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Upgrading with a “soft touch” Canadian Heavy Oil Conference 4 November 2014

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Page 1: Upgrading with a “soft touch”media.choa.com.s3.amazonaws.com/CHOC-Presentations... · Bitumen and heavy oil challenges 1. Difficult to get out of the ground due to high viscosity

Upgrading with a “soft touch”

Canadian Heavy Oil Conference

4 November 2014

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2 2

Agenda

• Heavy Oil Industry – the market & its challenges

• Upgrading in Canada

• Fractal Systems’ JetShear™ Technology

• Commercializing JetShear™

• Value Proposition

• Fractal Systems Summary

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3

Heavy oil industry – the market and its challenges

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Lloydminster/Provost

Heavy Oil Region

Athabasca

Oil Sands Region

Cold Lake

Oil Sands Region

Peace River

Oil Sands Region

SAGD Projects

Thermal Oil Sands “in-situ”

Conventional Heavy Oil (“cold”)

Mining Projects

Edmonton

Hardisty

Fort

McMurray

Thermal Oil Sands “in-situ”

Conventional Heavy Oil (“cold”)

The Canadian Heavy Oil market

8-9° API

10° API

12+° API

10° API

Page 5: Upgrading with a “soft touch”media.choa.com.s3.amazonaws.com/CHOC-Presentations... · Bitumen and heavy oil challenges 1. Difficult to get out of the ground due to high viscosity

Bitumen and heavy oil challenges

1. Difficult to get out of the ground due to high viscosity

– Producers inject steam underground into the heavy oil

reservoir; the heat from the steam “thins” the oil

– If shallow, producers “mine” the bitumen

2. 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 field condensate/pentanes plus) to blend with the

heavy oil

3. 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. Oil is also discounted due to acidic nature as well as

other contaminants.

5

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Challenge 1 – Difficult to produce Energy required to generate steam is inefficient

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Challenge 2 – Difficult to transport Diluent* required for transportation of Heavy Oil is expensive

Sell DilBit

@ blend price less tariff

Produced Bitumen/ Heavy oil

Purchase Diluent @ C5+ price plus tariff

* 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)

• 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 is highly volatile

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Canada - A growing oil sands market . . . Target volume to more than double in 5 years

From Canadian Assoc. of Petroleum Producers – June 2014

Upgraded oil does not need Fractal technology

There are a limited number of potential

opportunities in the conventional heavy oil market

* - Jan-Sept 2014 avg. diluent (condensate)

price in Canada = $109.85/barrel

. . . Leads to growing diluent demand Approximately ~C$12-13 billion* market in 2014

Bitumen blend is primary target

of business development

From Canadian Energy Research Inst.– July 2014

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Challenge 3 - Price lower than conventional oil Heavy oil has less desirable chemistry

9

Refined Product

Use Carbon Atoms

Petroleum Gas 1-4

Naptha Further process to gasoline

5-9

Gasoline 5-12

Kerosene Jet fuel/tractors 10-18

Gas oil/diesel dist.

Diesel fuel, heating oil, feedstock for other products

12+

Lubricating oil Motor oil, grease, etc

20-50

Heavy gasoil or fuel oil

Industrial fuel, etc

20-70

Residuals Coke, asphalt, tar, etc

70+

Upstream

(Oil Field)

Downstream

(Refinery)

$95/bbl $75/bbl $58/bbl

Most valuable (~80% of refinery yield)

Typical pricing

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Heavy oil challenges - the bottom line Canadian thermal project (SAGD) example

10

•Netback to producer

•Cost of gas for steam generation

(challenge 1)

•Other operating costs

•Royalties to Canadian gov’t

•Transportation expense

(challenge 2)

•Heavy oil differential

(challenge 3)

Excerpt from Alberta Oil Sands Presentation

July 2011

Basis – WTI = $89/barrel

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Upgrading in Canada

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Upgrading in Canada Pros & Cons

Capture refining margin

Reduce transport

costs (diluent)

Capture production synergies

Economies of scale

Upgrade in Canada Export Diluted Bitumen

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‘09 ‘08 ‘10 ‘11 ‘12 ‘13 ‘14 0%

