Oak Point Energy Ltd. Superior SAGD Development Through Applied Engineering Innovation

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1 Oak Point Energy Ltd. Superior SAGD Development Through Applied Engineering Innovation A New Project Execution Strategy for Oil Sands Competing with Other Global Supply Sources November 4, 2014 Oak Point Energy 0

2 Presentation Overview 1. Competing for a Global Market The Opportunity The Challenges 2. Facility Design to Enable a Different Development Strategy Configure for Reliability and Portability Standardize Facility Designs The Benefits 3. A New Resource Development Strategy Adapting to Commodity Prices Facility Construction Facility Deployment and Relocation Innovative Design and Execution 1

3 Change Timing is Critical Necessity is the Mother of Invention New ideas will emerge and be accepted when there is a need If it ain t broke, don t fix it If we perceive things to be working then we resist change 2

4 Suncor Share Price (CDN/share) Oil Price (USD/bbl) Oil Sands Share Price Highly Correlated to Oil Price $70.00 $60.00 Oil Sands Share Price History $50.00 $40.00 $30.00 Suncor CNRL WTI Price $ $ $

5 Earnings Per Share (CDN/share) Existing Producers Perspective Earnings Continue to Rise Do Change Anything! $8.00 $7.00 Earnings Per Share History (Oil Sands) $6.00 $5.00 CNRL Suncor $4.00 $3.00 $2.00 $1.00 $

6 Existing Oil Sands Producers High Share Price and High Earnings Established oil sands company s are not incentivized to change The greatest threat to oil price is over-supply High costs and long cycle times to cash flow act as a barrier to entry for those companies that have projects in production Limiting further oil sands expansion can be beneficial existing producers New investment will occur when oil price rises further However, oil sands is competing with global supplies International production increases far outpacing Canadian project Oversupply will suppress oil prices, adding greater challenges for the oil sands industry and even challenge existing producers 5

Production Forecast June 2014 Growth Lagging in Canadian Oil Sands > 2.

7 Production (kbpd) Oil Sands - No Longer Competitive Far Less Growth than Bakken and Eagle Ford Canadian Oil Sands Production 2,500 In Situ Mining 2,000 1,500 1, *CAPP Production Forecast June 2014 Growth Lagging in Canadian Oil Sands > 2.5 MMbbl in the past seven years for Bakken and Eagle Ford < 0.7 MMbbl for Alberta s oil sands Absence of new project sanctions signals a widening gap 6

8 Oil Sands - No Longer Competitive New Production Globally on the Rise 7

9 Crude Price (USD/bbl) Over-Supply Drives Oil Price Decline What Oil Price to Suppress Production Growth? Crude Spot Pricing WTI Brent January January March April May May June July August September October 8

Oil Sands Rapidly Declining Investment Yet Commodity Pricing is Favorable *TD Oil Sands Update August 2014 Current Pricing Would Have Fueled a Boom a Decade Ago High

10 Oil Sands Rapidly Declining Investment Yet Commodity Pricing is Favorable *TD Oil Sands Update August 2014 Current Pricing Would Have Fueled a Boom a Decade Ago High oil price coupled with low gas price should be ideal for the oil sands industry High capital costs, long cycle times to cash flow and environmental issues hinder growth 9

11 TIME FOR CHANGE IS NOW Oil Sands is Threatened by Global Supply Oil is a commodity and new supply is coming from other sources 5X more production from Bakken & Eagle Ford than Alberta oil sands Significant production increases from Russia and Saudi Arabia The account for ~7 MMbbl of new production over the past 5-10 years Global Demand is Flat or Declining Economic recovery has been slow since 2008 In North America substitution of cheap natural gas over oil will continue to expand, decreasing the demand for liquid fuels Oil Price is Declining Classic response to the growing supply/demand imbalance Majority of new supply is not coming from oil sands so we cannot control it Oil sands economics just go a whole lot more challenging Oil Sands needs a complete make-over to survive IS IT WORTH THE EFFORT? 10

The Opportunity Seventy Percent of World Reserves Heavy Oil Reserves Are the Future Extra heavy oil & bitumen make up over half of the world s reserves Conventional reserves has been reduced to 30%

12 The Opportunity Seventy Percent of World Reserves Heavy Oil Reserves Are the Future Extra heavy oil & bitumen make up over half of the world s reserves Conventional reserves has been reduced to 30% of the known reserves New technologies will be essential to unlock value and supply future generations with their oil needs Oil Sands in Canada 1.7 trillion barrels of bitumen in place 170 billion barrels of economically recoverable reserves (10% recovery) Improving economics will be essential to expanding the recoverable reserves to include the lower quality smaller scale (small pod or thin pay) high quality deposits 11

