revolu’onizing pump technology
TRANSCRIPT
INVESTORPRESENTATIONNOVEMBER2015
ANeodymiummagnetisthemostwidelyusedandstrongesttypeofpermanent,rare-earthmagnetcommerciallyavailable
Revolu'onizingPumpTechnology
TSXV:DVG
ThisCorporatePresentaAoncontainscertainforward‑lookingstatementsandforward‑lookinginformaAon(collecAvelyreferredtohereinas“forward‑lookingstatements”)withinthemeaningofapplicablesecuriAeslaws.Allstatementsotherthanstatementsofpresentorhistoricalfactareforward‑lookingstatements.Forward‑lookinginformaAonisoTen,butnotalways,idenAfiedbytheuseof words such as “could”, “should”, “can”, “anAcipate”, “expect”, “believe”, “will”, “may”, “projected”, “sustain”, “conAnues”,“strategy”, “potenAal”, “projects”, “grow”, “take advantage”, “esAmate”, “well posiAoned” or similar words suggesAng futureoutcomes.InparAcular,thisCorporatePresentaAoncontainsforward‑lookingstatementsrelaAngtofutureopportuniAes,businessstrategies and compeAAve advantages. The forward‑looking statements regarding the Company are based on certain keyexpectaAons and assumpAonsof theCompany concerning anAcipatedfinancial performance, business prospects, strategies, thesufficiencyofbudgetedcapitalexpendituresincarryingoutplannedacAviAes,theavailabilityandcostof labourandservicesandtheability toobtainfinancingonacceptable terms,allofwhicharesubject tochangebasedonmarketcondiAonsandpotenAalAmingdelays.AlthoughmanagementoftheCompanyconsidertheseassumpAonstobereasonablebasedoninformaAoncurrentlyavailabletothem,theymayprovetobeincorrect.Bytheirverynature,forward‑lookingstatementsinvolveinherentrisksanduncertainAes(bothgeneralandspecific)andrisksthatforward‑lookingstatementswillnotbeachieved.Unduerelianceshouldnotbeplacedonforward‑lookingstatements,asanumberof important factors could cause the actual results to differ materially from the beliefs, plans, objecAves, expectaAons andanAcipaAons,esAmatesand intenAonsexpressed in the forward‑lookingstatements, includingamongother things: inability tomeetcurrentandfutureobligaAons;inabilitytoimplementtheCompany’sbusinessstrategyeffecAvelyinCanada,MexicoandtheUnitedStates;inabilityoftheCompanytoconAnuemeetthelisAngrequirementsoftheTSXVentureExchange;generaleconomicandmarket factors, including business compeAAon, changes in government regulaAons; access to capitalmarkets; interest andcurrencyexchangerates;technologicaldevelopments;generalpoliAcalandsocialuncertainAes;lackofinsurance;delayorfailuretoreceiveboardorregulatoryapprovals;changesinlegislaAon;Amingandavailabilityofexternalfinancingonacceptableterms;andlackofqualified,skilledlabourorlossofkeyindividuals.ReadersarecauAonedthattheforegoinglistisnotexhausAve.The forward‑looking statements contained herein are expressly qualified in their enArety by this cauAonary statement. Theforward‑lookingstatementsincludedinthisCorporatePresentaAonaremadeasofthedateofthisCorporatePresentaAonandtheCompanydoesnotundertakeandisnotobligatedtopubliclyupdatesuchforward‑lookingstatementstoreflectnewinformaAon,subsequenteventsorotherwiseunlesssorequiredbyapplicablesecuriAeslaws.
