Changing the Way Clients Produce Energy This Corporate Presenta,on - - PowerPoint PPT Presentation

Investor Presenta,on

DECEMBER 2016 TSXV: DVG

Changing the Way Clients Produce Energy

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 oRen, but not always, iden,fied by the use

• f 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

• utcomes. 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

• f 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

“Changing the way clients produce energy”

Market cap as at Dec 1 ‘16 *Gille_e, WY - Powder River Basin gas wells; based on internal es,mates

10

Years in business

33

Employees Recordable Safety Incidents YTD ESP Supplier*

1

#

Insider Owned

8.0

%

TSXV: DVG $0.13 - $0.30 $18.6MM 98.3MM

52 week range Shares outstanding 13.2% Fully Diluted

3

VISION A leading supplier of submersible pumping products that reduce costs, energy consumpOon, and carbon footprint. OPPORTUNITY Emerging Technology Offers Upside through InnovaOon

ü Linear Electromagne,c Submersible Pump (the “Linear Pump”) is a revolu,onary concept for ar,ficial liR that is disrup,ve to exis,ng technology. ü Opportunity for producers to reduce capital and opera,ng costs compared with tradi,onal liR 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 will need ar,ficial liR products ü Global ar,ficial liR market expected to exceed $17B by 2019

ExisOng ArOficial 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

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.

CriAcal points

• f contact in
• il 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

Ar6ficial Li9 Solu6ons

The Linear Pump is undergoing final tesAng in a client well in Saskatchewan & is approaching commercializaAon

• 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
• Conven,onal pump technology
• Rota,ng pump with mul,ple impellers
• Pumps moderate to high volumes of fluids

Our ESP and progressive cavity pump business in GillePe Wyoming generates posiAve cash flow and helps support conAnued development of our 2nd generaAon Linear Pump.

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 Is ideal for oil wells to 2000m depth and rates to 42 m3/d (6500’ and 265 bbl/d) 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

• f 18 amps of electricity

7

92%

Linear Pump efficiency with lower power draw

The Linear Pump effecOvely:

ü Eliminates surface li\ing equipment (pump jack) Smaller footprint means reduced construc,on costs, and reduced impact on the environment, farming and ranching.

8

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

• pera,ons.

ü Efficient & easy to install

• Low cost opera,ons, a_rac,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 commi_ed board

7,500*

candidate wells iden,fied in Canada

9,500*

candidate wells iden,fied in United States

Viking, Cardium, Slave Point Bakken, Viking, Shaunavon, Spearfish Uinta Basin Niobrara, Powder River Basin Poza Rica

Ini6al Target Markets in North America

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

à Results of Linear Pump performance à Con,nue expanding

• pera,ons in Wyoming and

poten,al introduc,on of the Pump in Powder River Basin à Con,nued business development to operators in

• ther 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 à Clear line of sight to profitability

Pump Results Pump Orders Increase

Pump Lands in SK Staging Yard

Pump Installed Commercializa,on & Ramp Up

2015 - 2016 2017 & Beyond

Debenture Resolu,on Pump Tes,ng by Addi,onal Clients Client Base Expansion

ü ü ü ü

10

($500,000) $0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Quarterly Revenue (USD) Revenue Gross Profit

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Divergent’s Wyoming Ar,ficial LiR Opera,on is…

ü Cash flow posiOve ü Increasing revenue - 233% increase in Q3 2016 vs. Q3 2015 ü Semng record acOvity levels - August 2016 peak ac,vity

OPPORTUNITY SIZEABLE MARKET

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 All North American oil wells will need ar,ficial liR Sizeable & growing target market Applica,ons in other basins & plays globally Growing ESP business that generates posi,ve cash flow with track record of increasing revenue Near term geographic expansion poten,al

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EXISTING BUSINESS

Appendices

Ken Berg, P.Eng. – President & CEO

Previous - Sanjel, Amoco Petroleum, Dome Petroleum

Scor Hamilton, CPA, CA – CFO & Corporate

Secretary

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

Management Team Board of Directors 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 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

MarOn Hall

Past Sr VP Finance & CFO of Tesco CorporaAon

Robert Riecken

VP Drilling, CompleAons, ConstrucAon, and Supply Chain, Repsol

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Current Technology Drawbacks Linear ElectromagneOc Submersible Pump Benefits (the “Linear Pump”)

Surface liRing equipment (Pump Jack) has a high capital cost and requires a large footprint The Linear Pump has a lower capital cost, reduces construc,on costs due to no surface liRing 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 ver,cal 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

15

2013 2015 2014

Dec Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Oct

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

Three Months Ended September 30 2016 2015 % Change Revenue $3,969 $1,192 233% Gross Profit $668 $321 108% Net Earnings (Loss) ($164) ($882) 81% Earnings (Loss) per share

• Basic and Diluted

($0.00) ($0.01)

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

17

Nine Months Ended September 30 2016 2015 % Change Revenue $8,728 $3,799 130% Gross Profit $1,727 $1,315 31% Net Earnings (Loss) ($2,907) ($4,430) 34% Earnings (Loss) per share

• Basic and Diluted

($0.03) ($0.05)

As at September 30, 2016 Cash and Cash Equivalents $908 Current Assets $4,867 Property and Equipment $353 Debentures (in CAD, due December 31, 2017) $5,750 As at November 30, 2016 Shares 98,298,732 Warrants 5,750,000 Op,ons 6,200,000 Fully Diluted 110,248,732 Market Cap. ($CAD) $ 18.6 million

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

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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 shaR 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 aRer 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;

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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