Corporate Presentation June 2019 1 Agenda The Problem Diluent - - PowerPoint PPT Presentation

Corporate Presentation

June 2019

1

Agenda

▪ The Problem ▪ Diluent Value Loss with Pipelined Heavy Oil/Bitumen ▪ Egress for Western Canadian Oil Production ▪ How Rail Can Help ▪ Already Exists (Established and Operational System) ▪ Gets Beyond Current Oversupplied Markets ▪ Large Capacity to Move Commodities ▪ Safe and Reliable and Efficient ▪ Altex Energy ▪ Terminals and Logistics ▪ Technology

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Based on Avoiding Diluent in Crude Oil Movements

▪ Crude on rail business in Canada was originally not based on egress challenges ▪ Was based on avoiding need to add diluent (condensate - C5+) to heavy

• il/bitumen which is required by

current pipelines ▪ C5+ worth more as diluent than it is as refinery feedstock (lose money by moving C5+ like this) ▪ Added benefit is heavy oil/bitumen is safer and more environmentally- friendly to move without diluent ▪ Idea was to use “new technology” to move heavy oil/bitumen to market in a better way

3 GMPFE May 21, 2019 Refinery value of C5+ should be less than heavy Oil

Cost of Diluting Heavy Oil Transportation Cost ~$10/bbl Market Value Loss ~$10/bbl Diluent Penalty ~$20/bbl

Heavy Oil Diluent Penalty

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▪ Heavy oil requires the addition of diluent (C5+) to be pipelined ▪ The growth in heavy production creates a C5+ demand pull

Diluent Penalty ▪ C5+ is more valuable as diluent for heavy oil than as refinery feedstock ▪ Lower value at USGC refinery centers with growing light production in USA shale plays ▪ Growing heavy production in Canada to require more diluent ▪ Economic driver to transport heavy oil without diluent ▪ Altex transports undiluted or under- diluted heavy oil, eliminating or significantly reducing the diluent penalty

$60/bbl $50/bbl

C5+ C5+

Moving Oil on Railcars

▪ Wasn’t even that new an idea ▪ In 1858, retired railway man Colonel Edwin Drake devised the idea of the drive pipe pioneering a new way to produce oil in Titusville, Pennsylvania which is still used today ▪ Techniques were imitated by others, production boomed (~85% of world oil was coming from western Pennsylvania wells in 1880’s) ▪ John Rockefeller started his career at age 16 (in 1855) as assistant bookkeeper working for a small produce commission firm called Hewitt & Tuttle in Cleveland, Ohio - he was particularly adept at calculating transportation costs, which served him well later in his career ▪ In early 1860’s, he entered the oil business on the distribution/refining side moving oil and refined products from production site to refinery to market by rail (only method possible)

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Titusville, PA

Edwin Laurentine Drake 1819-1880 John Davison Rockefeller 1839-1937

▪ Proven to be very successful at growing hydrocarbon production in Western Canada ▪ Haven’t been as successful in delivering the product to market in an efficient fashion ▪ Markets changing (supply- demand) ▪ Our connections go the wrong place ▪ Can’t expand egress with production ▪ Product-on-product competition dramatically reducing prices in western Canada

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Egress Problems Now

Egress Problems

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Source: Canadian Association of Petroleum Producers

Western Canadian production All the people, refineries, consumers that we sell to….

▪ The production is in the west and consumers are in the east (and south) ▪ Infrastructure built to move product to markets in Ontario and Illinois areas ▪ Things change – with US production increasing, less demand for Canadian oil in those markets but historic pipeline infrastructure largely only services those markets ▪ USGC and East Coast and West Coast markets not well accessed ▪ Offshore markets not readily accessible

New and Emerging Markets for Canadian Crude Oil

▪ The bigger challenge remains where to move Canadian barrels to as US production increases in the face of stagnant North American demand

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7.9 3.9 19.3 23.8 17. 7 18.8 7.5 7.0 31.8 9.4

Source: BP Statistical Review of World Oil Energy June 2017

8.0 33.6

Asia is the major global importer of oil – needs more supply and supply diversification

Prod Cons mmbpd

North America Oil Supply / Demand

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Source: BP Statistical Review of World Oil Energy June 2017

Canada U.S.A. Mexico

Anchorage Prince Rupert Vancouver Fort McMurray Edmonton Calgary Regina Winnipeg Thunder Bay Toronto Ottawa Montreal Halifax New York St Louis Miami San Francisco Los Angeles Phoenix Houston New Orleans Mexico City Minneapolis/ St Paul

4.5 2.3 12.4 19.6 2.5 1.9

North America is an oil importer led by USA demand Canada is a net oil exporter with significant exports out of Western Canada Significant growth in USA production has reduced imports and reduced need for Canadian imports Growing western Canadian production highlights need to establish other markets

Prod Cons mmbpd

Diversifying Markets for Canadian Oil Production

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Asia continues to be the obvious location for diversification of Canada’s oil exports West coast of Canada/USA are preferential location for exports (closest, cheapest…)

Canada’s oil

2.2 mmbpd Source: BP Statistical Review of World Oil Energy June 2017

Value Contribution of Crude Transportation by Rail

For Western Canadian Producers ▪ Provide access to new consumers thereby increasing demand ▪ Allow for transport without adding diluent - price improvement by rail is most significant for heavy

• il/bitumen

▪ Increase the netback price

• f oil produced

▪ Provide opportunity to tank treat for many producers, significantly lowering processing costs

