Revolutionizing Pump Technology A Neodymium magnet is the most widely used and strongest INVESTOR PRESENTATION type of permanent, rare-earth magnet commercially APRIL 2016 available 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 of 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 outcomes. 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 of 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 (1) Referred to as a Linear Motor in the permanent magnet motor industry. 3
Mission: “Changing the way clients produce energy” 10 Years in business 0 Safety incidents YTD 1 # ESP Supplier* 6 . 3 25 Employees % Insider Owned 12.2% Fully Diluted TSXV: DVG $25.6MM $0.19 - $0.54 96.7MM 52 week range Market cap as at April 22 ‘16 Shares outstanding 4 *Gillette, WY - Powder River Basin gas wells; based on internal estimates
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 of contact in oil 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 2 nd 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 operations. (3) Footnotes included in Appendix as endnotes 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 Initial Target Markets in North America 7,500 Viking, Cardium, candidate wells identified Bakken, Viking, Slave Point Shaunavon, in Saskatchewan Spearfish 9,500 Uinta Basin Niobrara, Powder River Basin candidate wells identified in North Dakota Poza Rica 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
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