ü High-growth,publicly-tradedtechnologyfirm(TSXV:DVG)
ü AdvancinginnovaAveArAficialLiTsystemsfortheoil&gasindustry:
– RevoluAonaryElectromagne'cSubmersiblePump– AlternaAvetotradiAonalpumpjack
– Poweredbyapermanentmagnetmotor(1)
– Offerslowercosts,reducedmaintenanceandminimalenvironmentalfootprint
– CommercializaAonanAcipatedin2016,iniAallyinWesternCanada
ü ExisAngcashflowposiAvebusinessunitinGillehe,WY– ConvenAonalelectricsubmersiblepumps(ESP):
– Increasingmarketshare
– Improvedgrossmarginsyear-over-year(2)
ü Near-termcatalystsasthenextgeneraAonElectromagneAcPumpnearscommercializaAon
(1)ReferredtoasaLinearMotorinthepermanentmagnetmotorindustry.(2)FootnotesincludedinAppendixasendnotes
Mission:“Changingthewayclientsproduceenergy”
MarketcapasatNov20‘15*Gillehe,WY-PowderRiverBasingaswells;basedoninternalesAmates
9 Yearsinbusiness
25Employees
0SafetyincidentsYTDESPSupplier*1#
InsiderOwned5.6%
TSXV:DVG $0.12-$0.54 $23.5MM 94.8MM52weekrange Sharesoutstanding
ThePump• NearcommercializaAonwithnoimmediatecompeAAon
• LowercapitalcostandoperaAngcostwhencomparedwithpumpjacks
TheMarket• Nearly20,000Oilwells (Bakken, Shaunavon,Cardium,Viking,Niobrara, etc.)wherepump jacks
areusedtoproduceoilhavebeenidenAfiedascandidates
• In Canada alone, 90% of all new wells are drilled for oil and 88% of all new wells are drilledhorizontally
• 750,000pumpjacksalreadyinuseinNorthAmerica
TheOpportunity• ExposuretoahighgrowthcompanywithpivotaloperaAonalcatalystsonthehorizon
• Agreement in place with large oil company and first commercial version of the Pump to beinstalledlate2015/early2016
• OngoingdiscussionswithotherclientstoinstalladdiAonalElectromagneAcPumps
IncreasesindirecAonaldrilling,andhorizontalwellsinparAcular,havecreatednewchallenges:
• BendsinthewellcreatepointsofcontactbetweentherodstringandtheproducAontubing;
• Rodstringsuffersexcessivewearasitcyclesupanddown3millionAmesperyear,leadingtoeventualfailureoftherodsandoccasionallytheproducAontubing;
• LimitedadvancementsinpumpingtechnologyarecreaAngrisingcoststoproduceoil.
CriFcalpointsofcontactinoilwellsthatresultin
excessivewearandeventualfailureofrod
strings.
TheLinearPump:
ü NoimmediatecompeAAonforthistechnology
ü ReciprocaAngpumpisamodifiedindustrystandardrod-pump
ü Poweredbypermanentmagnetmotor-magnetsloseonly1%ofmagneAsmover10yearperiod
ü Noexternalmovingparts;everythingmovesinternallyinthePumphousing
ü 2ndGeneraAonPumpimprovedwith25%morepower&50%lessfric'onthanprototypes
ü Idealforlightoil,shallowhorizontalwells-canbesetinsidethehorizontalsecAoninawell
TheLinearPumpeffec'vely:
ü EliminatessurfaceliZingequipment(pumpjack)SmallerfootprintmeansreducedconstrucAoncosts,lowerenvironmentalimpact,andlowerimpactonfarmingandranching.
ü EliminatessuckerrodsWornandbrokensuckerrodscancostclientsupto$153,000(2)annuallytomaintain,includingtheoilnotbeingproducedduringfailures.
ü EliminatesleakingwellheadsWellheadstypicallyleakoilatthe‘stuffingbox’(thesealaroundthesuckerrod).ThisisachronicenvironmentalissuewithpumpjackoperaAons.
