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 2
Based on Avoiding Diluent in Crude Oil Movements ▪ Crude on rail business in Canada was originally not based on egress Refinery value of C5+ should be less than heavy Oil challenges ▪ Was based on avoiding need to add diluent (condensate - C5+) to heavy oil/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 GMPFE May 21, 2019 a better way 3
Heavy Oil Diluent Penalty ▪ Heavy oil requires the addition of diluent (C5+) to be pipelined ▪ The growth in heavy production creates a C5+ demand pull Cost of Diluting Heavy Oil $60/bbl Transportation Cost ~$10/bbl C5+ Market Value Loss ~$10/bbl Diluent Penalty ~$20/bbl 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 C5+ shale plays ▪ Growing heavy production in Canada to $50/bbl 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 4
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) ▪ Edwin Laurentine Drake John Rockefeller started his career at age 16 (in 1855) as assistant 1819-1880 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) John Davison Rockefeller Titusville, PA 1839-1937 5
Egress Problems Now ▪ 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 6
Egress Problems ▪ 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 Western Canadian production All the people, refineries, consumers that we sell to…. Source: Canadian Association of Petroleum Producers 7
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 17. 18.8 7 23.8 19.3 33.6 8.0 Asia is the major global importer of oil – needs 31.8 more supply and supply diversification 9.4 7.9 3.9 7.5 7.0 Cons Prod mmbpd Source: BP Statistical Review of World Oil Energy June 2017 8
North America Oil Supply / Demand North America is an oil importer led by USA demand Anchorage Canada is a net oil exporter with significant exports out of Canada Western Canada 4.5 2.3 Prince Rupert Significant growth in USA Fort McMurray Edmonton production has reduced Vancouver Calgary Regina Winnipeg imports and reduced need for Thunder Bay Montreal Halifax Minneapolis/ Canadian imports Ottawa St Paul Toronto 19.6 New York Growing western Canadian U.S.A. San Francisco 12.4 production highlights need to St Louis Los Angeles establish other markets Phoenix New Orleans Houston Miami Cons Mexico Prod 2.5 1.9 Mexico City mmbpd 9 Source: BP Statistical Review of World Oil Energy June 2017
Diversifying Markets for Canadian Oil Production 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 10
Value Contribution of Crude Transportation by Rail For Western Canadian For Refineries For Other Stakeholders Producers ▪ Provides access to new ▪ Increase realized price for ▪ Provide access to new supply heavy oil in producing consumers thereby areas thereby increasing ▪ For refineries previously increasing demand royalties, taxes and committed to offshore oil, employment opportunities ▪ Allow for transport without provide access to reliable adding diluent - price inland production selling at ▪ Lower feedstock price for improvement by rail is most discounted prices coastal refineries saving significant for heavy ▪ For heavy oil refineries, them from shutdown and oil/bitumen provide access to new associated job losses, and ▪ Increase the netback price supply replacing declining increasing local taxes/ of oil produced global heavy oil supply payments ▪ Provide opportunity to tank ▪ For heavy oil refineries, ▪ Provide valuable railway treat for many producers, provide opportunity for pure jobs across North America significantly lowering heavy oil without light ends processing costs 11
Railway Fundamentals ▪ 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 other’s markets ▪ Rail system can be used to import products more efficiently and export other products through Altex terminals 12
Oil - Rail Exists across the Continent and to Tidewater ▪ Established rail system Heavy Oil/Bitumen Producing Areas 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 oil safely and environmentally Altex terminals CN Railway Marine terminal destinations 13
Railways Are Safe ▪ Pipeline and rail represent safe energy transportation solutions with long operational track records ▪ Despite active misinformation by pro- pipeline lobby, railways are “safe” and represent an efficient and effective way to move commodities Fraser Institute (pipelines spill 3.2x as much oil per volume moved as ▪ Has created significant confusion/ rail - albeit rail has 4.5x the number of incidents) ignorance – better to use facts/science ▪ Infrastructure is already in place minimizing surface and environmental footprint USA Congressional Research Service ▪ Rail has been shown by independent parties to have lower spilled volume and greater energy efficiency than other alternatives Oliver Wyman 14
Operating & Safety Standards ▪ Type of crude oil typically moved by Altex Increasing Fire Hazard / Explosive (heavy oil/bitumen) is safer than other Potential crude oils and other products often moved Propane on rail or by pipeline (and is the type of Butane crude oil typically produced in western Gasoline Pentane Canada) DilBit Bakken ▪ And don’t need to import C5+ just to mix it WTI in with heavy oil and send it back Typical Cdn Light Oil Iranian Light (environmental benefits) Basrah Urals ▪ Altex has developed rigorous safety Jet Fuel Diesel standards and is an industry leader in #6 Fuel Oil health and safety policies Typical Altex Oil Typical Bitumen 200 150 100 50 0 -50 -100 -150 -200 Flash Point (Degrees Celsius) Elizabeth May, Green Party 15
Railways Can Help Oil Industry / Canada’s Economy ▪ Canada suffers discounted prices for its major export due to reliance on oversupplied 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) 16
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