Helping Change the Way Clients Produce Energy Forward Looking - - PowerPoint PPT Presentation

Helping Change the Way Clients Produce Energy

CORPORATE PRESENTATION APRIL 2018

2 Some matters discussed in this presentation may contain forward-looking statements, including, without limitation, future installations of the Linear Pump, 2018 industry sentiment for ESP operations and discussions regarding the renewal of an exclusivity

• agreement. All statements included herein, other than statements of historical fact, are forward-looking information and such

information involves various risks and uncertainties. There can be no assurance that such information will prove to be accurate, and actual results and future events could differ materially from those anticipated in such information. A description of assumptions used to develop such forward-looking information and a description of risk factors that may cause actual results to differ materially from forward-looking information can be found in the Corporation's disclosure documents on the SEDAR website at www.sedar.com. Forward-looking statements are based on estimates and opinions of management of the Corporation at the time the information is

• presented. The Corporation may, as considered necessary in the circumstances, update or revise such forward-looking statements,

whether as a result of new information, future events or otherwise, but the Corporation undertakes no obligation to update or revise any forward-looking statements, except as required by applicable securities laws. Non-GAAP Measures: Certain supplementary measures in this presentation do not have any standardized meaning as prescribed under IFRS and, therefore, are considered non-GAAP measures. These measures are described and presented in order to provide information regarding the Corporation’s financial results, liquidity and its ability to generate funds to finance its operations. These measures should not be used as an alternative to IFRS measures because they may not be consistent with calculations of other

• companies. These non-GAAP measures, and certain operational definitions used by the Corporation, are further explained in the

Corporation's MD&A for the year ended December 31, 2016 and in the MD&A of our most recent interim financial statements.

Forward Looking Statements

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Business Overview

POSITIONING THE COMPANY FOR SUCCESS Changing the way Clients Produce Energy

2014 – secure exclusivity to the Linear Pump(1) IP. 2015 – streamline corporate focus to artificial lift. 2016 – enter strategic supply chain agreement to reduce inventory burden. 2016 – rapid growth of CBM ESP sales in Wyoming.

Established Platform

Where we have been

2017 – entered OIL ESP market and established reputation. 2017 – acquired state of the art pump testing equipment. 2017 – Linear Pump testing achieves record run time. 2017 – signed 3 year exclusive contract with large Wyoming client.

Recognize Market Potential

Where we are now

Capitalize on Markets and Technology

2018 – aggressive growth plans for conventional ESP products. 2018 – extending run-time with the Linear Pump. 2018 and beyond: expand product offerings through new and emerging technologies in artificial lift.

Where we are going

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Q4 2017 Results from Operating Activities:

• Gross Profit increased 94%.
• G&A decreased 31%.
• Expected decline in revenues as part of a strategic

multi-year contract focused on profitability rather than top-line sales. YE 2017 Results from Operating Activities:

• Gross Profit increased 17%.
• Decline in revenues offset by increased margins.

Improved Performance

PLATFORM FOR SUCCESS

• Reliable. Repeatable. Quality.

$0 $5,000 $10,000 $15,000 $20,000 $25,000 2013 2014 2015 2016 2017 (USD ,000's) Revenue Gross Profit

Anticipated revenue decline with increased gross profits

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YE 2017 successes … ü Entered a 3-year preferred services agreement with the largest operator in the Powder River Basin. § Coal Bed Methane (CBM) Wells. § Stable source of revenue from a mature basin with many years of production remaining. ü Growing revenues from oil producing clients in Wyoming basins. ü Near term revenues from oil producing clients in Colorado basins. ü Existing contracts generate sufficient cash flow to support the Corporation.

Focus on Existing Business

PLATFORM FOR SUCCESS Positioned to capitalize on growth opportunities

Gillette

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Upside of Existing Business

PLATFORM FOR SUCCESS Positioned to capitalize on growth opportunities

2018 outlook on OIL ESP markets … ü Increasing demand from clients. ü Consolidation within competitors reducing service options. ü US oil production expected to account for 80% of the increased global demand for oil over the next 5 years. ü Ideal market conditions for expansion.

