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Realizing The Full Potential From Bitumen and Heavier Crudes – IYQ Upgrading
February 2013
ETX Systems Inc. © 2013
AdvisoryAdvisory
This presentation contains statements that may constitute "forward-looking statements" within the meaning of applicable securities legislation. These statements include, among others, statements regarding business
strategy, beliefs, plans, goals, objectives, assumptions or statements about future events or performance. By their nature, forward looking statements are subject to numerous risks and uncertainties, some of which are
beyond ETX System's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, environmental risks, competition from other industry
participants, lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in
the preparation of such information, although considered reasonable at the time of preparation, may prove to be incorrect and, as such, undue reliance should not be placed on forward looking statements. Actual results,
performance or achievement could differ materially from those expressed in, or implied by any forward looking statements in this presentation, and accordingly, no assurance can be given that any of the events anticipated
by the forward looking statements will transpire or occur, or if any of them do so, what benefits ETX Systems will derive there from.
All of the forward-looking information and statements contained in this presentation are qualified by these cautionary statements. The reader of this presentation is cautioned not to place undue reliance on any forward-
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except in accordance with applicable securities laws.
Non-Solicitation
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an offering of securities and in no way constitutes an offering memorandum for the purposes of applicable securities law. Further, this presentation is for informational purposes only and must not be used or relied upon for
the purpose of making any investment decision or engaging in any investment activity.
Neither ETX nor any of its directors, officers, employees, agents or advisors make any representation or warranty in respect of the contents of this presentation or otherwise in relation to ETX or any of its respective
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contained in this presentation is provided as at the date hereof and is subject to amendment, revision and updating in any way without notice or liability to any party.
Certain information contained herein has been prepared by third-party sources. The information provided herein has not been independently audited or verified, by ETX. ETX has used its best efforts to ensure the accuracy
and completeness of the information presented.
ETX Systems Inc. © 20132
Executive Summary – IYQ Upgrading by ETX Systemsy pg g y y Emerging technology for Primary Upgrading (coking) of heavier crudes
Industry-altering ability to maximize yield of premium refinery feedstockP t t t t d ith l t d i t l f t i t Patent protected, with lower cost and environmental footprint
Progressing final development step - a 1,000 bpd Field Pilot
Growth in oil sands requires significant new investment in coking capacity Growth in oil sands requires significant new investment in coking capacity $75+ million / day of upside currently being forfeited with “dilute and ship” New coking capacity is required to address structural basis for collapse
IYQ Upgrading is positioned to capitalize Addresses pricing, pipeline and environmental challenges to future growth Unlocks $10/bbl of new value with every barrel of bitumen processed Unlocks $10/bbl of new value with every barrel of bitumen processed
ETX Systems Inc. © 20133
The Role of Coking Technologiesg g
Primary Upgrading: Converts non-distillable “bottom” portion of a crude oil barrel into refinery feedstock, rejecting impurities in the process Heavy oil and bitumen contain more non-distillable components than light oil Coking is particularly important for getting full value from heavier crudes
Production Primary Upgrading
Secondary Upgrading Refining
100
50
PitchDistillate +Gasoil
0Percent
PUG t it h f ti Sulfur
ETX Systems Inc. © 2013
PUG converts pitch fraction
4
Coking Landscape Delayed Coking: currently the over-whelming choice of industry
Mature, with decades of commercial experience, but far from “ideal” Fails to maximize liquid yields, impairing economics and increasing q y , p g g
environmental impact of bringing heavier crude to market IYQ Upgrading has been rigorously benchmarked against delayed coking
Significant increase in distillable liquids from same barrel of feedstock Lower Capital Operating costsLower Capital, Operating costs
5 ETX Systems Inc. © 2013
IYQ Upgrading – How We Do Itpg g