13 Small dispersed pods Resource Scale Large Contiguous deposits The Opportunity New Technology Critical to Improve Economics Opportunity resource using new technology Smaller scale Lower cost Shorter schedule Reusable facilities Exploitable resource if design trend continues Un-exploitable resource using foreseeable technology Low Resource Quality High 12

14 The Challenge Commercial Viability To be classified as reserves, estimated recoverable quantities must be associated with a project(s) that has demonstrated commercial viability. Under the fiscal conditions applied in the estimation of reserves, the chance of commerciality is effectively 100 percent. * For oil sands, high capital and operating costs, market access (and associated costs), reservoir containment and public sentiment are signification obstacles to the of notion of demonstrated commercial viability Many of the challenges are associated with above-ground activity This will be even more critical as we move to the lower quality resource in the future * COGE volume 1, paragraph

15 Economic Challenges For Oil Sands Projects Demonstrated Commercial Viability is Essential 1. Reservoir Performance: Single biggest factor effecting success or failure Successful projects are associated with high quality reservoir (typically < 3.0 SOR) Failed projects are associated with lower quality reservoirs (typically > 3.5 SOR) 2. Capital Cost Intensity and Certainty: Impeding project sanction High capital cost with no cost certainty (50-100% overruns far too common) Long project cycles with extensive work in remote locations prevents fixed priced bidding Exposure to changes in equipment and material costs Poor productivity typical in remote locations (transit time, work conditions, turnover, skill level, etc.) 3. Project Cycle Time: Too long to be considered investible Overall project schedule (6-8 years) Investments are made on high commodity price on the premise that you will capture part of the cycle. However, commodity price cycles don t last 6-8 years Investors need cash flow sooner to support their investment 4. Commodity Pricing: Oil is a commodity The high cost producer becomes the first victim when commodity price declines Oil sands is the high cost producer we are being outperformed by tight oil plays like Bakken and Eagle Ford 5. Market Access: Limitations add to the costs and lower netback Infrastructure will lag production partially filled infrastructure is not economic Oil sands is the high cost producer low confidence that we can meet growth forecasts Public sentiment is preventing the installation of new infrastructure (pipelines, rail facilities, etc.) 14

performance Facility reliability Facility efficiency Environmental Impact CAPITAL COST Cost

16 The Challenge Three Immediate Areas of Focus MARKET ACCESS Delayed pipeline approvals High delivery costs Discourage foreign investment CAPITAL COST PROJECT PERFORMANCE Reservoir performance Facility reliability Facility efficiency Environmental Impact CAPITAL COST Cost uncertainty Capital intensity Scale of investment Long cycle time to cash flow PROJECT PERFORMANCE 15

The Challenge Three Immediate Areas of Focus MARKET ACCESS Delayed pipeline approvals High delivery costs Discourage foreign investment CAPITAL COST PROJECT PERFORMANCE Reservoir

17 The Challenge Three Immediate Areas of Focus MARKET ACCESS Delayed pipeline approvals High delivery costs Discourage foreign investment CAPITAL COST PROJECT PERFORMANCE Reservoir performance Facility reliability Facility efficiency Environmental Impact CAPITAL COST Cost uncertainty Capital intensity Scale of investment Long cycle time to cash flow PROJECT PERFORMANCE 16

18 Presentation Overview 1. Thermal Heavy Oil Faces Significant Economics Challenges The Opportunity The Challenges 2. A New Facility Design to Facilitate a New Asset Strategy Configure for Reliability and Portability Standardize Facility Designs The Benefits 3. A New Asset Strategy Adapting to Commodity Prices Facility Construction Facility Deployment and Relocation Innovative Design and Execution 17

19 Configure for Current and Future Need Three Design Principles Portable SAGD facility that can be assembled or dismantled in 30 days. This single feature addresses many of the industry challenges 1. Portability Cost Reduction and Cost Certainty maximum modularization by shifting virtually all facility construction to low-cost/high-productivity markets, with only 30 days assembly required at site Schedule start fabrication ahead of regulatory approval since it doesn t occur at site Risk Management redeploy facilities if resource doesn t respond as required Development Flexibility install facilities to optimize capital efficiency growth and redeploy as production declines 18

20 Configure for Current and Future Need Three Design Principles Shift from mega-project to repeatable equipment manufacturing strategy to reduce cost through mass production efficiencies 2. Scale Reduction Mega-project approach currently used by industry is not achieving the targeted economies of scale Assembly line approach is optimal the more units built the lower the per unit cost Achieve scale through combining a number of facility units at the right time in the resource development cycle 19

