Changing the Way Clients Produce Energy Forward Looking Statements - - PowerPoint PPT Presentation

Investor Presentation

MAY 2017 TSXV: DVG

Changing the Way Clients Produce Energy

Forward Looking Statements

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Some matters discussed in this presentation may be considered to be forward- looking

• statements. Such statements include declarations regarding management’s intent, belief
• r current expectations. Prospective investors are cautioned that any such forward-

looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results could differ materially from those indicated by such forward-looking statements. Such risks and uncertainties include: the possible unavailability of financing, risks related to the uncertainty inherent in the oil and gas services industry, the impact of energy price fluctuations, the seasonal nature of business, the dependence on third party suppliers and contractors, changes in government regulation, the impact of competition, the successful commercialization of certain technologies, the dependence upon competent employees including senior management, and fluctuations in currency exchange rates and interest rates.

“We provide cost effective, innovative technologies and solutions for submersible pumping to benefit our stakeholders”

*Gillette, WY - Powder River Basin gas wells; based on internal estimates

11 Years in business 33 Employees

Recordable Safety Incidents YTD ESP Supplier*

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#

Insider Owned

8.0

%

TSXV: DVG $0.12 - $0.28 $21MM 99.9MM

Market cap as at MAY 1 ‘17 52 week range Shares outstanding 13.2% Fully Diluted

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Corporate Snapshot

Upside of Emerging Technology

 Linear Electromagnetic Submersible Pump (the “Linear Pump”) is a revolutionary concept for artificial lift that is disruptive to existing technology.  Sizeable and Expanding Market for artificial lift and for the Linear Pump.  Agreement in place with large oil company to advance commercialization.

Downside Protection Through Existing Business

 Existing submersible pump operation servicing Wyoming and Colorado continues to grow and provide increasing cashflow.  Market recovery and strategic positioning provide ability to grow existing business.

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Opportunity

“A premier supplier of submersible pumping products that increase production while reducing operating costs and carbon footprint”

Protection from the Downside

Changing the way clients produce energy

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The US Artificial Lift Operation is…

 Cash flow positive  Revenue Growth - 111% increase in 2016 vs. 2015  Increased margins - 33% in Q1 2017 vs 21% in Q1 2016

Demonstrated Growth & Recovery

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Annual Revenue (USD ,000's) Revenue Gross Profit

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The US Artificial Lift Operation in 2016 …

 Doubled in size  Moved into a new facility 3x larger  Acquired state of the art pump testing equipment

Demonstrated Growth & Recovery

Upside of Emerging Technology

Changing the way clients produce energy

Directionally drilled and horizontal wells have created new challenges:

• Bends in the well create points of contact between the rod string and the production tubing;
• Rod string suffers excessive wear as it cycles up and down millions of times per year, leading to

eventual failure of the rods and occasionally the production tubing;

• Limited advancements in pumping technology are creating rising costs to produce oil.

Critical points

• f contact in
• il wells that

result in excessive wear and eventual failure of rod strings.

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The Problem

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• Disruptive technology - an alternative to

conventional pump jack installations

• High efficiency electromagnetic motor
• Modified industry standard rod pump
• Oil wells to 3100m depth
• Rates to 200 bbl/d
• Suitable for vertical, deviated, and

horizontal wells

• Reduced Operating Costs by as much as

$153,000 annually(2)

• Increases Production Rates when able to

set the Linear Pump lower in the well vs. conventional pumps

The Solution

• Smaller footprint on surface
• Eliminates leaking wellheads
• Reduces carbon footprint

• Original pumps were provided by an overseas manufacturer.
• One pump failed when wellbore solids filled the pump, causing it to seize.
• One pump failed due to being fabricated with a lower strength steel than

required.  Current pumps are fabricated in Canada.  No further pump issues.

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Demonstrated Progress and Results

 No issues have been associated with the current generation motor.

