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Oak Point Energy Ltd. Superior SAGD Development Through Applied Engineering Innovation

A New Project Execution Strategy for Oil Sands

Competing with Other Global Supply Sources

Oak Point Energy

November 4, 2014

1

Presentation Overview

1. Competing for a Global Market

The Opportunity

The Challenges

2. Facility Design to Enable a Different Development Strategy

Configure for Reliability and Portability

Standardize Facility Designs

The Benefits

3. A New Resource Development Strategy

Adapting to Commodity Prices

Facility Construction

Facility Deployment and Relocation

Innovative Design and Execution

2

Change Timing is Critical

“Necessity is the Mother of Invention”

New ideas will emerge and be accepted when there is a need

“If it ain’t broke, don’t fix it” If we perceive things to be working then we resist change

3 3

Oil Sands Share Price

Highly Correlated to Oil Price

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$10.00

$20.00

$30.00

$40.00

$50.00

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Oil P

rice (

US

D/b

bl)

Su

nco

r S

hare

Pri

ce (

CD

N/s

hare

)

Oil Sands Share Price History

Suncor

CNRL

WTI Price

4 4

Existing Producers Perspective Earnings Continue to Rise – Do Change Anything!

$0.00

$1.00

$2.00

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Earn

ing

s P

er

Sh

are

(C

DN

/sh

are

)

Earnings Per Share History (Oil Sands)

CNRL

Suncor

5 5

Established oil sands company’s are not incentivized to change

The greatest threat to oil price is over-supply

High costs and long cycle times to cash flow act as a barrier to entry for

those companies that have projects in production

Limiting further oil sands expansion can be beneficial existing producers

New investment will occur when oil price rises further

However, oil sands is competing with global supplies

International production increases far outpacing Canadian project

Oversupply will suppress oil prices, adding greater challenges for the oil

sands industry and even challenge existing producers

Existing Oil Sands Producers High Share Price and High Earnings

6 6

Oil Sands - No Longer Competitive Far Less Growth than Bakken and Eagle Ford

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500

1,000

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2,500

2007 2008 2009 2010 2011 2012 2013 2014

Pro

du

ctio

n (

kb

pd

)

Canadian Oil Sands Production

In Situ

Mining

Growth Lagging in Canadian Oil Sands

> 2.5 MMbbl in the past seven years for

Bakken and Eagle Ford

< 0.7 MMbbl for Alberta’s oil sands

■ Absence of new project sanctions signals a

widening gap

*CAPP Production Forecast – June 2014

7 7

Oil Sands - No Longer Competitive New Production – Globally on the Rise

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Over-Supply Drives Oil Price Decline What Oil Price to Suppress Production Growth?

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120.00

January January March April May May June July August September October

Cru

de P

rice (

US

D/b

bl)

2014 Crude Spot Pricing WTI

Brent

9 9

Current Pricing Would Have Fueled a Boom a Decade Ago

High oil price coupled with low gas price should be ideal for the oil sands industry

High capital costs, long cycle times to cash flow and environmental issues hinder growth

Oil Sands – Rapidly Declining Investment Yet Commodity Pricing is Favorable

*TD Oil Sands Update – August 2014

10 10

Oil is a commodity and new supply is coming from other sources

5X more production from Bakken & Eagle Ford than Alberta oil sands

Significant production increases from Russia and Saudi Arabia

The account for ~7 MMbbl of new production over the past 5-10 years

Global Demand is Flat or Declining

Economic recovery has been slow since 2008

In North America substitution of cheap natural gas over oil will continue to

expand, decreasing the demand for liquid fuels

Oil Price is Declining

Classic response to the growing supply/demand imbalance

Majority of new supply is not coming from oil sands so we cannot control it

Oil sands economics just go a whole lot more challenging

TIME FOR CHANGE IS NOW Oil Sands is Threatened by Global Supply

Oil Sands needs a complete make-over to survive

IS IT WORTH THE EFFORT?

11 11

The Opportunity Seventy Percent of World Reserves

Heavy Oil Reserves Are the

Future

• Extra heavy oil & bitumen

make up over half of the

world’s reserves

• Conventional reserves has

been reduced to 30% of the

known reserves

• New technologies will be

essential to unlock value and

supply future generations

with their oil needs

Oil Sands in Canada

• 1.7 trillion barrels of bitumen in place

• 170 billion barrels of economically

recoverable reserves (10% recovery)

