Revolutionizing Pump Technology A Neodymium magnet is the most - - PowerPoint PPT Presentation

INVESTOR PRESENTATION

APRIL 2016

A Neodymium magnet is the most widely used and strongest type of permanent, rare-earth magnet commercially available

Revolutionizing Pump Technology

TSXV: DVG

This Corporate Presentation contains certain forward-looking statements and forward-looking information (collectively referred to herein as “forward-looking statements”) within the meaning of applicable securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking information is often, but not always, identified by the use

• f words such as “could”, “should”, “can”, “anticipate”, “expect”, “believe”, “will”, “may”, “projected”, “sustain”, “continues”,

“strategy”, “potential”, “projects”, “grow”, “take advantage”, “estimate”, “well positioned” or similar words suggesting future

• utcomes. In particular, this Corporate Presentation contains forward-looking statements relating to future opportunities, business

strategies and competitive advantages. The forward-looking statements regarding the Company are based on certain key expectations and assumptions of the Company concerning anticipated financial performance, business prospects, strategies, the sufficiency of budgeted capital expenditures in carrying out planned activities, 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 conditions and potential timing delays. Although management of the Company consider these assumptions to be reasonable based on information currently available to them, they may prove to be incorrect. By their very nature, forward-looking statements involve inherent risks and uncertainties (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, objectives, expectations and

anticipations, estimates and intentions expressed in the forward-looking statements, including among other things: inability to meet current and future obligations; inability to implement the Company’s business strategy effectively in Canada, Mexico and the United States; inability of the Company to continue meet the listing requirements of the TSX Venture Exchange; general economic and market factors, including business competition, changes in government regulations; access to capital markets; interest and currency exchange rates; technological developments; general political and social uncertainties; lack of insurance; delay or failure to receive board or regulatory approvals; changes in legislation; timing and availability of external financing on acceptable terms; and lack of qualified, skilled labour or loss of key individuals. Readers are cautioned that the foregoing list is not exhaustive. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this Corporate Presentation are made as of the date of this Corporate Presentation and the Company does not undertake and is not obligated to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless so required by applicable securities laws. 2

 High-growth, publicly-traded technology firm (TSXV: DVG)  Advancing innovative Artificial Lift systems for the oil & gas industry:

– Revolutionary Linear Electromagnetic Submersible Pump (the “Pump”) – Alternative to traditional pump jack – Powered by a permanent magnet motor(1) – Offers lower costs, reduced maintenance and minimal environmental footprint – Commercialization anticipated in 2016, initially in Western Canada – First commercial version of Pump installed in client oil well in SK in January, 2016

 Existing cash flow positive business unit in Gillette, WY

– Conventional electric submersible pumps (ESP): – Increasing market share

 Near-term catalysts as the next generation Pump nears commercialization

3

Mission: “Changing the way clients produce energy”

Market cap as at April 22 ‘16 *Gillette, WY - Powder River Basin gas wells; based on internal estimates

10 Years in business 25 Employees 0 Safety incidents YTD

ESP Supplier*

1

#

Insider Owned

6.3

%

TSXV: DVG $0.19 - $0.54 $25.6MM 96.7MM

52 week range Shares outstanding 12.2% Fully Diluted

4

The Pump

• Near commercialization
• Lower capital cost and operating cost when compared with pump jacks

The Market

• Nearly 20,000 Oil wells (Bakken, Shaunavon, Cardium, Viking, Niobrara, etc.) where pump jacks are

used to produce oil have been identified as candidates

• In Canada alone, 90% of all new wells are drilled for oil and 88% of all new wells are drilled

horizontally

• 750,000 pump jacks already in use in North America

The Opportunity

• Exposure to a high growth company with pivotal operational catalysts on the horizon
• Agreement in place with large oil company with first commercial version of the Pump installed

January, 2016

• Ongoing discussions with other clients to install additional Pumps

5

Increases in directional drilling, and horizontal wells in particular, 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 3 million 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.

6

The Linear Electromagnetic Submersible Pump (the “Pump”):

 No immediate competition for this technology  Reciprocating pump is a modified industry standard rod-pump  Powered by permanent magnet motor - magnets lose only 1% of magnetism over 10 year period  No external moving parts; everything moves internally in the Pump housing  2nd Generation Pump improved with 25% more power & 50% less friction than prototypes  Recent run times indicate 92% efficiency vs. 80% in traditional rod pumps  Ideal for light oil, shallow horizontal wells - can be set inside the horizontal section in a well

7

The Pump effectively:

 Eliminates surface lifting equipment (pump jack) Smaller footprint means reduced construction costs, lower environmental impact, and lower impact on farming and ranching.  Eliminates sucker rods Worn and broken sucker rods can cost clients up to $153,000(3) annually to maintain, including the oil not being produced during failures.  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

• perations.

8

• Low cost manufacturing, attractive margins, and ability to quickly scale-up
• Simple installation in the field & limited maintenance required for producers
• Compelling in oil price downturn - lower cost installation and maintenance compared

to pump jacks

• Divergent’s management team has hands-on experience building companies and

generating value for owners; supported by strong and committed board

7,500

candidate wells identified in Saskatchewan

9,500

candidate wells identified in North Dakota

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

Initial Target Markets in North America

9

Installed in client oil well in Southeast Saskatchewan January, 2016

• 23 days of total run time.
• 92% pump efficiency* at production rates of 20.4 m3/d (128 bbl/d) exceeding

expectations.

*Typical industry rod pumps run at an efficiency rating of 80% and would be expected to deliver 17.8 m3/d (112 bbl/d) under similar conditions.