Patented IYQ Upgrading approaches “ideal” coking Combination of two commercially proven technologiesCo b a o o o co e c a y p o e ec o og es
Plug-flow dryers Fluid bed coking
Fl idi tiFl idi ti
Cool
Liquid feedLiquid feed
H t
Fluidization gasand reaction products
Fluidization gasand reaction products
IYQ Upgrading closes the gap
Fluidization gas
Cool solids
Hot solids
80
90
100
(wt%
)
Gas
60
70
80
Delayed Coking "Ideal Coking"
Yiel
d Coke
Liquid
6 ETX Systems Inc. © 2013
ETX Executive
Gerard Monaghan (PEng, MBA), CEO A decade of front line experience with Syncrude / Exxon ER&E Leading edge exposure to advances in fundamental understanding of
Upgrading science Wayne Brown (PEng, PhD), CTO
25 f i h t ti d ti t ti d l t 25 years of experience orchestrating and executing top tier development Demonstrated track record through staff positions with both industry
(Syncrude) and academia (McGill) Awarded 2011 ASTECH Prize for Innovation in Oil Sands ResearchAwarded 2011 ASTECH Prize for Innovation in Oil Sands Research
Bernie LeSage (MEng, MBA), COO 30 years of experience in technology development and commercialization Significant international marketing and operations experienceg g p p
Combined 40 years of experience covering most major Integrated Oil Sands projects
7 ETX Systems Inc. © 2013
The Team
Demonstrated ability to align with world class individuals and organizationso ga a o s
Independent Directors George Crookshank
Energy Consultant Keith MacLeod
President, Sproule AssociatesPresident, Sproule Associates Sean Monaghan
President, Promac Industries Randy Ollenberger
Managing Director Research BMO Managing Director, Research, BMO
8 ETX Systems Inc. © 2013
Incremental Benefits – An Oil Sands Examplep Relative to delayed coking, IYQ Upgrading provides:
$10+/bbl of new value for every barrel processed Direct 9% reduction of upstream environmental intensity metrics
$1+ Billi f i t l NPV f t i l i l ll t $1+ Billion of incremental NPV12 for typical commercial rollout
$12
IYQ Advantage vs. Delayed Coking*
$8
$10
ue $
/bbl
$4
$6
Incr
emen
tal V
al
$0
$2
Liquid Yield Advantage
Operating Advantage Capital Advantage Netback Advantage
* When processing whole Athabasca bitumen, $75 WTI
9 ETX Systems Inc. © 2013
Development ActivitiesDevelopment Activities
Conception Feasibility Process Piloting C i li tiConception Feasibility Process Development
Piloting Commercialization
ETX Systems Inc. © 201310
Field Pilot ProjectField Pilot Project
Last development step is to execute a 1,000 bpd Field Scrubber, pPilot project to demonstrate operability of IYQ Upgrading
“Hot box” from 1,000 bpd Field Pilot Design Basis Memorandum
• Carrying $95 million as all-in cost, based on Design Basis Memorandum completed in 2012 for a Central Alberta
Heater
2012 for a Central Alberta location
• Expect significant support ReactorExpect significant support from Government, based on advanced discussions
Reactor
ETX Systems Inc. © 201311
Why Invest in Primary Upgrading (Coking)?Why Invest in Primary Upgrading (Coking)? The next big opportunity in Oil Sands Investment! Have reached a “tipping point” for continental coking infrastructure
Increasing ability to source suitable feedstock (linked to oil sands growth) has overwhelmed current and planned coking capacity
Until balance is restored, incremental bitumen is stranded, pricing is distressed Expect premium investment returns from new coking projects over this period
95.0%
100.0%
2,500,000
3,000,000
Day
US Coking Capacity Versus Coking Inputs
80.0%
85.0%
90.0%
95 0%
1,000,000
1,500,000
2,000,000
,500,000
Util
izat
ion
ls P
er C
alen
dar D
70.0%
75.0%
-
500,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Bar
rel
Year
Ability of refiners to source discounted feed increases as Utilization exceeds 90%
ETX Systems Inc. © 201312
Capacity Actual Capacity Forecast Inputs Actual
Inputs Forecast Actual Utilization Forecast Utilization
Opportunity Continues to Growy
Increasing demand for refined products and robust economics for increasing supply of heavy oil will drive new investment in coking
Coupled with limited ability of coking infrastructure to accommodate currentCoupled with limited ability of coking infrastructure to accommodate current supply, expect massive investment over extended periods to bring market back into balance “Golden Age of Upgrading”
10 000
15,000
20,000
on (M
bbl/d
)
Global Heavy Oil Production
4,000
5,000
6,000
(Mbb
l/d)
Canadian Oil Sands Production
0
5,000
10,000
2010 2015 2020 2025 2030 2035
Pro
duct
io
North America South America 0
1,000
2,000
3,000
2010 2015 2020 2025 2030
Pro
duc
tion
(
Hart Energy 2011 Long Term Scenario 2012 CAPP Crude Oil Forecast
Europe, Russia,& Central Asia Asia Pacific
Middle East Africa
2010 2015 2020 2025 2030
Oil Sands Mining Oil Sands In-Situ
ETX Systems Inc. © 201313
Why ETX and IYQ Upgrading?Why ETX and IYQ Upgrading?