21 Configure for Reliability and Portability Three Design Principles Three SAGD design configurations that are suitable for broad range of oil sands and heavy oil applications (UltraLite, 1 n Site, MultiSite) 3. Design Standardization Eliminate cost and schedule associated with engineering design (design once build many) Each configuration developed has a specific business purpose (pair-scale, pad-scale and multi-pad scale) Project customization can still occur by combining units of the various configurations to fit the design project size and match specific reservoir parameters through full reservoir life-cycle All major unit operations in Oak Point s proprietary facility designs are currently used in commercial SAGD operations Intellectual property owned by Oak Point - five patents pending (US, Canada and International) 20

Standardize Facility Designs The Right Configuration For The Right

pairs 7,200 bbl/day 8-12 well pairs 21,600 bbl/day 2-4 well pads

Production ramp up $68 $152 Large, contiguous resources $152 $356

22 Standardize Facility Designs The Right Configuration For The Right Application UltraLite 1 n Site MultiSite Capacity 1,260 bbl/day 1-2 well pairs 7,200 bbl/day 8-12 well pairs 21,600 bbl/day 2-4 well pads Application Capex Facility, $MM Total, $MM Pilot $31 $58 Small assets Production ramp up $68 $152 Large, contiguous resources $152 $356 Capital Intensity Facility, $M/bbl/day Total, $M/bbl/day $25.9 $48.1 $9.4 $21.2 $7.0 $

23 The Benefits Doubling Returns Oak Point Value Capture Relative to Traditional SAGD Design (NPV / bbl) $6.25/bbl $3.40/bbl (1) Traditional SAGD Design Oak Point Design Lewis Steepbank NPV 10 (AT) (Oak Point Base Case) Lewis Steepbank NPV 10 (AT) (GLJ Best Case) Oak Point s innovative and proprietary facility design has the potential to be industry-changing 175 billion barrels of recoverable in-situ bitumen reserves identified in Canada (1) Using the development plan and cost assumptions per GLJ Report (June 30, 2011) adjusted for additional recoverable resources per GLJ Report (March 31, 2012) Industry-changing facility design offers investors a compelling return opportunity based on adoption of the advantaged facility design 22

24 The Economic Benefits Demonstrated Commercial Viability is Assured 1. Reservoir Performance: Reduce risk prior to major investment UltraLite facility reduces the time and cost to test the reservoir Reduce risk prior large scale commercial development Failed projects are associated with lower quality reservoirs (typically > 3.5 SOR) 2. Capital Cost Intensity and Certainty: Mass production vs large scale Portable mass-produced equipment substantially lowers capital cost with cost certainty Reduce exposure to overheated Alberta economy Future phases become even more competitive relocate vs rebuild 3. Project Cycle Time: Reduce to be competitive with other (tight oil) plays Current overall project schedule (6-8 years) reduce to less than 12 months from investment to 1 st steam Invest during high commodity price cycles and be in production within that price cycle Attract investors that don t have the patience for timelines associated with typical oil sands projects 4. Commodity Pricing: Oil is a commodity The high cost producer becomes the first victim when commodity price declines Oil sands is the high cost producer we are being outperformed by tight oil plays like Bakken and Eagle Ford 5. Market Access: Competitive growth and distributed benefits are key factors Infrastructure will be built if there is confidence in growth forecasts economics to outperform tight oil plays Public sentiment will improve as the economic benefits spread beyond Alberta borders (fabrication of facilities and cheap reliable feedstock for North American refiners) and reduce the environmental footprint to acceptable levels 23

25 The Environmental Benefits Environmental Performance Better Than Conventional Oil 1. Land Disturbance: <10% of land disturbance typical for conventional oil Small portable SAGD facility located on well pads to reduce site size and eliminate interconnecting pipelines Portable facilities shifts virtually all construction off site, eliminating the need for large construction camps Minimal on-site construction to reduce human intrusion into environmentally sensitive areas 2. Water Disposal: A fraction of water disposal compared to conventional oil Oil sands is a net consumer of water vs conventional oil that is a net producer of excess contaminated water Use evaporator technology to achieve highest recycle rate in the industry and minimize disposal volumes 3. Water Supply: Use waste or non-potable sources Minimize volume requirement through highest water recycle rate in the industry (> 95%) Utilize brackish water or waste water from tailings pond reclamation 4. Air Emissions: Reduction and low-sulfur High level of heat integration to achieve lowest energy intensity in oil sands On site electricity co-generation reduces emissions and line losses Clean low-cost natural gas for fuel for steam and electricity generation 5. Site Reclamation: Rapid reclamation with economic incentive Portable small-scale facilities allow rapid dismantling and redeployment on other lands provides economic incentive to reclaim and re-use immediately 24

26 Presentation Overview 1. Thermal Heavy Oil Faces Significant Economics Challenges The Opportunity The Challenges 2. A New Facility Design to Facilitate a New Asset Strategy Configure for Reliability and Portability Standardize Facility Designs The Benefits 3. A New Asset Strategy Adapting to Commodity Prices Facility Construction Facility Deployment and Relocation Innovative Design and Execution 25

