Proposal to develop and document options for: “Utilization of Heavy Oil Vent Gases - Study” May 10 & 25, 2000

2. Proposal to develop and document options for:“Utilization of Heavy Oil Vent Gases - Study”May 10 & 25, 2000

3. Contents • Making a Change Happen • About New Paradigm Engineering Ltd. • Proposal Overview • Why this proposal now? • What is needed to make the project happen? • Project Schedule • Project Deliverables • Status as of June, 2000

4. The Target for Change Oil & Gas Methane Emissions Heavy Oil Venting 29% Ref: CAPP Pub #1999-0009

5. Where Are We Now? • $50M/yr of methane vented from heavy oil sites • Equivalent to 5% of O&G Industry energy use • $20-$40M/yr of energy purchased for heavy oil sites • GHG emissions from heavy oil wells • 30% of oil & gas industry methane emissions; • 15% of oil & gas GHG emissions • Over 2% of Canada’s GHG emissions • GHG, Flaring and Odour Issues affecting our ability to develop new leases

6. Where Do We Want To Be? • Vent gas as a revenue stream • Minimize purchased energy costs • No purchased energy for wells that are venting • Low tech  low cost operations • Achieved with minimum of waste

7. How Could We Get There? • Displace purchased energy sources • Power from vent gases • Compression for sale or reinjection • Use gas and/or energy for EOR • Convert methane to CO2 • Tank vent treatment to eliminate odours

8. What Is Stopping Us? • Venting seen as an environmental problem, not economic opportunity • Capital budget for conversion set on a corporate relations basis • Payouts on systems beyond fuel displacement are long • Vent volumes are variable so tough to do single well economics or design facilities • No one has time to invest in studying potential options

9. How Can We Make Things Happen? • Collaborate to define the options and the prize • Work together to make the case for casing gas utilization • Co-operative and collaborative efforts on the gas side of heavy oil • Joint Industry Project (New Paradigm) to provide focus

10. About New Paradigm Engineering Ltd. • Independent consulting company, Inc. 1991 • Engineer “new paradigms” for industry • Bruce Peachey, P.Eng. – President • Colin Gosselin, E.I.T. – Technology Development Engineer • Focus for last two years on reducing methane emissions and developing new technology to support conventional heavy oil vent gas mitigation. • Previous work in collaborations: • Downhole oil/water separation (C-FER), • Novel EOR methods (C-FER and KeyTech), • Heavy Oil Pipelining Study (C-FER, SRC) • Climate change (CSChE), • PERD study on Hydrocarbons R&D (K.R. Croasdale & Associates)

11. New Paradigm – Bruce Peachey, P.Eng. • Project Manager and Lead Engineer • Past Experience: • Principal New Paradigm Engineering (9 yrs), • Esso Resources (15 yrs): • Sr. Facilities Engineer; • Technical Services Superintendent; • Project Engineering Section Head; • Project Engineer; • Technology Evaluations Engineer; • Heavy Oil Production Engineer; • Process Design (Gas Production/Compression) • Expertise – Gas Gathering systems/plant design; Heavy oil production; Steam generation; Operations; Project Management; R&D Prioritization; Innovation

12. Proposed Support for Vent Gas Utilization Study • EMF Technical Services Inc. • Holly Miller, P.Eng. • Marlett Engineering Ltd. • Jamieson Engineering • Heavy Oil and Gas Producers • Vendors (New and existing technologies) • Extensive contact networks (PTAC, PTRC, Universities, ARC/C-FER/PRI, CIM, SPE, CSChE)

13. EMF Technical Services Inc. - Calgary • Electrical Power Generation and Distribution • Cogeneration facilities (proposals and economics) • Electrical and control systems design • Engineering design and construction • Oil and gas pipelines, compressor stations, pump stations and processing • Motivated and creative solutions

14. Holly Miller, P.Eng. - Edmonton • Contract Engineer – Project Development and Design • Past Experience: • Sr. Engineer with Polytubes (West) Inc. 4 yrs, • Esso Resources/Petroleum/Chemical (14 yrs): • Sr. Operations Engineer, • Sr. Process Engineer, • Development Engineer • Expertise – Refinery energy conservation, heavy oil upgrader studies, Cold Lake Phases 1-6 Debottleneck, gas conservation plant operations and facilities upgrades, managed implementation of new reactive extrusion pipe manufacturing process

