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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
ETX Systems Inc. © 2016
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
ETX Systems Inc. © 2016
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
ETX Systems Inc. © 2016 5 Confidential
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
ETX Systems Inc. © 2016
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
ETX Systems Inc. © 2016
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
ETX Systems Inc. © 2016
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
ETX Systems Inc. © 2016
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
ETX Systems Inc. © 2016
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
ETX Systems Inc. © 2016
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
ETX Systems Inc. © 2016
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 Systems Inc. © 2016
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
ETX Systems Inc. © 2016
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
ETX Systems Inc. © 2016
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
ETX Systems Inc. © 2016
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
ETX Systems Inc. © 2016
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
ETX Systems Inc. © 2016
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
ETX Systems Inc. © 2016
$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
ETX Systems Inc. © 2016 22 Confidential
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