• Using industry standard submersible pump cable.
• Electrical shorts were occurring at random depths.
• No definitive cause; suspected tubing movement causing the damage.

 Integrated an industry standard tubing anchor in March 2017.  Tubing movement has been eliminated.  No further cable issues.

 Additional installations.  Installed into the horizontal section of a well.  Clear line of sight to full commercialization  Continued growth in Wyoming and Colorado  Open facility in Colorado  Clear line of sight to profitability

Commercialization & Ramp Up

2017 & Beyond

Additional Linear Pumps Installed Client Base Expansion Debenture Resolution Pumps Installed Test Results  12

Anticipated Milestones

Pump Improvements Pump Re-installed Pump Results

Sizeable and Expanding Market

9,000*

candidate wells identified in Canada

9,500*

candidate wells identified in United States

*based on narrow search criteria in small geographic regions; further research, product results and product improvements will define the full market.

Benefits to the Environment

• based on reducing the steel used in fabrication3

*Source www.epa.gov/energy/greenhouse-gases-equivalencies-calculator-calculations-and-references

91,599

Miles driven by an average passenger vehicle

40,784

Pounds of coal burned

24,200

Pounds of waste recycled instead of landfilled

1,355

Incandescent lamps switched to LED’s

5.6

Homes’ electricity use for one year

36.2

Acres of forests sequestering carbon

88.5

Barrels of oil consumed

1,562

Propane cylinders used for home barbeques

The reduction in greenhouse gas emissions or CO2 emissions* when fabricating one Linear Pump vs one Pump Jack is equivalent to:

• or-
• or-
• or-
• or-
• or-
• or-
• or-

OPPORTUNITY GROWTH

• Participation in the upside of a high-tech growth

story offering improved environmental impacts and supported by a growing, cash-flow positive division

• All North American oil wells will need artificial lift
• Sizeable & growing target market
• Applications in other basins & plays globally
• Growing ESP business that generates positive

cash flow with track record of increasing revenue

• Near term geographic expansion potential

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PROTECTION

Why Invest?

Appendices

Ken Berg, P.Eng. – President & CEO

Previous - Sanjel, Amoco Petroleum, Dome Petroleum

Scott Hamilton, CPA, CA – CFO

Previous - Solana Resources, Crossfire Energy Services, Inc., Brahma Compression Ltd.

 Decades of experience in the energy services arena  Ideal backgrounds to commercialize product and capture market  Alignment with shareholders and strong corporate governance Kenneth Bagan - Chairman

Director of Trican Well Services, past Director of PSAC, Member ICD

Cam Barton

Financial Consultant and Independant Director

Ken Berg

President & CEO, Divergent

Martin Hall

Past Sr VP Finance & CFO of Tesco Corporation

Robert Riecken

VP Drilling, Completions, Construction, and Supply Chain, Repsol

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Experienced and Committed Team

Rod Pump Drawbacks Linear Pump Benefits

Surface lifting equipment (Pump Jack*) has a high capital cost and requires a large footprint The Linear Pump has a lower capital cost, reduces construction costs due to no surface lifting equipment Rod strings in deviated and horizontal wells cause excessive wear due to rubbing against the tubing No external moving parts means that the Linear Pump can be placed in deviated and horizontal wells as easily as vertical wells 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 No rod string, no external moving parts. Everything moves internally in the pump’s housing Mechanical inefficiencies and variable power draw can lead to high electricity costs Permanent magnet motors run on low Amps with no mechanical gears to reduce efficiency Leaking wellheads around the rod (from the “stuffing box”) is common Seal not an issue - no moving parts exit the wellhead

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90 Years of Stalled Innovation

2014

Mar 2017: Successful installation of Linear Pump in

• il well

Recent History

2013 2015

Aug 2014: Q2 results + 5 Pumps ready to ship to Canada. New BD Manager hired Dec 2014: Extends maturity of

