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
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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)
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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

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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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