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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Upside of Emerging Technology

THE PROBLEM Legacy technologies can’t keep pace with how wells are drilled today

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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 2100m depth
• Rates to 200 bbl/d
• Suitable for vertical, deviated, and

horizontal wells

• Reduced Operating Costs by as much as

$169,500 annually(2)

• Increases Production Rates(5)
• Reduces Electrical Power Usage(4)
• Smaller footprint on surface
• Eliminates leaking wellheads
• Reduces carbon footprint(3)
• Reduces Electrical Power Usage(4)

Upside of Emerging Technology

THE SOLUTION Adapt and innovate to keep pace with today’s needs

EXPECTED MILESTONES RESULTS

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Upside of Emerging Technology

DEMONSTRATED PROGRESS AND RESULTS Moving past “proof of concept”

2015 Prototype Pump 2016 2nd Generation Pump 2017 3rd Generation Pump

• 4 pumps tests.
• 12 days run time achieved.
• Improvements to pump and motor

identified.

• 3 pumps tests.
• 23 days run time achieved.
• Improvements to pump and change to

installation method identified.

• 1 test.
• 84 days run time achieved.
• Improvement to pump identified.
• Success of new installation method.
• New installations.
• Extended run times.
• Varied applications.

2018 4th Generation Pump 2019 5th Generation Pump

• Fully automated pump - self adjusting

to wellbore conditions.

• Proven technology.

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• based on calculations from 2016/2017 tests4

The 2017 testing was conducted in Saskatchewan. The following results were calculated using information from the SaskPower website* and from data collected during the test:

*Source www.saskpower.com/wp-content/uploads/Service_Rates_Oil_Field_2017.pdf ** based on industry information for power needs for existing typical pump jack operations

Rate Type SaskPower Rate Pump Jack** Linear Pump Usage Charge Usage Charge Demand Charge $12.933 / kVA 23.5 kVA $304 23.5 KVA $304 Energy Charge $0.07306 / kWh 16,425 kWh $1,200 9,555 kWh $698 Total Cost per Month: $1,504 $1,002

Benefits to the Environment AND Profitability

ELECTRICAL SAVINGS Economic and Environmental Benefits from High Efficiency Linear Motor

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• based on reducing the steel used in fabrication3

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

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

Benefits to the Environment

CARBON REDUCTION Contributing to Canada’s Reductions in Carbon Emissions

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Current Target Well

• Pump sizes 38mm - 57mm (1.5” - 2.25”)
• Depths to 2,100m
• Production up to 200 bbl/d.
• Minimal sand and gas.
• 139.7mm casing or larger.

Disruption to Traditional Rod Pump Market There are an estimated 750,000 traditional rod pumps currently in service: 600,000 in the US and 150,000 in Canada. Our Linear Pump will disrupt this market.

Growth Opportunity

SIZEABLE AND EXPANDING MARKET FOR THE LINEAR PUMP The market continues to grow with each well drilled.

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Growth Opportunities

UPSIDE OF ARTIFICIAL LIFT All wells will eventually require some form of artificial lift.

• Solid base of operations in Gillette WY servicing the CBM and OIL markets.
• Significant growth opportunity exists across the USA’s oil basins including

Colorado, Kansas, Oklahoma, Texas, Utah and North Dakota.

Conventional ESP ESPCP

2

• Electric Submersible Progressive Cavity Pump (ESPCP).
• PCPs are a dominant type of artificial lift in Canada for heavy oil (cold

production - not steam assisted).

• Opportunity for growth in both US and Canada.

Linear Pump

3

• We continue to extend our run-time with each test.
• Extended run time expected with the next installation(s) (timing TBD).
• Capable of pumping in the horizontal section for higher productivity.

Continuous Technology Development

4

• New technology capabilities beyond the current generation Linear Pump

are being explored by our Technical Advisory Committee.

• Our successful ESP division continues to attract an ongoing pipeline of new

technologies that are being monitored and evaluated.

1

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We are uniquely positioned to capitalize on emerging technology - no one supplier has the ability to provide the market with a complete system. Divergent brings together all the elements and provides integration and market access. Divergent (Technology Integration and Market Access)

Motor Technology Drive Technology Pump Technology Advisory Committee (guidance / new IP)

Keystone Value

BRINGING ALL THE ELEMENTS TOGETHER Integration of technologies

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Market Outlook

2018

Robust Demand for Artificial Lift

• The ESP market is expected to be a leading growth sector in the oil and gas industry.
• Shale oil development in the United States is increasing demand on ESP companies.

