed bitumen
blend (May-June 10)
1,000 bopd
Commercial Demo
Operations during
1H 2012
Completed
preliminary
designs
100,000
Typical
commercial
opportunities
Feasibility
Study
3-30 bopd Lab
Facility in
Sherbrooke
1,000
100
Time
Facility capacity (barrels oil per day)
10,000
10
13
Value of reducing diluent
Simplified value proposition assuming 50% reduction
Conventional blending
7 barrels
Produce
Bitumen or
Heavy Oil
JetShear (50% diluent reduction)
7 barrels
3 barrels
10 barrels
Purchase
Diluent
@ C5+ price
plus tariff
Sell
DilBit
@ LLB price
less tariff
1.5 barrels
8.5 barrels
Three components of value add:
Diluent savings per bbl ={1.5 barrels x (cost of diluent per bbl price of dilbit)}/7
Tariff savings per bbl = {(1.5 barrels x dilbit tariff) + (1.5 barrels x cond tariff)}/7
Savings reduced by JetShear opex
Assuming:
Dilbit = $60.00/bbl1; Diluent = $80.00/bbl2; Dilbit tariff = $2.00/bbl; Diluent tariff = $1.00/bbl;
JetShear opex = $0.80/bbl
Diluent savings = {1.5 x (80.00 60.00)}/7
Tariff savings = {(1.5 x 2.00) + (1.5 x 1.00)}/7
Less JetShear opex
Value add per bbl
= $ 4.29/bbl
= $ 0.64/bbl
= ($0.80/bbl)
= $ 4.13/bbl
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Summary
Fractal is a private Canadian corporation with offices in
Calgary, Alberta and Sherbrooke, Qubec
JetShearTM process adds value by
JetShearTM commercialization on target
Improving viscosity
Improving density
Scalable, cost-effective
Pilot facility successfully operated in field
Commercial demo in field
Technology and demo agreement with large oil sands
producer
Feasibility study completed on large commercial project with
large producer
R&D program developing new, value adding technologies
New developments to expand on benefits of JetShear
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Appendix
16
JetShear process
Conventional Blend
Using complex technology
Heavy Oil
Destructured Heavy Oil
* Solvation
* Temperature - facilitates molecular mobility
* Cavitation - liberates kinetic energy to chemical energy
* Near sonic velocities
* High shear forces
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Protecting and enhancing value
Two JetShear patents:
Patent No. US 8,105,480 issued January 2012
Process for treating heavy oils
Patent No. US 7,943,035 B2 issued May 2011
Treated oils having reduced densities and viscosities
Filing countries:
Canada and USA
National Filings
Brazil, Ecuador, Colombia, Mexico, EU, Oman, China
PCT application
Work underway for new patent(s)
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