q upgrading - etx systems dryers fluid bed coking patented process approaches ideal deep conversion...

IYQ Upgrading

Getting More Clean Fuels from Heavy Crude Oil With

Less Capital Scope

ETX Systems Inc. © 2017

July 2017

Executive Summary


▪ As demand for “dirty fuel” fades, massive new investment ($100+ Billion) in capacity to

allow clean fuels to be produced from resid components in crude oil is required

▪ A compelling case has emerged for midstream operators to own and operate this capacity

▪ More difficult to incent refiners to invest in resid conversion than it has been in the past

▪ Credit-worthy producers support new investment with long term fee-for-service agreements

▪ Predictable performance and strong counter-parties help justify high capital cost

▪ Building resid conversion in Alberta addresses the biggest challenges for Oil Sands

▪ ETX Systems has spent more than 10 years and $20 million developing IYQ Upgrading, a

better, more efficient technology to improve the yield of clean fuels from resid

▪ Investors in ETX can expect more profits from new investment in resid conversion capacity

▪ ETX to develop, then sell IYQ Upgrading capacity to midstream operators

▪ Gain on sale of each new unit could be $25,000+ / bbl of throughput

▪ ETX is moving forward with a 14 kbpd Technology Demonstration Plant (TDP)

▪ Scale chosen to provide both technical and commercial inputs to full scale (28 kbpd) rollouts

▪ Expect TDP to be built for less than $250 million based on 2014 study

▪ Expect $75+ million of annual EBITDA when it achieves full rates

▪ ETX to sell TDP after proving operability - success supports ~$630 million valuation

Background

▪ Crude oil contains both heavy (“resid”) and light (“distillable”) components

▪ Increasing concentration of resid components makes crude oil “heavier”

▪ Investment in capacity to convert resid into the distillable components that refiners use to make clean fuels can be justified with appropriate discounting of resid / heavy crude

▪ Discounts must reflect capital requirements, hurdle rates, and yield penalties

▪ Lingering demand for “dirty fuel” has thus far limited discounts, investments in “deep conversion”

3

Asphalt(2.0 mmbpd)

Global Clean

Fuel Refinery

Capacity

Resid(15.0mmbpd)

Distillable Liquids (65.0 mmbpd)

Demand for direct

burn of resid supports

price of heavier crude

Limited markets

beyond fuel for resid

Deep conversion

can link resid to

clean fuels

Crude Oil(80mmbpd)

Deep

Conversion(6.0 mmbpd)

Direct Burn

as “Dirty Fuel”(7.0 mmbpd)

Refinery Distillation

Tower


The Times, They are a Changing

▪ Use of dirty fuel with high sulfur content for marine transport, a key element of “lingering” demand, is expected to collapse with a new law, effective Jan. 1, 2020

▪ Expect unprecedented investment in deep conversion capacity moving forward

▪ Increasing discounts on heavier crudes will be required to incent this investment

4

From IEA Medium-Term Oil Market Report 2016


How Low Can You Go?

▪ Markets reflect expectations for increasing discounts based on high sulfur (3.5%) resid content, but currently decisions to invest to better accommodate this resid are lagging

▪ More significant increases in discount likely required by refiners with limited access to capital and alternate opportunities related to shale oil

5 ETX Systems Inc. © 2017

Midstream Model for Clean Fuels from Heavy Oil

6

Value Chain

Traditionalcombine deep

conversion with either upstream or downstream

▪ Managing discounts will be far more important for producers of heavy crude, especially

given a “lower for longer” crude price environment

▪ Significant capital and predictable processing makes investment in deep conversion

infrastructure a good fit for a midstream model, especially for Canadian oil sands

▪ Midstream entities own & operate capacity, producers provide fee for service and own product

BetterDevelop and finance deep

conversion as a midstream

facility


Addressing Challenges with Oil Sands Development

7

▪ Using a midstream model to promote new investment in deep conversion in Alberta

addresses the major challenges faced with new Oil Sands Development

Challenge Resolved? Comment

Heavy Oil Discount ✓Breaks link to dirty fuel market which is the

source of this discount, “dirty oil” image

Need to decarbonize

products of oil sands ✓Commitment to landfill coke enables economic

(<$60/tonne) sequestering of carbon

Pipeline constraints for

export of products ✓Eliminate diluent, marginal byproducts - Get

35% more from existing pipe

High cost of moving product

to distant markets ✓400 km to a refinery in Montana is better than

4000 km to a refinery on the Gulf Coast

Justifying capital to better

link resource to market ✓Integrate rather than replace existing

infrastructure, reduce investment hurdle rate


Current Technology and the Midstream Model

8

▪ Delayed Coking is the over-whelming choice of industry for deep conversion

▪ Mature with predictable yields and costs that are well understood (capital and operating)

▪ Expect fees based on delayed coking to set standards for midstream model

▪ Midstream arrangements effectively mitigate heavy oil discount risk for producers

▪ Attractive access to capital for midstream players helps reduce fees / discounts

0

10

20

30

40

50

60

Revenue, LowCarbon Intermediate

Products

Capital RecoveryFee

Operating Cost Fee Bitumen Realization

$ /

bbl pro

cessed

Delayed Coking: Impact on Fees and Bitumen Realizations


Getting More from Deep Conversion: IYQ Upgrading

▪ ETX Systems has spent more than 10 years and $20 million to improve on the

performance of delayed coking with the award winning development of IYQ Upgrading

