Changing the Way Clients Produce Energy

Transcription

1 Investor Presenta,on NOVEMBER 2016 TSXV: DVG Changing the Way Clients Produce Energy

2 This Corporate Presenta,on contains certain forward looking statements and forward looking informa,on (collec,vely referred to herein as forward looking statements ) within the meaning of applicable securi,es laws. All statements other than statements of present or historical fact are forward looking statements. Forward looking informa,on is oten, but not always, iden,fied by the use of words such as could, should, can, an,cipate, expect, believe, will, may, projected, sustain, con,nues, strategy, poten,al, projects, grow, take advantage, es,mate, well posi,oned or similar words sugges,ng future outcomes. In par,cular, this Corporate Presenta,on contains forward looking statements rela,ng to future opportuni,es, business strategies and compe,,ve advantages. The forward looking statements regarding the Company are based on certain key expecta,ons and assump,ons of the Company concerning an,cipated financial performance, business prospects, strategies, the sufficiency of budgeted capital expenditures in carrying out planned ac,vi,es, the availability and cost of labour and services and the ability to obtain financing on acceptable terms, all of which are subject to change based on market condi,ons and poten,al,ming delays. Although management of the Company consider these assump,ons to be reasonable based on informa,on currently available to them, they may prove to be incorrect. By their very nature, forward looking statements involve inherent risks and uncertain,es (both general and specific) and risks that forward looking statements will not be achieved. Undue reliance should not be placed on forward looking statements, as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objec,ves, expecta,ons and an,cipa,ons, es,mates and inten,ons expressed in the forward looking statements, including among other things: inability to meet current and future obliga,ons; inability to implement the Company s business strategy effec,vely in Canada, Mexico and the United States; inability of the Company to con,nue meet the lis,ng requirements of the TSX Venture Exchange; general economic and market factors, including business compe,,on, changes in government regula,ons; access to capital markets; interest and currency exchange rates; technological developments; general poli,cal and social uncertain,es; lack of insurance; delay or failure to receive board or regulatory approvals; changes in legisla,on;,ming and availability of external financing on acceptable terms; and lack of qualified, skilled labour or loss of key individuals. Readers are cau,oned that the foregoing list is not exhaus,ve. The forward looking statements contained herein are expressly qualified in their en,rety by this cau,onary statement. The forward looking statements included in this Corporate Presenta,on are made as of the date of this Corporate Presenta,on and the Company does not undertake and is not obligated to publicly update such forward looking statements to reflect new informa,on, subsequent events or otherwise unless so required by applicable securi,es laws. 2

3 Changing the way clients produce energy # 1 ESP Supplier* 10 Years in business 0 Recordable Safety Incidents YTD 30 Employees 8.0 % Insider Owned 13.2% Fully Diluted TSXV: DVG $ $0.30 $18.1MM 98.3MM 52 week range Market cap as at Nov Shares outstanding *Gilleae, WY - Powder River Basin gas wells; based on internal es,mates 3

4 VISION A leading supplier of disruplve submersible pumping products that reduce costs, energy consumplon, and carbon footprint. OPPORTUNITY Emerging Technology Offers Upside through InnovaLon ü Linear Electromagne,c Submersible Pump (the Linear Pump ) is a revolu,onary concept for ar,ficial lit ü Opportunity for producers to reduce capital and opera,ng costs compared with tradi,onal lit systems (i.e. pump jacks) ü Agreement in place with large oil company to advance commercializa,on Sizeable and Expanding Market for the Linear Pump ü All North American oil wells need ar,ficial lit products ü Global ar,ficial lit market expected to exceed $17B by 2019 ExisLng ArLficial Li[ Business Generates Cash Flow ü Exis,ng submersible pump opera,on based in Wyoming con,nues to grow and achieve record ac,vity levels 4

5 Direc,onally drilled and horizontal wells have created new challenges: Bends in the well create points of contact between the rod string and the produc,on tubing; Rod string suffers excessive wear as it cycles up and down 3 million,mes per year, leading to eventual failure of the rods and occasionally the produc,on tubing; Limited advancements in pumping technology are crea,ng rising costs to produce oil. CriCcal points of contact in oil wells that result in excessive wear and eventual failure of rod strings. 5