15. Marlett Engineering Ltd. – Edmonton • Principal – Fred Marlett, M.Eng., MBA, P.Eng. FCSME • Specializing in combustion and gas fired equipment • Past Experience: • Enbridge Pipelines Inc. (1 yr) • Northwestern Utilities Limited (24 yrs) • Senior Engineer, Utilization and Research • Assistant Utilization Engineer • Assistant Transmission Engineer • Key roles: • APEGGA Rep – Gas Technical Council of the Alberta Safety Codes Council (1997-Present) • Secretary, City of Edmonton Gas Approvals Board (1974-1978)

16. Jamieson Engineering - Edmonton • Principal – Marnie Jamieson, P.Eng. • Process Control, Materials, Process & Environmental Engineering • Past experience: • AT Plastics (2 yrs), • Syncrude Canada (8 yrs), • Work terms Dow Chemical (Research), Esso Resources (Operator), Environment Canada (Engineering Asst.) • Roles – Plant Engineer, Environmental Engineer, Applications Engineer, Corrosion/Materials Engineer.

17. Proposal Overview - Objectives • Evaluate options to utilize casing gas • Assess criteria for successful application • Pro’s and Con’s of the Options • Technical, • Financial, • Operational, and, • Implementation hurdles • Overall – Facilitate Decision-making; leading to rapid and economic implementation of systems to reduce methane venting from Heavy Oil sites.

18. Work Scope – Focus Areas • Displace purchased fuel use – 20% • Power generation and sales – 25% • Gas collection and sales – 30% • Use to Increase Oil Recovery - 10% • Convert methane to CO2 – 10% • Mitigation of tank odours - 5%

19. Why this proposal now? • Expansion of operations generates resistance from public • Pressure mounting to show voluntary progress • Producers no longer in “survival” mode • Options appear to be available and economic • Producers are busy with producing Oil, not Gas • Vendors with viable options frustrated • Appears to be opportunity and interest in collaboration

20. Benefits to Participants • Focused effort to quickly identify low cost, economic and safe options for use of vent gases • Reduces workload on in-house staff • Provides leverage instead of everyone redoing the same work • Allows vendors to easily communicate information on the options they can provide • Helps define what can be achieved now and what requires new technology

21. What is needed to make the project happen? • Funding to do the Work • Support from Producers  Operating Information • Support from Vendors  Product Information • Others • Regulators  Drive to change

22. Funding • Open to any organization on same terms • Reports to participants only • Current basis $15,000 per participant (at least 4 preferred) • Can proceed with more or less but depth of analysis varies • After study 60% complete, new participants pay a premium (20%) • Funding used to monitor developments

23. Funding Basis • Base of $60k at start • Study as proposed. • Moderate detail • Main focus technology assessment • Plan for two increments of $30k each • Increment 1 – Enhanced Detail – Issues and Implementation • Increment 2 – Manage Collaborative Piloting • Separate Thermal Venting Project • Begin planning in Fall 2000; Report March, 2001

24. Key Issues for Heavy Oil Venting Options • Technology Issues (Base) • Many options exist now but are not widely used. • New ones may be developed where needed • Producer Management Issues (Enhanced) • Economic Solutions - Why Not Implementing? • Environmental Solutions – Define Priorities and Resources • Government/Regulatory Issues (Enhanced) • Rules to Level/Define Playing Field • Barriers to implementation

25. Overall Schedule • Start Planning – May 2000 • Initial Funding Committed – May 25 • Data Collection June-July • Displace Purchased Energy Report – August • Flowchart Options & Prioritize Focus – August • Sub-contractors carry out independent analysis – Sept/Oct • Pull analysis together, address interface issues – Nov • Prepare Draft Report and Presentation – Dec • Hold Workshop with Participants – Dec • Final Deliverables - Jan

26. Proposed Deliverables • Interim Report on Options to Displace Purchased Energy • Analysis; Powerpoint Summary; One Page option sheets • Draft Report • Powerpoint format and workshop to review • Main Report • Full Document (2 copies) • Powerpoint format (paper and electronic) • Options (cost recovery basis) • Field presentations, extra reports