9

Conception Feasibility Process Development Piloting Commercialization


IYQ Upgrading – How We Do It

▪ Combination of two commercially proven technologies▪ Plug-flow dryers

▪ Fluid bed coking

▪ Patented process approaches ideal deep conversion▪ Higher yield of valuable distillable liquids

▪ Produces less lower value by-products

▪ Enables reduced capital scope

10

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


IYQ Upgrading and the Midstream Model

11

▪ ETX will use the proprietary advantages of IYQ Upgrading to develop and then sell new

deep conversion assets to midstream operators

▪ Reduced capital scope lowers cost to develop assets based IYQ Upgrading

▪ Increased yield of premium products supports increased fees for processing bitumen

▪ Increased fees underpin increased market value of assets based on IYQ Upgrading

0

5

10

15

20

25

30

35

40

45

50

Cost / Market Value,Delayed Coking

Cost, ETX Market Value, ETX

Thousand $

/bbl T

hro

ughput

ETX – Build, Then Sell

Gain upon

sale

Marginal / Negative value Premium value


Proving Operability and Commercial Upside

12

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

gas plant

▪ ETX is advancing plans for a 14 kbpd Technology Demonstration Plant (TDP)

▪ ~$250 million “order of magnitude” cost based on previous Industry-supported work

▪ Potential for positive cash flow by 2020

▪ Expect $75+ million of annual EBITDA from TDP with commercial service factors

▪ Scale chosen to provide technical and commercial inputs for full scale rollouts (~28 kbpd)

▪ Stage gated approach to advancing TDP and funding

▪ Provides upside required by investors


Aligning with Strategic Industry Partners

13

▪ ETX is well positioned to profit in a “lower for longer” crude oil price environment where yield of clean fuels and responsible management of carbon byproducts matters

▪ Equity investment from strategic industry partners that share ETX’s vision will help fund the TDP and ensure alignment

▪ Unique opportunity to “high grade” returns from new investment to better connect heavy crude resource with premium markets

ETX By The Numbers

Share float - current 15.6 Million

Share float – ultimate (estimated) 35 Million

Cost estimate, 14 kbpd TDP $250 Million

Potential for grants $60+ Million

Market Value, Successful TDP (estimated ) $630 Million ($18 / share)

Gain on sale of each 28 kbpd unit (estimated) $700 Million ($20/ Share)

# of 28 kbpd rollouts, current bitumen exports 50+ potential

Global upside ?


Next Steps

14

▪ ETX is raising $2 million to advance TDP to next stage gate

▪ Money supports decision in 6 months on TDP location – two sites being considered

▪ MOU with midstream operator for Edmonton location, initial site due diligence complete on alternate location in Southern Alberta

▪ Advance business case, engineering and Class 5+ cost estimate for both sites


Appendix

15 ETX Systems Inc. © 2017

The Team

16

Experienced – Knowledgeable - Connected

Gerard MonaghanCEO/President

25+ years – ETX, Syncrude, ExxonChemical Engineer, MBA

Wayne BrownDirector

25+ years – ETX, Syncrude, Coanda, McGillChemical Engineer, Phd

2011 ASTECH Prize

Randy OllenbergerAdvisor / Board Member

Managing Director, BMO Capital Markets30+ yrs Energy Industry, BA, MA Economics

Sean MonaghanAdvisor/ Board Member

Multiple Junior Oil & Gas30+ yrs Oil & Gas

R. Keith MacleodAdvisor / Board Member

Retired President Sproule Assoc30+ yrs Industry, Engineer

George CrookshankAdvisor / Board Member

Management Consultant30 yrs Oil & Gas, MBA

Lynn ZeidlerUpgrading Advisor

NWR, CNRL, Shell35 yrs Oil & Gas

Mechanical Engineer

Chris J WebsterConstruction Manager

NWR, Shell, CANDU50 yrs Energy

Eric KaulCorporate Development

25+ years – TCPL, Williams CanadaB. Comm.


Light versus Heavy Crude

▪ Complex and heavy components in crude oil with high molecular weight will also

have high boiling points

▪ While lighter components can be removed from a barrel of crude through distillation, the

heavier components cannot and are thus called “resid”

▪ Resid is rich in carbon, lean in hydrogen

▪ As resid content increases, crudes get heavier


Distillable

Resid

Light Oil Heavy Oil Bitumen

17 Confidential

Lower CAPEX than Alternatives

18

$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)

A Much Better Return …. For A Fraction of CAPEX


* TDP gets some benefit from integration but less than full benefit from scale giving rise to ~$18,000 /bbl throughput metric

**

Competition I

19

Focused on diluent rather than resid

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

Fractal Jet ShearSDA

Value Creation ADCHIQ (MEG)Visbreaking

AquaconversionMSAR

OrimulisionPetrobeam

+Others

Rival TRUEllycracking

Superior UpgradingPetrosonic

Supercritical


Competition II

20

Address both diluent and resid

EBITDA

Capital Cost

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


Delayed Coking

Fluid Coking

EurekaIvanhoe / Riser Coking

Expander FT Crude

GenoilUltra Selective Pyrolysis

Resid FCC

LC Fining / H-Oil

Eni EST

TDP Product Flow & Price Schematic

21

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


Future Expansion


$560Million (CAPEX)

Standard/Turn Key

28,000 BPSDPlant

New Plants

2021 2022 2023 2024 2025

Very Large Potential

50+Plants inAlberta

Design One, Build Many

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