6 Permanent magnet motor technology Reciproca,ng pump (similar to rod pumps) Suitable for ver,cal, deviated & horizontal oil wells Disrup,ve technology - an alterna,ve to conven,onal pump jack installa,ons The Linear Pump is undergoing final tescng in a client well in Saskatchewan & is approaching commercializacon Ar6ficial Li9 Solu6ons Conven,onal pump technology Rota,ng pump with mul,ple impellers Pumps moderate to high volumes of fluids Also called screw or Moineau pumps Heavy oil, high sand produc,on, gassy wells Deployed as a submersible pump system Eliminates surface motors & costly rod string wear Our ESP and progressive cavity pump business in GilleQe Wyoming generates posicve cash flow and helps support concnued development of our 2 nd generacon Linear Pump. 6

7 The Linear Pump: ü Is powered by a high efficiency electromagne,c motor ü Uses a modified industry-standard rod pump ü Has no external moving parts ü Has no immediate compe,,on ü Is ideal for oil wells to 2000m depth and rates to 42 m3/d (6500 and 265 bbl/d) 92% Linear Pump efficiency with lower power draw ü Can be set horizontal, slant, or ver,cal ü Recent run,mes have shown up to 92% pump efficiency vs. 80% in tradi,onal rod pumps while only consuming an average of 18 amps of electricity 7

8 The Linear Pump effeclvely: ü Eliminates surface li[ing equipment (pump jack) Smaller footprint means reduced construc,on costs, and reduced impact on the environment, farming and ranching. ü Eliminates sucker rods Worn and broken sucker rods can cost clients up to $153,000 (2) annually to maintain, including the oil not being produced during failures. ü Eliminates leaking wellheads Wellheads typically leak oil at the stuffing box (the seal around the sucker rod). This is a chronic environmental issue with pump jack opera,ons. ü Efficient & easy to install (2) Footnotes included in Appendix as endnotes 8

9 Low cost opera,ons, aarac,ve margins, and ability to quickly scale-up Simple installa,on in the field & limited maintenance required for producers Compelling in oil price downturn - lower cost installa,on and maintenance compared to pump jacks Divergent s management team has hands-on experience building companies and genera,ng value for owners; supported by strong and commiaed board Viking, Cardium, Slave Point Ini6al Target Markets in North America Bakken, Viking, Shaunavon, Spearfish 7,500* candidate wells iden,fied in Canada Uinta Basin Niobrara, Powder River Basin Poza Rica 9,500* candidate wells iden,fied in United States *based on narrow search criteria in small geographic regions; further research and product results will define the full market.

10 à Results of Linear Pump performance à Con,nue expanding opera,ons in Wyoming and poten,al introduc,on of the Pump in Powder River Basin à Con,nued business development to operators in other oil fields à Agreements with addi,onal new operators to install and test the Pump à Expansion of Pump inventory based on increased client demand Debenture Resolu,on Pump Tes,ng by Addi,onal Clients Pump Orders Increase ü Pump Lands in SK Staging Yard Pump Results Client Base Expansion ü Pump Installed ü Commercializa,on & Ramp Up ü à Clear line of sight to profitability 2017 & Beyond 10

11 Divergent s Wyoming Ar,ficial LiT Opera,on is ü Cash flow posilve ü Increasing revenue - 113% increase in Q vs. Q ü Selng record aclvity levels - August 2016 peak ac,vity $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $ ($500,000) Revenue Gross Profit 11

12 OPPORTUNITY Par,cipa,on in the upside of a high-tech growth story offering improved environmental impacts and supported by a growing, cash-flow posi,ve division SIZEABLE MARKET All North American oil wells will need ar,ficial lit Sizeable & growing target market Applica,ons in other basins & plays globally EXISTING BUSINESS Growing ESP business that generates posi,ve cash flow with track record of increasing revenue Near term geographic expansion poten,al 12

13 Appendices

14 ü Decades of experience in the energy services arena ü Ideal backgrounds to commercialize product and capture market ü Alignment with shareholders and strong corporate governance Management Team Ken Berg, P.Eng. President & CEO Previous - Sanjel, Amoco Petroleum, Dome Petroleum Scoq Hamilton, CPA, CA CFO & Corporate Secretary Previous - Solana Resources, Crossfire Energy Services, Inc., Brahma Compression Ltd. Board of Directors Kenneth Bagan - Chairman Director of Trican Well Services, past Director of PSAC, Member ICD Ken Berg President & CEO, Divergent John Grisdale Past President of CanAir Nitrogen; Past President of US Division, Calfrac MarLn Hall Past Sr VP Finance & CFO of Tesco CorporaCon Robert Riecken VP Drilling, CompleCons, ConstrucCon, and Supply Chain, Repsol 14