• Improving economics will be essential to

expanding the recoverable reserves to

include the lower quality smaller scale (small

pod or thin pay) high quality deposits

12 12

Resource Quality High Low

Reso

urc

e S

cale

Larg

e C

on

tig

uo

us d

ep

os

its

S

ma

ll d

isp

ers

ed

po

ds

Exploitable

resource if

design trend

continues

Un-exploitable

resource using

foreseeable

technology

Opportunity resource

using new technology

• Smaller scale

• Lower cost

• Shorter schedule

• Reusable facilities

The Opportunity New Technology Critical to Improve Economics

13 13

For oil sands, high capital and operating costs, market access

(and associated costs), reservoir containment and public

sentiment are signification obstacles to the of notion of

“demonstrated commercial viability”

Many of the challenges are associated with above-ground activity

This will be even more critical as we move to the lower quality

resource in the future

The Challenge “Commercial Viability”

“To be classified as reserves, estimated recoverable quantities must be associated

with a project(s) that has demonstrated commercial viability. Under the fiscal

conditions applied in the estimation of reserves, the chance of commerciality is

effectively 100 percent.”*

* COGE – volume 1, paragraph 5.5.3

14 14

1. Reservoir Performance: Single biggest factor effecting success or failure

Successful projects are associated with high quality reservoir (typically < 3.0 SOR)

Failed projects are associated with lower quality reservoirs (typically > 3.5 SOR)

2. Capital Cost Intensity and Certainty: Impeding project sanction

High capital cost with no cost certainty (50-100% overruns far too common)

Long project cycles with extensive work in remote locations prevents fixed priced bidding

Exposure to changes in equipment and material costs

Poor productivity typical in remote locations (transit time, work conditions, turnover, skill level, etc.)

3. Project Cycle Time: Too long to be considered investible

Overall project schedule (6-8 years)

Investments are made on high commodity price on the premise that you will capture part of the cycle.

However, commodity price cycles don’t last 6-8 years

Investors need cash flow sooner to support their investment

4. Commodity Pricing: Oil is a commodity

The high cost producer becomes the first victim when commodity price declines

Oil sands is the high cost producer – we are being outperformed by tight oil plays like Bakken and Eagle Ford

5. Market Access: Limitations add to the costs and lower netback

Infrastructure will lag production – partially filled infrastructure is not economic

Oil sands is the high cost producer – low confidence that we can meet growth forecasts

Public sentiment is preventing the installation of new infrastructure (pipelines, rail facilities, etc.)

Economic Challenges For Oil Sands Projects “Demonstrated Commercial Viability” is Essential

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The Challenge Three Immediate Areas of Focus

PROJECT

PERFORMANCE

CAPITAL COST

PROJECT PERFORMANCE

• Reservoir performance

• Facility reliability

• Facility efficiency

• Environmental Impact

CAPITAL COST

• Cost uncertainty

• Capital intensity

• Scale of investment

• Long cycle time to cash flow

MARKET ACCESS

• Delayed pipeline

approvals

• High delivery costs

• Discourage foreign

investment

16 16

PROJECT

PERFORMANCE

CAPITAL COST

PROJECT PERFORMANCE

• Reservoir performance

• Facility reliability

• Facility efficiency

• Environmental Impact

CAPITAL COST

• Cost uncertainty

• Capital intensity

• Scale of investment

• Long cycle time to cash flow

MARKET ACCESS

• Delayed pipeline

approvals

• High delivery costs

• Discourage foreign

investment

The Challenge Three Immediate Areas of Focus

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1. Thermal Heavy Oil Faces Significant Economics Challenges

The Opportunity

The Challenges

2. A New Facility Design to Facilitate a New Asset Strategy



The Benefits

3. A New Asset Strategy





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Portable SAGD facility that can be assembled

or dismantled in 30 days. This single feature

addresses many of the industry challenges

Cost Reduction and Cost Certainty – maximum

modularization by shifting virtually all facility

construction to low-cost/high-productivity markets, with

only 30 days assembly required at site

Schedule – start fabrication ahead of regulatory

approval since it doesn’t occur at site

Risk Management – redeploy facilities if resource

doesn’t respond as required

Development Flexibility – install facilities to optimize

capital efficiency growth and redeploy as production

declines

Configure for Current and Future Need Three Design Principles

1. Portability

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Shift from mega-project to repeatable

equipment manufacturing strategy to reduce

cost through mass production efficiencies

Mega-project approach currently used by industry is

not achieving the targeted economies of scale

Assembly line approach is optimal – the more units

built the lower the per unit cost

Achieve scale through combining a number of facility

units at the right time in the resource development

cycle

Configure for Current and Future Need Three Design Principles

2. Scale Reduction

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Three SAGD design configurations that are

suitable for broad range of oil sands and heavy

oil applications (UltraLite, 1nSite, MultiSite)

Eliminate cost and schedule associated with engineering

design (design once – build many)

Each configuration developed has a specific business

purpose (pair-scale, pad-scale and multi-pad scale)