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For Refineries ▪ Provides access to new supply ▪ For refineries previously committed to offshore oil, provide access to reliable inland production selling at discounted prices ▪ For heavy oil refineries, provide access to new supply replacing declining global heavy oil supply ▪ For heavy oil refineries, provide opportunity for pure heavy oil without light ends For Other Stakeholders ▪ Increase realized price for heavy oil in producing areas thereby increasing royalties, taxes and employment opportunities ▪ Lower feedstock price for coastal refineries saving them from shutdown and associated job losses, and increasing local taxes/ payments ▪ Provide valuable railway jobs across North America

Railway Fundamentals

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▪ Rail provides a method to get higher world oil price for Canadian oil and NGL production ▪ Existing system provides access to all refining markets in North America ▪ Existing system provides access to tidewater where oil and NGL could be exported to global markets ▪ World prices are higher than inland Canadian prices providing incentive for inland producers and coastal buyers to find ways to access each

• ther’s markets

▪ Rail system can be used to import products more efficiently and export

• ther products through Altex

terminals

Oil - Rail Exists across the Continent and to Tidewater

▪ Established rail system across North America allows access to “new” refineries for crude oil ▪ Allows access to tidewater on east, south and west coasts ▪ Already built and available ▪ Large capacity ▪ Opportunity to move

• il safely and

environmentally

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Heavy Oil/Bitumen Producing Areas

Altex terminals CN Railway Marine terminal destinations

Railways Are Safe

▪ Pipeline and rail represent safe energy transportation solutions with long

• perational track records

▪ Despite active misinformation by pro- pipeline lobby, railways are “safe” and represent an efficient and effective way to move commodities ▪ Has created significant confusion/ ignorance – better to use facts/science ▪ Infrastructure is already in place minimizing surface and environmental footprint ▪ Rail has been shown by independent parties to have lower spilled volume and greater energy efficiency than other alternatives

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Fraser Institute (pipelines spill 3.2x as much oil per volume moved as rail - albeit rail has 4.5x the number of incidents) USA Congressional Research Service Oliver Wyman

Operating & Safety Standards

▪ Type of crude oil typically moved by Altex (heavy oil/bitumen) is safer than other crude oils and other products often moved

• n rail or by pipeline (and is the type of

crude oil typically produced in western Canada) ▪ And don’t need to import C5+ just to mix it in with heavy oil and send it back (environmental benefits) ▪ Altex has developed rigorous safety standards and is an industry leader in health and safety policies

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• 200
• 150
• 100
• 50

50 100 150 200 Propane Butane Gasoline Pentane DilBit Bakken WTI Typical Cdn Light Oil Iranian Light Basrah Urals Jet Fuel Diesel #6 Fuel Oil Typical Altex Oil Typical Bitumen

Flash Point (Degrees Celsius)

Increasing Fire Hazard / Explosive Potential Elizabeth May, Green Party

Railways Can Help Oil Industry / Canada’s Economy

▪ Canada suffers discounted prices for its major export due to reliance on

• versupplied markets accessed by

pipeline ▪ Railways have capacity to increase exports to better markets ▪ Enhances commodity price and associated royalties/taxes/employment ▪ Capacity ▪ Railways (>>>current volume) ▪ Railcars ▪ Oil terminals (~700kbpd) ▪ Supply (production) ▪ Demand (refining/exports)

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Altex Energy Ltd.

▪ Constructor/owner/operator of rail terminals in Western Canada and logistics company ▪ Dominant loader of undiluted heavy oil and bitumen in Canada with unit train capability connecting Western Canada to refining/processing markets around North America and globally ▪ Also provide services to export refined products, waste products, etc and import chemicals, condensate, refined products, etc ▪ Owns and operates four terminals strategically located and capable of moving more than 160,000 bpd at full capacity ▪ Strategic partnership and long term arrangement with Canadian National Railway ▪ Proprietary technology and systems drive efficiencies and support customer service focus

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Altex Terminals in Western Canada

▪ Owns and operates 4 terminals in Western Canada ▪ Focusses on moving undiluted heavy oil and bitumen to refineries in USA, Canada, and globally ▪ Transports other products including condensate imports ▪ Key terminals offer emulsion and H2S treating services, adding value for customers

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Peace River Oilsands Region Lloydminster Heavy Oil Region Cold Lake Oilsands Region Athabasca Oilsands Region

Terminal Normal Capacity (mbbl/d) Full Capacity (mbbl/d) Tank Storage (mbbl) Truck Stations (#) Lashburn 65 90 148 26 Unity 15 30 24 12 Lynton 15 30 30 6 Falher 5 10

• 2

Total 100 160 202 46

Patents and Technology

▪ CDN Patent #2643893 – Patented design of a special purpose tank car and oil forehaul/condensate backhaul ▪ Altex has licensed (on a non-exclusive basis) this tank car technology to a North American railcar manufacturer ▪ CDN Patent #2829003 – Patented the process used by transloaders who receive trucks, employ tanks, and load tank cars with either dilbit or bitumen ▪ US Patent #8393359 – Patented the forehaul and backhaul trade ▪ Proprietary SCADA/logistics/accounting information system which improves service for customers – also applicable to other commodities which employ rail

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Altex Energy

Suite 1100, 700 – 9th Avenue SW | Calgary, Alberta T2P 3V4 | Main Phone: (403) 508- 7525 | www.altex-energy.com

John Zahary President & CEO

• John. Zahary@altex-energy.com

Colleen Johansen Chief Financial Officer Colleen.Johansen@altex-energy.com