27 Adapting to Commodity Price Cycles : Dominated by Periods of Falling Price $45 WTI Price History $40 $35 $30 $25 $20 $15 $10 $5 $- 26

28 Adapting to Commodity Price Cycles : Dominated by Periods of Rising Price $160 $140 WTI Price History Oil Sands Project Cycle Time $120 $100 $80 $60 $40 $20 $- 27

29 Adapting to Commodity Price Cycles The Last 15 Years are Different that the Previous Declining market with few periods of sustained rising oil price Low oil prices prevail (start at 35+ $/bbl and end the 1990 s at < 15 $/bbl) Conventional oil and gas dominates the industry 1999-Present Rising market with few periods of sustained low oil price High oil prices prevail (start at $/bbl and currently at 100+ $/bbl) High magnitude and frequency of price swings Unconventional oil and gas dominates the industry A New Investment Is Needed Quicker response needed to adapt changing commodity pricing High/rising market: invest in new facilities to grow capacity Low/falling prices: reduce capital investment and focus on sustaining capacity Reduce capital and operating costs normally associated with exploitation of unconventionals Reduce project cycle time to match frequency of commodity price swings Reduce environmental impact and improve societal benefits 28

30 Facility Construction Strategy Factory Fabrication vs Mega Project Execution Engineering Engineer once build multiple units Standard engineering packages for each configuration proceed directly to fabrication Custom engineering where necessary does not impact overall project Procurement Price reduction through bulk purchase Off the shelf equipment and materials available from multiple vendors Mass Production Oriented Construction Mass production strategy for each of the three configurations Fabrication can start well ahead of regulatory approval Portability allows use of established fabrication shops with a skilled stable workforce Distribute module fabrication among several shops to distribute work, short fabrication time and improve productivity 29

31 Mass Production Techniques Proven in a Number of Industries 30

32 Facility Construction Strategy Shift Work to Efficient Manufacturing Jurisdictions 1) Sub-Assembly Component Fabrication Multiple fabrication shops located in established manufacturing centers to construct shippable sized equipment, piping and structural steel components (up to the dimensions of the UltraLite modules) Ship components to module assembly site, where there are fewer shipping restrictions to the final installation site 2) Module Assembly and Transport Truck and rail sub-assemblies to module assembly site Assemble large scale modules from sub-assemblies (near final site) modules 24 x 24 x 120 (high load corridor dimensions) Truck transport to oil sands lease 3) Site Erection Site (on the well pad) development and civil work completed ahead of module delivery Erect modules at site within 30 days Connect utilities and well pad Commissioning and Start-up 31

33 Capacity Facility Deployment and Relocation Current Model Production vs Reservoir Capacity Conventional Approach Reservoir Capacity Production Facility Capacity Time Facilities designed and operated below reservoir capacity to achieve long project life required for large permanent facilities 32

34 Capacity Facility Deployment and Relocation Oak Point - Align for the Full Life Cycle 100 Production vs Reservoir Capacity Oak Point Approach Reservoir Capacity Facility Capacity Opportunity to sustain capacity by redeploying facilities at other sites Time Accelerated production to match reservoir or market capacity Facility installation and redeployment to align capacity 33

35 Investing at the Bottom of the Price Cycle Strength at This Time will be a Key Differentiator Critical Attributes to Survive in Low Price Cycles Ability to sustain production without the need for large injections of capital Low operating costs Strong balance sheet 1 n SiteTechnology Advantages at the Bottom of the Oil Price Cycle Eliminate capital expenditure for new above ground facilities as you move to new reservoirs (relocate existing facilities to sustain production) Major capital expenditure will be for replacement wells (more like conventional oil) Limited recourse financing of portable equipment or leasing can offload debt service obligations Strong companies can create growth opportunities during down-cycles as their peers struggle to survive 34

36 Innovative Design and Execution Improve Global Competitiveness and Acceptance 1. Improved Returns to Resource Developers (Incentive to invest) Cost reduction Shorter cycle times to cash flow 2. Improved Royalties and Taxes (Political alignment) Industry production growth to expand the royalty base Increased taxes resulting from skilled jobs to support a growing energy industry 3. Expand Benefits to the Broader Public (Public alignment) Fabrications and services from across North America Low cost feedstock for North American refiners Create a profitable business environment, leading to long-term jobs and stability 4. Reduce Environmental Impact (Public and political alignment) Make real progress in reducing environmental footprint Sufficient economic benefit to offset the inevitable environmental impact These will drive market acceptance 35

Canadian Oil Sands Summit. Grizzly Oil Sands

Canadian Oil Sands Summit. Grizzly Oil Sands Canadian Oil Sands Summit February 2014 Forward-Looking Statements Certain statements, estimates and financial information contained in this presentation ("Estimates") constitute forwardlooking statements