Team, Technology, and Timing
Team: Dedicated and Award winning Fundamental grasp of science, front line exposure to Industry needs Demonstrated ability to steward and leverage capital over the past ten years
Technology: Doing more, with less. Getting 9% more refinery-ready feedstock from a given barrel of bitumen Less capital and operating cost
I d l i bili ff $10/bbl d i i h d i i i d Industry-altering ability to effect a $10/bbl reduction in the crude pricing required to support break-even economics for oil sands development
Timing: Positioned to capitalize on next big wave of Oil Sands Investment 100+ commercial coking projects (50 000 bpd) are required to support forecast growth 100+ commercial coking projects (50,000 bpd) are required to support forecast growth
of heavy oil, ETX only needs to convert on one of these (with 10% retention of value created) to recover development costs.
Opportunity to convert on additional commercial rollouts provides significant upside
ETX Systems Inc. © 201314
Bitumen Pricing: How Low Can It Go?g New coking investment is incented by heavy oil discount Despite global crude oil benchmarks that have consistently traded at $100+/bbl in
recent years, bitumen at the well head currently receives only a fraction of thisy y y At current prices Western Canadian Producers are forfeiting $2- $3 billion / month
to midstream / downstream entities
ETX Systems Inc. © 201315
Inherent Value in Bitumen Inherent value of bitumen is unlocked with well contemplated strategy to link new
bitumen supply to motivated refiners While indications are that it may not last, recent pricing of Mayan crude (global
benchmark for heavy crude) is indicative of this inherent valuebenchmark for heavy crude) is indicative of this inherent value Better technology for coking (IYQ Upgrading) can add significantly to this inherent
value
100
120
140
Heavy Oil Pricing Potential
40
60
80
100
US$
/bbl
0
20
ay-1
987
ar-1
988
n-19
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-198
9p-
1990
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991
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992
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-199
4p-
1995
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996
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997
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n-19
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-199
9p-
2000
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012
ETX Systems Inc. © 201316
Ma Ma
Ja No
Se J u Ma Ma
Ja No
Se J u Ma Ma
Ja No
Se J u Ma Ma
Ja No
Se J u Ma Ma
Ja No
Se J u Ma
Brent Mayan
Market for New Coking CapacityMarket for New Coking Capacity
Strong economic case emerging to consider new coking capacity in lower cost jurisdictions in Alberta (Sturgeon County, Peace River ...) Ability to eliminate requirements to source diluent Ability to address heavy oil discount and maximize ROI Ability to reduced imposition on takeaway infrastructure (pipelines) Motivated Government with an ability to improve access to financing for
new Upgrading investment
Case is aided by the fact that US Refiners are focused on shale oil opportunity rather than new investment to process heavier crudes
ETX Systems Inc. © 201317
ETX Revenue ModelETX Revenue Model
Focus on maximizing market penetration rather than maximizing retention of upside
Licensing to entities that are set up to assume role of “project developer” Target 10% retention of upside for initial capacity
Joint Venture with entities that require or desire assistance in project set up Technology farm in, resulting in equity share in project
Ro alt E it
Technology S
ETX
Licensing Joint Ventures
Royalty
Technology S
ETX Equity
Support
Project Support
Licensing Joint VenturesSupport
Project Support
ETX Systems Inc. © 201318
pppp
Valuation and Returns - – A Licensing Example
Assume successful field pilot, 25 million share float, NPV12
Incremental ~$1 Billion upside with each 1% market penetrationIncremental $1 Billion upside with each 1% market penetration Technology royalty allows ETX to retain a portion of upside
450
300
350
400
150
200
250
300
NA
V ($
) / S
hare
10%
20%
30%
Upside Retained
0
50
100
150
ETX Systems Inc. © 201319
00 5 10 15 20 25 30 35 40 45 50
Market Penetration (%)
SummarySummary
The “dilute and ship” strategy that has underpinned current development of oil sands and heavy oil supply Western Canada is bustedof oil sands and heavy oil supply Western Canada is busted Strategy failed to provide for critical infrastructure required to support pricing
After a successful Field Pilot, IYQ Upgrading by ETX will be wellAfter a successful Field Pilot, I Q Upgrading by ETX will be well positioned to become the patent protected backbone of a far more robust strategy designed to maximize returns from production of heavier crudes Returns from commercial capacity expected to justify multi-fold returns to new
investors
ETX is focused on financing and executing this Field Pilot to unlock value f h h ld d h i f i d t i blfor shareholders and usher in a new era of economic and sustainable development of heavy crudes.
20 ETX Systems Inc. © 2013