(2)FootnotesincludedinAppendixasendnotes
• Lowcostmanufacturing,ahracAvemargins,andabilitytoquicklyscale-up
• SimpleinstallaAoninthefield&limitedmaintenancerequiredforproducers
• Compelling inoilpricedownturn- lowercost installaAonandmaintenancecomparedtopumpjacks
• Divergent’s management team has hands-on experience building companies andgeneraAngvalueforowners;supportedbystrongandcommihedboard
7,500candidatewellsidenAfied
inSaskatchewan
9,500candidatewellsidenAfied
inNorthDakota
Viking,Cardium,SlavePoint Bakken,Viking,
Shaunavon,Spearfish
UintaBasin Niobrara,PowderRiver
Basin
PozaRica
Ini$alTargetMarketsinNorthAmerica
*Source:InternalEsFmatesofESPProducts&ServicesfordewateringPowderRiverBasingaswells
2013 2014 2015
MarketS
hare
Divergent CompeAtor1 CompeAtor2 CompeAtor3
Divergent’sWyomingElectricSubmersiblePump(ESP)operaAonis…ü Cashflowposi'veforthepast11consecuAvequarters
ü Improvedgrossmarginsyear-over-yeardespitemarketcondiAons(1)
ü ExceedingexpectedacAvitylevelsduringthecurrentindustryslowdown
ü LargestProvider*ofESP’sforgasproducersinthePowderRiverBasin
ü Increasingmarketshareeachquarter
(1)FootnotesincludedinAppendixasendnotes
à InstallaAonoffirstcommercialLinearPumpatclientwell
à ResultsofLinearPumpperformance
à DebentureresoluAonà ConAnueoperaAonsinWyoming
andpotenAalintroducAonoftheLinearPumpinPowderRiverBasin
à ConAnuedbusinessdevelopmenttooperatorsinotheroilfields
à AgreementswithaddiAonalnewoperatorstotestandinstalltheLinearPump
à ExpansionofLinearPumpinventorybasedonincreasedclientdemand
à Clearlineofsighttoprofitability
PumpResults
PumpOrdersIncrease
PumpLandsinSKStagingYard
PumpInstalled
CommercializaAon&RampUp
2015
2016&Beyond
DebentureResoluAon
PumpTesAngbyAddiAonalClients
ClientBaseExpansion
PUMP
MARKET
OPPORTUNITY
• ApproachingcommercializaAon• Cost-effecAve&efficient• Lowenvironmentalfootprint
• AllhorizontaloilplayswillneedarAficialliT• Sizeable & growing target market (7,500
wellsinSK&9,500inND)• ApplicaAoninotherbasins&playsglobally
• Significantnear-termcatalysts• FirstcommercialversionofLinearPumpto
beinstalledbyendof2015• Agreementwithlargeoilcompany+
discussionsongoingwithothers
DivergentEnergyServicesCorp.CorporateOffice1170,800–6thAveSWCalgaryAlbertaT2P3G3T:403.543.0060F:403.543.0069www.divergentenergyservices.com
Changingthewayclientsproduceenergy
TSXV:DVG
1. TheLinearPumpusesamodifiedindustrystandardreciprocaAngpumpcurrentlyusedwithpumpjacks,knownasarodpump.ThepumpisdrivenbyanelectromagneAcmotorthatusespermanentmagnetstocreatethrusttomovetheshaTofthemotorina reciprocaAng,or linear,moAon. Permanentmagnetsmaintain their strengthalmost indefinitely, losingapproximately1%oftheirstrengthevery10years.
2. GrossMarginsimprovedto30%from23%intheninemonthsendedin2015and2014respecAvely.
3. AnnualRodPumpCostAssumpAons:• RodStrings$20permeter;• 10%ofstringreplacedaTerafailureevent;• ServiceRig$12,000perday,2daysperfailureevent;• 5dayslostproducAonperrodfailure;• rodstringfailurerateof4failuresannually.• Oilpriceof$45/bblandproducAonrateof50bbl/day;
CurrentTechnologyDrawbacks LinearPumpBenefitsSurfaceliTingequipment(PumpJack)hasahighcapitalcostandrequiresalargefootprint
Thesubmersiblepumphasalowercapitalcost,reducesconstrucAoncostsduetonosurfaceliTingequipment
Rodstringsindeviatedandhorizontalwellscauseexcessivewearduetorubbingagainstthetubing
NoexternalmovingpartsmeansthattheLinearPumpcanbeplacedindeviatedandhorizontalwellsaseasilyasverAcalwells
Rodsstringswearfromthe3,000,000annualup/downcycles,whichcancostupto$153,000(3)annuallytomaintain,includingtheoilnotbeingproducedduringfailures
Norodstring,noexternalmovingparts.EverythingmovesinternallyinthePumphousing
Mechanicalinefficienciesandvariablepowerdrawcanleadtohighelectricitycosts
PermanentmagnetmotorsrunonlowAmpswithnomechanicalgearstoreduceefficiency
Leakingwellheadsaroundtherod(fromthe“stuffingbox”)iscommon Sealnotanissue-nomovingpartsexitthewellhead
*ThePumpjackwasinventedin1925byWalterTrout,anemployeeofLuxinFoundryandMachine
Electro-Magne'cSubmersiblePump(ThePump)Permanentmagnetmotortechnology.