20%

40%

60%

80%

100%

Heavy oil discount – WCS to MSW

Condensate premium – Condensate to MSW

Source: CAPP

Avg discount = 16.2%

Avg premium = 10.6%

$14.58/bbl

$9.07/bbl

Avg Discount to WTI = 20.8%

Field upgrading Decision to build driven by expectations of differentials

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Field upgrading More value means greater cost & complexity

Net

Valu

e U

plif

t* –

after

incre

menta

l O

pex (

$/b

bl)

Capital Intensity – complexity – project risk

($ per bpd of capacity)

0

5

10

15

20

25

1,000 10,000 100,000 1,000,000

JetShear™

Partial/Field

Upgraders

Conventional

Upgraders

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JetShear™ – the technology

Page 16: Upgrading with a “soft touch”media.choa.com.s3.amazonaws.com/CHOC-Presentations... · Bitumen and heavy oil challenges 1. Difficult to get out of the ground due to high viscosity

Bitumen and heavy oil challenges

1. Difficult to get out of the ground due to high viscosity

– Producers inject steam underground into the heavy oil

reservoir; the heat from the steam “thins” the oil

2. 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 – C5+) to blend with the heavy oil

3. 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. Oil is also discounted due to acidic nature as well as

other contaminants.

16

(Fractal not focused on subsurface technologies)

Fractal

Systems

Technology

Focus

(Fractal’s JetShear™ technology addresses transportation)

(Fractal is developing new technologies to enhance heavy oil price)

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oil sands mine

blending terminal

refinery

truckers

integrated upgrader

Pipeline Key

Bitumen/HO

Diluent

Upgraded oil

Heavy Oil industry value chain

blending terminal bitumen producer

Integrated

producer/upgrader

heavy oil producer

“Upstream” “Midstream” “Downstream”

JetShear

application

Page 18: Upgrading with a “soft touch”media.choa.com.s3.amazonaws.com/CHOC-Presentations... · Bitumen and heavy oil challenges 1. Difficult to get out of the ground due to high viscosity

Underground heavy oil reservoir

18

Thermal facility application

Producer Processing Facility

(simplified)

Steam

Injection

Well

Oil

Well

Steam

Generation

Water

Well Pad

Diluent

Storage

Oil Storage Separation

“Trim

Blender”

Diluent

Supplier (expense)

Natural

Gas

Supplier (expense)

Crude Oil

Purchaser (revenue)

Pipeline

Diluent

supports

separation

JetShear™ replaces blending

skid in thermal operation

Diluent added to meet

pipeline specifications

“dilbit”

About ½ of the diluent required

to meet the pipeline

specifications (viscosity &

density) is added in the

separation process; the other

half is added at the trim blender

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A very simple system! Process utilizes heat + cavitation

Simplified process flow diagram*

Small footprint

Fast deployment

Low engineering risk

* - commercial demo

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100

1,000

10,000

100,000

1,000,000

0% 5% 10% 15% 20% 25% 30% 35%

Vis

cosit

y

(cP

) @

15

oC

Diluent

(vol%)

Viscosity BlendingCold Lake Bitumen (10oAPI)

JetShear vs. Conventional Blending

JetShear Blend

Conventional Blend

Pipeline reference @ 350 cP

20

Achieves viscosity spec

using ~half the diluent

350 cP

Results from Fractal – Sherbrooke labs

Using JetShear™, a heavy oil producer can meet pipeline viscosity requirement with substantially less diluent

Page 21: Upgrading with a “soft touch”media.choa.com.s3.amazonaws.com/CHOC-Presentations... · Bitumen and heavy oil challenges 1. Difficult to get out of the ground due to high viscosity

Source: Fractal Systems Inc analysis, using emissions data from ‘’IHS CERA Special

Report – Oil Sands, Greenhouse Gases, and US Oil Supply: Getting the

Numbers Right; 2010’’

Wells to Refinery: refinery product distribution and transportation emissions excluded

21

Wells to refinery analysis excluding refinery product distribution and

transportation

JetShear™ Environmental Benefit 4% emissions reduction

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JetShear™ – commercialization of the technology

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Commercializing JetShear™ Demonstrating progress

Fac

ility c

ap

ac

ity (b

arre

ls o

il per d

ay)