• Resolution of minor operational interruptions* have armed Divergent with

significant learnings about optimal Pump parameters.

*A decoupling of the pump shaft from the motor occurred, believed to be caused by settings in the control system’s software – software settings have been adjusted to eliminate a repeat occurrence.

10

Run time success to date supports order of additional Pumps

• Additional Pumps ordered using proceeds from the private placement financing
• Next shipment of Pumps expected to arrive by May 18th
• Further installations in additional wells expected in May/June with opportunity to

establish new client agreements

• Secured new commercial terms from the Pump manufacturer for this shipment
• Demonstrates alignment with manufacturer on need to remove barriers to rapid

commercialization of Pump

• Additional term improvements to be established as purchase volumes increase

11

*Source: Internal Estimates of ESP Products & Services for dewatering Powder River Basin gas wells

Divergent’s Wyoming Electric Submersible Pump (“ESP”) operation is…  Cash flow positive for the past 12 consecutive quarters  Exceeding expected activity levels - Q4 2015 set a five-year record for quarterly revenues  Largest Provider* of ESP’s for gas producers in the Powder River Basin  Increasing market share each quarter

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2013 2014 2015 2016 Market Share Divergent Competitor 1 Competitor 2 Competitor 3

 Results of Pump performance  Continue operations in Wyoming and potential introduction of the Pump in Powder River Basin  Continued business development to operators in other oil fields  Agreements with additional new

• perators to install and test the

Pump  Expansion of Pump inventory based on increased client demand  Clear line of sight to profitability

Pump Results Pump Orders Increase

Pump Lands in SK Staging Yard

Pump Installed Commercialization & Ramp Up

2015 2016 & Beyond

Debenture Resolution Pump Testing by Additional Clients Client Base Expansion

   

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PUMP MARKET OPPORTUNITY

• Approaching commercialization
• Cost-effective & efficient
• Low environmental footprint
• All horizontal oil plays will need artificial lift
• Sizeable & growing target market (7,500

wells in SK & 9,500 in ND)

• Application in other basins & plays globally
• Significant near-term catalysts
• First commercial version of the Pump

installed in January 2016

• Agreement with large oil company +

discussions ongoing with others

14

Divergent Energy Services Corp. Corporate Office 1170, 800 – 6th Ave SW Calgary Alberta T2P 3G3 T: 403.543.0060 F: 403.543.0069 www.divergentenergyservices.com

Changing the way clients produce energy

TSXV: DVG

APPENDICES

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;

17

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

Surface lifting equipment (Pump Jack) has a high capital cost and requires a large footprint The 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 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(3) annually to maintain, including the oil not being produced during failures No rod string, no external moving parts. Everything moves internally in the Pump 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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Electric Submersible Pump (ESP) Conventional pump technology. Rotating pump with multiple impellers. Pumps moderate to high volumes of fluids. 24 m3/d (150 bbl/d) to 24,600 m3/d (150,000 bbl/d). Electric Submersible Progressing Cavity Pump Also called screw or Moineau pumps. Heavy oil, high sand production, gassy wells. Now deployed as a submersible pump system. Eliminates surface motors and costly rod string wear.

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Linear Electro-Magnetic Submersible Pump (The Pump) Permanent magnet motor technology. Reciprocating pump (similar to rod pumps). Ideally suited for deviated and horizontal oil wells. An alternative to conventional pump jack installations.

Twelve Months Ended December 31 2015 2014 % Change Revenue $5,768 $6,133 (6%) Gross Profit $1,639 $1,916 (14%) Net Earnings (Loss) ($5,455) ($5,662) 4% Earnings (Loss) per share

• Basic and Diluted

($0.06) ($0.06) Three Months Ended December 31 2015 2014 % Change Revenue $1,969 $1,360 45% Gross Profit $324 $406 (20%) Net Earnings (Loss) ($1,005) ($2,093) 52% Earnings (Loss) per share

• Basic and Diluted

($0.01) ($0.02)

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

20

As at December 31, 2015 Cash and Cash Equivalents $77 Property, Equipment and Trademark $750 Debentures (in CAD, due December 31, 2017) $5,750 As at April 22, 2016 Shares 96,740,395 Warrants 5,750,000 Options 8,150,000 Fully Diluted 110,640,395 Market Cap. ($CAD) $25.6 million

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

21

Ken Berg, P.Eng. – President & CEO

Previous - Sanjel, Amoco Petroleum, Dome Petroleum

Scott Hamilton, CPA, CA – CFO & Corporate

Secretary

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

Management Team Board of Directors

 Management team brings decades of experience in the energy services arena  Background of the team ideal to move product to commercialization and capture ongoing market share from existing and outdated pump jack technology  Alignment with shareholders and strong corporate governance

Scott Berry – Chairman

Past Executive Director of Empowering Minds

Kenneth Bagan

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

John Grisdale

Past President of CanAir Nitrogen; Past President of US Division, Calfrac

Martin Hall

Director of Karnalyte; Past Sr VP Finance & CFO of Tesco Corporation

Robert Riecken

VP Drilling, Completions, Construction, and Supply Chain, Talisman Energy / Repsol

Ken Berg

President & CEO, Divergent

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$- $0.10 $0.20 $0.30 $0.40 $0.50 $0.60

2013 2015 2014

Dec Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Apr

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 $244k total

Divergent Energy Services Corp. Corporate Office 1170, 800 – 6th Ave SW Calgary Alberta T2P 3G3 T: 403.543.0060 F: 403.543.0069 www.divergentenergyservices.com TSX-V: DVG

Changing the way clients produce energy