Pricing and Costs Flat

• Pricing levels have plateaued after some recovery in 2017.
• Strategic supply chain agreements are expected to keep costs flat for 2018.

Competition

• Consolidation among competitors has left fewer choices available to clients.
• Small, nimble providers offer an edge in service delivery.

Supply and Growth

• Overseas vendors have long lead times to build and ship product.
• Balance must be struck between growth and inventory levels to ensure efficient inventory

levels and high turnover rates.

OPPORTUNITY GROWTH

• Participation in the upside of a high-tech growth story
• ffering 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 profits.

• Near term geographic expansion potential.

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PROTECTION

Why Invest?

UPSIDE OF NEW TECHNOLOGY WITH THE DOWNSIDE PROTECTION OF A GROWING CONVENTIONAL BUSINESS Moving past “proof of concept”

Appendices

18

Highlighted Financial Results

PLATFORM FOR SUCCESS Positioned to capitalize on growth opportunities

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

2015 2016 Q4 2017 2017 Revenue $5,458 $11,524 $2,101 $8,182 Gross Profit $1,362 $1,993 $596 $2,341 Gross Profit % 25% 17% 28% 29% Results from Operations ($2,065) ($1,402) ($30) ($588) As at April 2, 2018 unless otherwise noted: Share Price $0.085 52-week Share Price Range $0.05 - $0.21 Shares Outstanding 108,902,172 Warrants 6,026,000 Options 6,785,000 Approximate Management and Insider’s Holdings ~6% Market Capitalization ($CAD) ~$9.2 MM $5.75 MM ($CAD) Secured Non-Convertible Debenture

(interest payable quarterly with shares in lieu of cash at the Corporation’s discretion)

10% coupon

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.

Kenneth Bagan - Chairman

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

Cam Barton

Financial Consultant, Director of Wentworth Resources, Member ICD

Ken Berg

President & CEO, Divergent, Member ICD

Martin Hall

Past Sr VP Finance & CFO of Tesco Corporation, Member ICD

Donald Luft

Past President and COO of Trican Well Services, Member ICD

Robert Riecken

Past VP Drilling, Completions, Construction, Supply Chain, Repsol, Member ICD

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Ken Berg, P.Eng. – President & CEO

Previous - Sanjel, Amoco Petroleum, Dome Petroleum

Tommy Vineyard

Vineyard Consulting. Previously held senior roles with Halliburton, Global Oilfield, Borets Weatherford, Woodgroup, and Elite Multiphase Solutions.

Marcel Obrejanu

Currently Founder and CEO of several companies including Premium Artificial Lift, Star Oil Tools, Fluica, and Dynamic Oil Tools. Currently holds 52 patents and patent applications.

Leadership Team

EXPERIENCE AND COMMITMENT Diverse Backgrounds, Common Goals

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 $169,500(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

* The Pumpjack was invented in 1925 by Walter Trout, an employee of Lufkin Foundry and Machine

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Upside of Emerging Technology

90 YEARS OF STALLED INNOVATION Decades old technology was never intended for use in today’s highly deviated wells.

1. The Linear 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 times annually.
• Oil price of $60/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 21

End Notes

4. The Linear Pump uses a high efficiency permanent magnet motor that draws less power than a conventional induction motor that is typically used with submersible pumps. Data was collected from the testing done in 2016 and 2017 under numerous scenarios utilizing a proprietary variable frequency drive program to manage the amperage delivered to the motor. The motor was successfully controlled with amperages averaging between 15A and 26A depending on test conditions, and with peak startup of

• 34A. Ongoing tests will allow us to explore the lower ends of power needs as it has not yet been determined how low the power

can go and still successfully run the pump. Power consumption of pumping jacks is based on information shared by oil producers and is not data measured or collected by Divergent. 5. Increased Production: generally, production rates increase with increasing drawdown (drawdown being the ability to draw the fluid level in the well down to reduce pressure on the oil reservoir, and is measured as the difference between the static and dynamic fluid levels in a pumping well). Drawdown can be increased by setting the submersible pump deeper in the well, allowing the pump to draw the fluid level further down. 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