15 Current Technology Drawbacks Surface liting equipment (Pump Jack) has a high capital cost and requires a large footprint Rod strings in deviated and horizontal wells cause excessive wear due to rubbing against the tubing Rods strings wear from the 3,000,000 annual up/ down cycles, which can cost up to $153,000 (2) annually to maintain, including the oil not being produced during failures Mechanical inefficiencies and variable power draw can lead to high electricity costs Leaking wellheads around the rod (from the stuffing box ) is common Linear ElectromagneLc Submersible Pump Benefits (the Linear Pump ) The Linear Pump has a lower capital cost, reduces construc,on costs due to no surface liting equipment No external moving parts means that the Linear Pump can be placed in deviated and horizontal wells as easily as ver,cal wells No rod string, no external moving parts. Everything moves internally in the pump s housing Permanent magnet motors run on low Amps with no mechanical gears to reduce efficiency Seal not an issue - no moving parts exit the wellhead * The Pumpjack was invented in 1925 by Walter Trout, an employee of Luwin Foundry and Machine 15

16 Mar 2014: Final tranche of Debenture ($597k); total gross proceeds of $5.75MM Dec 2013: $5MM Debenture Issue Announced Jun 2014: Shareholders approve name change to Divergent (previously Canadian Oilfield Solutions Corp) Dec 2014: Extends maturity of outstanding debentures to Dec 31, 2015 Mar 2015: Pump test commences June 2015 Ops update + SK operations facility identified Jan 2016: Pump installed in client oil well in SE SK Nov 2015: Pump lands in SK for client installation Mar 2016: Pump efficiency exceeded expectations but was removed from well to investigate impact of 3 rd party problems on Pump Jul 2016: WY building sale closes for net proceeds of US$400k; Pump removed from well to strengthen shaft Aug 2016: Record activity in Gillette WY ESP Sales Aug 2014: Q2 results + 5 Pumps ready to ship to Canada. New BD Manager hired Feb 2015: Signed 5 year service agreement for Pump with large oil company; 1 st candidate well identified Dec 2014: Signed 3 year extension to exclusive rights to Linear Motor technology with manufacturer Aug 2015: Q2 Results reported; WY activity levels & market share beat estimates Dec 2015: Debentures extended to Dec 2017, and amended to allow interest payments in shares Apr 2016: Closes private placement raising $250k Nov 2016: Redesigned Pump reinstalled Dec Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Oct

17 ComparaCve Results: All amounts in USD thousands, except per share amounts and as noted. Three Months Ended June % Change Revenue $2,640 $1, % Gross Profit $618 $424 46% Net Earnings (Loss) ($545) ($1,161) 53% Earnings (Loss) per share - Basic and Diluted ($0.01) ($0.01) Six Months Ended June % Change Revenue $4,759 $2,607 83% Gross Profit $1,059 $994 7% Net Earnings (Loss) ($2,746) ($3,548) 23% Earnings (Loss) per share - Basic and Diluted ($0.03) ($0.04) 17

18 All amounts in USD thousands, except per share amounts and as noted. As at June 30, 2016 Cash and Cash Equivalents $74 Current Assets $5,436 Property and Equipment $278 Debentures (in CAD, due December 31, 2017) $5,750 As at November 15, 2016 Shares 98,298,732 Warrants 5,750,000 Op,ons 6,200,000 Fully Diluted 110,248,732 Market Cap. ($CAD) $ 18.1million 18

19 1. The Pump uses a modified industry standard reciproca,ng pump currently used with pump jacks, known as a rod pump. The pump is driven by an electromagne,c motor that uses permanent magnets to create thrust to move the shat of the motor in a reciproca,ng, or linear, mo,on. Permanent magnets maintain their strength almost indefinitely, losing approximately 1% of their strength every 10 years. 2. Annual Rod Pump Cost Assump,ons: Rod Strings $20 per meter; 10% of string replaced ater a failure event; Service Rig $12,000 per day, 2 days per failure event; 5 days lost produc,on per rod failure; rod string failure rate of 4 failures annually. Oil price of $45/bbl and produc,on rate of 50 bbl/day; 19

20 Changing the way clients produce energy Divergent Energy Services Corp. Corporate Office 1170, th Ave SW Calgary Alberta T2P 3G3 T: F: TSX-V: DVG