Reducing Diluent Required in the

Transportation of Heavy Oils and

Bitumen

COQA - Salt Lake City, Utah

9 June 2011
Company highlights
JetShear™ Technology
The company has developed 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

Reached commercial terms on 1,000 bpd facility in June 2010
with Canadian producer

Began operating 1,000 bpd facility in first quarter 2011 on heavy

oil site in eastern Alberta (Canada)

Executed Letter of Intent on 5,000 bpd facility in May 2011 with a

major oil sands producer

Multiple tests for clients in lab and at pilot confirm technology

benefits; stability of product confirmed
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Company highlights (cont’d)

• 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 Université de Sherbrooke (Québec, Canada),
affiliation with NREL
– Michel Chornet, VP Engineering
• 12+ 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
– Rho Ventures and Braemar Energy Ventures

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Fractal has proprietary patented
technology to improve heavy oil quality

• Extra heavy oil (EHO) is very costly to transport to market

•Viscosity prevents EHO from being put directly in a pipeline
•Producers purchase light oil (diluent) at premium price to blend with EHO
•Highest operating cost for EHO producer (target client)

• JetShear - Significant reduction in viscosity

•Up to 50% reduction in diluent requirement
•Up to 3% net density improvement
•Improved netback – diluent & tariff savings

• Cost effective
•Small scale provides significant cost advantage
•Small “footprint”
•Economies of scale with little to no “scale up” risk

• Attractive economics
•Project economics indicate 2 year payout on investment

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Heavy oil industry – the market

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Heavy Oil industry value chain
“Upstream” “Midstream” “Downstream”

heavy oil producer truckers blending terminal

heavy oil producer blending terminal

refinery
Pipeline Key
Bitumen/HO
JetShear Diluent
application Upgraded oil
Integrated
producer/upgrader

oil sands mine integrated upgrader

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 The Canadian Heavy Oil market
Athabasca
Oil Sands Region Mining Projects (currently 4)
Thermal Oil Sands “in-situ”

Fort
McMurray
10° API SAGD Projects (currently 13)
8-9° API
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

Lloydminster/Provost
12+° API Heavy Oil Region
Hardisty
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Diluent* required for transportation of Heavy
Oil is expensive

Produced
Bitumen/
Sell
Heavy oil
DilBit
@ blend price
Purchase less tariff
Diluent
@ C5+ price
plus tariff

• 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

* Diluent is a light hydrocarbon (typically a natural gas liquid or condensate in Canada) that is used
to “dilute” the heavy oil in order to improve its transportation characteristics (lower viscosity)

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

Achieves viscosity spec

using ~half the diluent

350 cP

Results from Fractal – Sherbrooke labs

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Thermal facility application

DHO INTEGRATION

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JetShear™ – the technology and its
application

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A very simple system!
Pilot Facility Diagram

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1,000 bpd JetShear™ Facility
System layout

 Small footprint
 Fast Deployment
 Low Engineering Risk

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1,000 bpd Facility
Blending Skid

Novel, patented technology

in this box!

South View of Skid

North View of Skid

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JetShear™ 1,000 bpd Site

Heater
Process Tank
JetShear Pump Building Cooler

MCC

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 JetShear™ process Conventional Blend
Using complex technology

Heavy Oil

Heavy Oil Processed with JetShear

* Solvation
* Temperature - facilitates molecular mobility
* Cavitation - liberates kinetic energy to chemical energy
* Near sonic velocities
* High shear forces

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Pilot Results

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300 bpd Pilot Facility

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Results from Pilot Facility – heavy oil
We have successfully scaled up our process in the field!
Without Jetshear With JetShear

1000
21
900
20.5
800
20 ~2.7 °API
700
~90% 19.5 increase
600
cS reduction 19
500
18.5
400

300
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200 17.5
Pipeline
Specifications
100 17

0 16.5
Viscosity °API Gravity density (inverse)
August 2009 Monthly Average Results
11.6 °API feedstock, 80 °API  14.5% blending ratio

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Results from Pilot Facility - bitumen
Bitumen--Diluent blend provided by a SAGD producer
Bitumen
Without Jetshear With JetShear

1200
20.5

1000 20

19.5
800 ~91% ~2.5 °API
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cS reduction increase
18.5
600
18
400 17.5

200
Pipeline 17
Specifications
16.5

0 16

Viscosity °API Gravity density (inverse)

May 2010 Monthly Average Results
7.5 °API feedstock, 70 °API  ~25% blending ratio

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Maxxam Analytics Preliminary Assays Results

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Discussion with COQA

• What are implications of the (relatively

minor) changes in the assay for the dilbit
processed using JetShear?
• What actions should Fractal undertake to
address any concerns with the JetShear
dilbit?

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Visit our website: www.fractalsys.com

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Appendix

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Protecting and enhancing value

• Two patents have been filed:

– US20080217211 – patent pending
• Process for treating heavy oils
– US20080314796 – issued May 17, 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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26
Dilbit #2

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