10

100

1,000

10,000

100,000

300 bopd Pilot Facility

Successfully validated

lab results (Aug ’09);

processed bitumen

blend (May-June ‘10)

1-30 bopd Lab

Facility in

Sherbrooke

Time

Typical commercial

opportunities

Completed preliminary

designs

Feasibility

Study

1,000 bopd Commercial Demo

Operations during 1H 2012, retrofit Q1-2014

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16.5

17

17.5

18

18.5

19

19.5

20

20.5

0

200

400

600

800

1000

1200

Without Jetshear With JetShear

24

Results from pilot facility – bitumen Dramatic reduction in viscosity!

°API Gravity Viscosity

Pipeline

Specifications

May 2010 Monthly Average Results

cSt

density (inverse)

7.5 °API feedstock, 70 °API ~25% blending ratio

~2.5 °API

increase ~91%

reduction

Bitumen-Diluent blend provided by a SAGD producer

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North View of 1000 bpd Skid

Scale-up risk is minimal

Novel, patented technology in this box!

Scale-up risk is primarily associated with nozzle scale-up

Process equipment is standard for the oil industry

Prudent scale-up approach with nozzles based on scientific

fundamentals and experience

1 bpd/nozzle

3 bpd/nozzle

30 bpd/nozzle

150 bpd/nozzle

500 bpd/nozzle

Scale-Up Sequence Commercial unit

multi-nozzle assembly

500 bpd/nozzle

2 sets of 6 banks of

9 nozzles @ 500 bpd/nozzle

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26

Metering

station

feed and

product tanks

Electrical

Room JetShear

Building

Heater

Glycol

Cooler

Warehouse Office

Trailer

Thermal

Oxidizer

1,000 bpd JetShear™ Commercial Demo

H2S

Removal

Page 27: Upgrading with a “soft touch”media.choa.com.s3.amazonaws.com/CHOC-Presentations... · Bitumen and heavy oil challenges 1. Difficult to get out of the ground due to high viscosity

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Value proposition

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Value of reducing diluent Simplified value proposition assuming 50% reduction

Sell

DilBit

@ LLB price

less tariff

Produce

Bitumen or

Heavy Oil

Purchase

Diluent

@ C5+ price

plus tariff

+

7 barrels 3 barrels 10 barrels

7 barrels 1.5 barrels 8.5 barrels

Conventional blending

JetShear (50% diluent reduction)

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 = $83.11/bbl1; Diluent = $109.85/bbl2; Dilbit tariff = $1.20/bbl; Diluent tariff = $1.30/bbl;

JetShear opex = $0.82/bbl

• Diluent savings = {1.5 x (109.85 – 83.11)}/7 = $ 5.73/bbl

• Tariff savings = {(1.5 x 1.20) + (1.5 x 1.30)}/7 = $ 0.54/bbl

• Less JetShear opex = ($0.82/bbl)

• Value add per bbl = $ 5.45/bbl

Prices from CAPP(2014

Jan-Sept avg):

1 – WCS

2 - Condensate

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Value added by displacing diluent Sensitivity - Conventional Blend Ratio vs Diluent Displacement

29

Based on average product (WCS & Cond) prices from CAPP from Jan ’14 thru September ‘14

Cold Lake Bitumen

Athabasca Bitumen

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

25% Blend Ratio 30% Blend Ratio 35% Blend Ratio

30% DD

40% DD

50% DD

60% DD

Va

lue A

dd a

fter

JeS

hear

Opex (

$/b

bl)

Befo

re C

apex

DD=diluent displacement

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Summary

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• Fractal is a private Canadian corporation with offices in Calgary, Alberta and Sherbrooke, Québec

• JetShearTM process adds value by

• Improving viscosity

• Improving density

• Scalable, cost-effective

• JetShearTM commercialization on target

• Pilot facility successfully operated in field

• Agreements executed with large oil sands producer for technology development and commercial demonstration

• Commercial demo in operation processing partially diluted bitumen

• R&D program developing new, value adding technologies

• Patent application filed for enhancements to JetShear™

• Patent application filed for acid (TAN) removal process ARP™

• Ongoing R&D targeting total diluent displacement - TDD™

Summary