Project customization can still occur by combining units of

the various configurations to fit the design project size and

match specific reservoir parameters through full reservoir

life-cycle

All major unit operations in Oak Point’s proprietary facility

designs are currently used in commercial SAGD

operations

Intellectual property owned by Oak Point - five patents

pending (US, Canada and International)

Configure for Reliability and Portability Three Design Principles

3. Design Standardization

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Capacity

Application

UltraLite 1nSite MultiSite

1,260 bbl/day

1-2 well pairs

Pilot

7,200 bbl/day

8-12 well pairs

Small assets

Production ramp up

21,600 bbl/day

2-4 well pads

Large, contiguous resources

Capex

Facility, $MM

Total, $MM

Capital Intensity

Facility, $M/bbl/day

Total, $M/bbl/day

$31

$58

$25.9

$48.1

$68

$152

$9.4

$21.2

$152

$356

$7.0

$16.5

Standardize Facility Designs The Right Configuration For The Right Application

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The Benefits Doubling Returns

Industry-changing facility design offers investors a compelling return opportunity

based on adoption of the advantaged facility design

Oak Point’s innovative and proprietary facility design has the potential to be industry-changing

175 billion barrels of recoverable in-situ bitumen reserves identified in Canada

Oak Point Value Capture Relative to Traditional SAGD Design (NPV / bbl)

Traditional SAGD

Design

Lewis

Steepbank

NPV10 (AT)

(GLJ Best Case)

$3.40/bbl (1)

Oak Point

Design

Lewis

Steepbank

NPV10 (AT)

(Oak Point Base Case)

$6.25/bbl

(1) Using the development plan and cost assumptions per GLJ Report (June 30, 2011) adjusted for additional recoverable resources per GLJ Report (March 31, 2012)

23 23

1. Reservoir Performance: Reduce risk prior to major investment

UltraLite facility reduces the time and cost to test the reservoir

Reduce risk prior large scale commercial development

Failed projects are associated with lower quality reservoirs (typically > 3.5 SOR)

2. Capital Cost Intensity and Certainty: Mass production vs large scale

Portable mass-produced equipment substantially lowers capital cost with cost certainty

Reduce exposure to overheated Alberta economy

Future phases become even more competitive – relocate vs rebuild

3. Project Cycle Time: Reduce to be competitive with other (tight oil) plays

Current overall project schedule (6-8 years) – reduce to less than 12 months from “investment to 1st steam”

Invest during high commodity price cycles and be in production within that price cycle

Attract investors that don’t have the patience for timelines associated with typical oil sands projects

4. Commodity Pricing: Oil is a commodity

The high cost producer becomes the first victim when commodity price declines

Oil sands is the high cost producer – we are being outperformed by tight oil plays like Bakken and Eagle Ford

5. Market Access: Competitive growth and distributed benefits are key factors

Infrastructure will be built if there is confidence in growth forecasts – economics to outperform tight oil plays

Public sentiment will improve as the economic benefits spread beyond Alberta borders (fabrication of facilities

and cheap reliable feedstock for North American refiners) and reduce the environmental footprint to

acceptable levels

The Economic Benefits “Demonstrated Commercial Viability” is Assured

24 24

1. Land Disturbance: <10% of land disturbance typical for conventional oil

Small portable SAGD facility located on well pads to reduce site size and eliminate interconnecting pipelines

Portable facilities shifts virtually all construction off site, eliminating the need for large construction camps

Minimal on-site construction to reduce human intrusion into environmentally sensitive areas

2. Water Disposal: A fraction of water disposal compared to conventional oil

Oil sands is a net consumer of water vs conventional oil that is a net producer of excess contaminated water

Use evaporator technology to achieve highest recycle rate in the industry and minimize disposal volumes

3. Water Supply: Use waste or non-potable sources

Minimize volume requirement through highest water recycle rate in the industry (> 95%)

Utilize brackish water or waste water from tailings pond reclamation

4. Air Emissions: Reduction and low-sulfur

High level of heat integration to achieve lowest energy intensity in oil sands

On site electricity co-generation reduces emissions and line losses

Clean low-cost natural gas for fuel for steam and electricity generation

5. Site Reclamation: Rapid reclamation with economic incentive

Portable small-scale facilities allow rapid dismantling and redeployment on other lands provides economic

incentive to reclaim and re-use immediately

The Environmental Benefits Environmental Performance Better Than Conventional Oil

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1. Thermal Heavy Oil Faces Significant Economics Challenges

The Opportunity

The Challenges

2. A New Facility Design to Facilitate a New Asset Strategy



The Benefits

3. A New Asset Strategy





26 26

Adapting to Commodity Price Cycles 1980-1998: Dominated by Periods of Falling Price