• utstanding

debentures to Dec 31, 2015 Aug 2015: Q2 Results reported; WY activity levels & market share beat estimates Dec 2013: $5MM Debenture Issue Announced June 2015 Ops update + SK operations facility identified Mar 2014: Final tranche of Debenture ($597k); total gross proceeds

• f $5.75MM

Jun 2014: Shareholders approve name change to Divergent (previously Canadian Oilfield Solutions Corp) Dec 2014: Signed 3 year extension to exclusive rights to Linear Motor technology with manufacturer Feb 2015: Signed 5 year service agreement for Pump with large oil company; 1st candidate well identified Mar 2015: Pump test commences

2016

Jan 2016: Pump installed in client oil well in SE SK Nov 2015: Pump lands in SK for client installation Dec 2015: Debentures extended to Dec 2017, and amended to allow interest payments in shares Mar 2016: Pump efficiency exceeded expectations but was removed from well to investigate impact of 3rd party problems on Pump Apr 2016: Closes private placement raising $250k Jul 2016: WY building sale closes for net proceeds of US$400k; Pump removed from well to strengthen shaft Nov 2016: Redesigned Pump reinstalled Aug 2016: Record activity in Gillette WY ESP Sales Mar 2017: 2016 Year End results reported

2017

Dec Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Apr

Three Months Ended March 31, 2017 2017 2016 % Change Revenue* $2,163 $2,119 2% Gross Profit $722 $441 64% Net Earnings (Loss) ($662) ($2,199) 70% Net Earnings (Loss) per share

• Basic and Diluted

($0.01) ($0.03)

Comparative Results: All amounts in USD thousands, except per share amounts and as noted.

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Financial Results

*Continuing Operations

As at March 31, 2017 Cash and Cash Equivalents $104 Current Assets $2,541 Property and Equipment $449 Debentures (in CAD, due December 31, 2017) $5,750 As at May 1, 2017 Shares 99,953,227 Warrants 5,750,000 Options 8,705,000 Fully Diluted 114,408,227 Market Cap. ($CAD) $21 million

All amounts in USD thousands, except per share amounts and as noted.

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Balance Sheet and Capitalization

1. The Pump uses a modified industry standard reciprocating pump currently used with pump jacks, known as a rod pump. The pump is driven by an electromagnetic motor that uses permanent magnets to create thrust to move the shaft of the motor in a reciprocating, or linear, motion. Permanent magnets maintain their strength almost indefinitely, losing approximately 1% of their strength every 10 years. 2. Annual Rod Pump Cost Assumptions:

• Rod Strings $20 per meter;
• 10% of string replaced after a failure event;
• Service Rig $12,000 per day, 2 days per failure event;
• 5 days lost production per rod failure;
• rod string failure rate of 4 failures annually.
• Oil price of $45/bbl and production rate of 50 bbl/day;

3. Carbon Footprint reduction is achieved by the reduction in the amount of steel to fabricate a Linear Pump vs the steel used to fabricate a pump jack and rod string. Producing one ton of steel emits 1.8 tons CO2 and producing one ton of copper emits 3 tons

• f CO2 (World Steel Organization and European Copper Institute). Actual CO2 and greenhouse gas emissions may vary between

steel composites and manufacturers. Actual steel composition and specific weights will vary between equipment manufacturers.

• 320 API Designated Pump Jack

22.60 tons

• 4,900’ Rod String

3.98 tons

• Total Emissions

47.80 tons of CO2

• Linear Pump - steel

0.60 tons

• Linear Pump - copper

0.08 tons

• 4,900’ ESP Cable - copper

1.45 tons

• Total Emissions

5.67 tons of CO2

• Emissions saving:

42.13 tons of CO2 22

End Notes

Divergent Energy Services Corp. Corporate Office 1500, 715 – 5th Ave SW Calgary Alberta T2P 2X6 T: 403.543.0060 F: 403.543.0069 www.divergentenergyservices.com TSX-V: DVG

Changing the way clients produce energy