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Upgrading with a “soft touch”
Canadian Heavy Oil Conference
4 November 2014
2 2
Agenda
• Heavy Oil Industry – the market & its challenges
• Upgrading in Canada
• Fractal Systems’ JetShear™ Technology
• Commercializing JetShear™
• Value Proposition
• Fractal Systems Summary
3
Heavy oil industry – the market and its challenges
4
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
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
6
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
8
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
Challenge 3 - Price lower than conventional oil Heavy oil has less desirable chemistry
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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
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
13
‘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
15
JetShear™ – the technology
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.
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(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
Underground heavy oil reservoir
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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
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
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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
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
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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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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
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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
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
30
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