$-

$5

$10

$15

$20

$25

$30

$35

$40

$45

WTI Price History

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Adapting to Commodity Price Cycles 1999-2014: Dominated by Periods of Rising Price

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WTI Price History

Oil Sands Project Cycle Time

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1980-1998

■ Declining market with few periods of sustained rising oil price

■ Low oil prices prevail (start at 35+ $/bbl and end the 1990’s at < 15 $/bbl)

■ Conventional oil and gas dominates the industry

1999-Present

■ Rising market with few periods of sustained low oil price

■ High oil prices prevail (start at 15-20 $/bbl and currently at 100+ $/bbl)

■ High magnitude and frequency of price swings

■ Unconventional oil and gas dominates the industry

A New Investment Is Needed

■ Quicker response needed to adapt changing commodity pricing

High/rising market: invest in new facilities to grow capacity

Low/falling prices: reduce capital investment and focus on sustaining capacity

■ Reduce capital and operating costs normally associated with exploitation of unconventionals

■ Reduce project cycle time to match frequency of commodity price swings

■ Reduce environmental impact and improve societal benefits

Adapting to Commodity Price Cycles The Last 15 Years are Different that the Previous 15

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Engineering

Engineer once – build multiple units

Standard engineering packages for each configuration – proceed directly to fabrication

Custom engineering where necessary does not impact overall project

Procurement

Price reduction through bulk purchase

“Off the shelf” equipment and materials available from multiple vendors

“Mass Production” Oriented Construction

Mass production strategy for each of the three configurations

Fabrication can start well ahead of regulatory approval

Portability allows use of established fabrication shops with a skilled stable workforce

Distribute module fabrication among several shops to distribute work, short fabrication

time and improve productivity

Facility Construction Strategy Factory Fabrication vs Mega Project Execution

30 30

Mass Production Techniques Proven in a Number of Industries

31 31

1) Sub-Assembly Component Fabrication

Multiple fabrication shops located in established manufacturing centers to construct

shippable sized equipment, piping and structural steel components (up to the dimensions

of the UltraLite modules)

Ship components to module assembly site, where there are fewer shipping restrictions to

the final installation site

2) Module Assembly and Transport

Truck and rail sub-assemblies to module assembly site

Assemble large scale modules from sub-assemblies (near final site)

12-20 modules 24’ x 24’ x 120’ (high load corridor dimensions)

Truck transport to oil sands lease

3) Site Erection

Site (on the well pad) development and civil work completed ahead of module delivery

Erect modules at site within 30 days

Connect utilities and well pad

Commissioning and Start-up

Facility Construction Strategy Shift Work to Efficient Manufacturing Jurisdictions

32 32

Facilities designed and operated below reservoir capacity to

achieve long project life required for large permanent facilities

Facility Deployment and Relocation Current Model

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100

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Cap

acit

y

Time

Production vs Reservoir Capacity Conventional Approach

Reservoir Capacity

Production

Facility Capacity

33 33

Accelerated production to match reservoir or market capacity

Facility installation and redeployment to align capacity

Facility Deployment and Relocation Oak Point - Align for the Full Life Cycle

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Cap

acit

y

Time

Production vs Reservoir Capacity Oak Point Approach

Reservoir Capacity

Facility Capacity

Opportunity to sustain

capacity by redeploying

facilities at other sites

34 34

Investing at the Bottom of the Price Cycle Strength at This Time will be a Key Differentiator

Critical Attributes to Survive in “Low Price Cycles”

Ability to sustain production without the need for large injections of capital

Low operating costs

Strong balance sheet

1nSiteTechnology Advantages at the “Bottom of the Oil Price Cycle”

Eliminate capital expenditure for new above ground facilities as you move to new

reservoirs (relocate existing facilities to sustain production)

Major capital expenditure will be for replacement wells (more like conventional oil)

Limited recourse financing of portable equipment or leasing can offload debt service

obligations

Strong companies can create growth opportunities

during down-cycles as their peers struggle to survive

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1. Improved Returns to Resource Developers (Incentive to invest)

Cost reduction

Shorter cycle times to cash flow

2. Improved Royalties and Taxes (Political alignment)

Industry production growth to expand the royalty base

Increased taxes resulting from skilled jobs to support a growing energy industry

3. Expand Benefits to the Broader Public (Public alignment)

Fabrications and services from across North America

Low cost feedstock for North American refiners

Create a profitable business environment, leading to long-term jobs and stability

4. Reduce Environmental Impact (Public and political alignment)

Make real progress in reducing environmental footprint

Sufficient economic benefit to offset the inevitable environmental impact

Innovative Design and Execution Improve Global Competitiveness and Acceptance

These will

drive market

acceptance

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