ReciprocaAngpump(similartorodpumps).Ideallysuitedfordeviatedandhorizontaloilwells.
AnalternaAvetoconvenAonalpumpjackinstallaAons.
ElectricSubmersiblePump(ESP)ConvenAonalpumptechnology.
RotaAngpumpwithmulApleimpellers.Pumpsmoderatetohighvolumesoffluids.
24m3/d(150bbl/d)to24,600m3/d(150,000bbl/d).
ElectricSubmersibleProgressingCavityPumpAlsocalledscreworMoineaupumps.
Heavyoil,highsandproducAon,gassywells.Nowdeployedasasubmersiblepumpsystem.
Eliminatessurfacemotorsandcostlyrodstringwear.
NineMonthsEndedSeptember30
2015 2014 %Change
Revenue $3,799 $4,773 (20%)
GrossProfit $1,315 $1,510 (13%)
NetEarnings(Loss) ($4,430) ($3,569) (24%)
Earnings(Loss)pershare-BasicandDiluted
($0.04)
($0.04)
ThreeMonthsEndedSeptember30
2015 2014 %Change
Revenue $1,192 $1,698 (30%)
GrossProfit $321 $428 (25%)
NetEarnings(Loss) ($882) ($1,438) (39%)
Earnings(Loss)pershare-BasicandDiluted
($0.01)
($0.01)
ComparaFveResults:AllamountsinUSDthousands,exceptpershareamountsandasnoted.
AsatSeptember30,2015
CashandCashEquivalents $287
Property,EquipmentandTrademark $751
Debentures(inCAD,dueDecember31,2015) $5,750
AsatNovember20,2015
Shares 94,848,820
Warrants 5,750,000
OpAons 5,700,000
FullyDiluted 106,298,820
MarketCap.($CAD) $23.5million
AllamountsinUSDthousands,exceptpershareamountsandasnoted.
KenBerg–President&CEOPrevious-Sanjel,AmocoPetroleum,DomePetroleum
ScolHamilton,CA–CFO&CorporateSecretaryPrevious-SolanaResources,CrossfireEnergyServices,Inc.,BrahmaCompressionLtd.
MitchMcClannahan–VPProductDevelopmentPrevious-KarlingtonElectric
ManagementTeam BoardofDirectors
ü Managementteambringsdecadesofexperienceintheenergyservicesarenaü BackgroundoftheteamidealtomoveproducttocommercializaAonandcaptureongoingmarket
sharefromexisAngandoutdatedpumpjacktechnologyü Alignmentwithshareholdersandstrongcorporategovernance
ScolBerry–ChairmanPastExecuFveDirectorofEmpoweringMinds
KennethBaganDirectorofTricanWellServices,pastDirectorofPSAC,MemberICD
JohnGrisdalePastPresidentofCanAirNitrogen;PastPresidentofUSDivision,Calfrac
Mar'nHallDirectorofKarnalyte;PastSrVPFinance&CFOofTescoCorporaFon
RobertRieckenVPDrilling,CompleFons,ConstrucFon,andSupplyChain,TalismanEnergy/Repsol
KenBergPresident&CEO,Divergent
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2013 20152014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Aug2014:Q2 results + 5 DVG Pumps ready to ship to Canada. New BD Manager hired
Dec2014:Extends maturity of outstanding debentures to Dec 31, 2015
Aug2015:Q2 Results reported; WY activity levels & market share beat estimates
Dec2013:$5MM Debenture Issue Announced
Nov2015:DVG Pump lands in SK for client installation
June2015Ops update + SK operations facility identified
Dec2013:Revocation of Cease Trade Order & resumption of trading after management’s concerns resolved
Mar2014:Final tranche of Debenture ($597k); total gross proceeds of $5.75MM
Jun2014:Shareholders approve name change to Divergent (previously Canadian Oilfield Solutions Corp)
Dec2014:Signed 3 year extension to exclusive rights to Linear Motor technology with manufacturer
Feb2015:Signed 5 year service agreement for Linear Pump with large oil company; 1st candidate well identified
Mar2015:DVG Pump test commences
NewmanagementrequestsaCeaseTradeOrdertoaddressdisclosureconcernsinpreviouslyreleasedfinancialstatements.