27. Data Collection • New Paradigm • Input from sub-contractors on info needs • Design and Plan Survey of Producers • Design and Plan Survey of Vendors • Interview other stakeholders • Regulators, power companies, gas suppliers • Obtain source documents • Maps (power systems, land plats, gas systems, pools) • Reports (CAPP, SEM, AEUB, others)

28. Producers Survey Contents • Main Operations Dimensions • # single wells vs. pad wells • Oil, water, gas production averages and range by area • Standard lease layouts • Costs for pressurized natural gas/propane • Pumper issues • Regulatory/business Issues • Current plans/philosophy/motivation • Main regulatory issues/concerns • Main impediments to implementation • What has been tried already • Details on where, who, results, photos, reports

29. Vendor Survey Contents • Main Technology Features • Capacity ranges • Costs • Utilities • Operational Factors • Business Issues • Equipment buy/lease or sub-contract options • Support in area • Synergies • Where has technology been used • Details on where, who, results, photos, reports

30. Displace Purchased Energy Options Winterization Tracing; Dryers; Anti-freeze; Fuel Heaters Low Pressure Fuel Mini-compressors; Low Pressure Burners Increase Efficiency Improve Tank Heating: Combustion; Heat Transfer Co-gen (heat & power)

31. Displace Purchased Energy Report (20%) • One Page Descriptions of Options(New Paradigm) • Typical Site Layout, • Costs vs. Capacity, • Energy Efficiency or Other Benefits • Utilities or Maintenance Support, • Pumper Issues, • Environmental impacts, • Implementation/Regulatory Issues • Potential synergies • Generic Economics for Fuel Displacement • Cost to Buy, Install, Operate vs. Savings • Propane • Pressurized Natural Gas

32. Power from Vent Gas Easy Sites Pads with lots of gas; Near power lines Small Sites Single, high GOR wells; Near Power lines Remote Sites Small local loads; Lights, Remote Control

33. Power from Vent Gas (25%) • Subcontractor – EMF Technologies • Technical • Micro-turbines, gas engines, other • Characteristics, costs vs. size, fuel efficiency, potential for co-generation of heat and power • Operations issue • Potential for Mercury Electric Pilot • Business and Regulatory • Economics vs. Size and cost to tie-in • Regulatory constraints (generation, distribution or sales) • Business Structuring Options • Utility vs. industry/company operated systems • Key Agreement terms (access, revenue/cost sharing)

34. Gas Collection and Sales Fuel for New Wells Similar to Winterization: Temporary flowlines? Local Sales Mini-compressors; Mini-dryers; Tie-in to Existing lines Sales to Pipeline Low pressure collection; Central treating and Compression facility

35. Gas Collection and Sales (30%) • Subcontractor – Marlett & NPEL • Technical • Collection/distribution methods • Dehydration or freeze protection • Compression • Business and Regulatory • Economics vs. Size and cost to tie-in • Regulatory constraints (distribution or sales) • Business Structuring Options • Gas utility vs. industry/company operated systems • Key Agreement terms (access, revenue/cost sharing)

36. Increase Oil Recovery Pressure Support One well per pad takes Compressed Gas Mini-EOR Small steam generators; Methane cycling Collect gas for use in other Areas (Royalty Free) Large Scale EOR

37. Increase Oil Recovery (10%) • Subcontractor – Miller & NPEL • Technical • Listing of Options • Pro’s & con’s • Potential facilities options • Business and Regulatory • Economics vs. Size • Reservoir Factors • Contacts for further assessment

38. Methane Conversion Flares Low cost, low liquid Low visibility flares Catalytic Oxidation Portable, low visibility, Potential for use of energy GHG Credits Requires auditable Measurement of conversion

39. Methane Conversion (10%) • Subcontractors – Marlett, Jamieson & NPEL • Technical • Flare designs for variable rates • Catalytic oxidation methods • GHG credit measurement and tracking • Business and Regulatory • Economics vs. Size • Potential for Credits and their value • Business Structuring Options • Add on to power/gas options • Key Agreement terms (access, revenue/cost sharing) • Bulletin Board test with residents

40. Mitigation of Tank Odours Micro-incineration Use casing gas; Incinerate tank vents Catalytic Oxidation Low cost, low maintenance Other Options Absorption; Adsorption; Active Dispersion

41. Mitigation of Tank Odours (5%) • Subcontractor – Marlett, Jamieson & NPEL • Technical • Factors resulting in odours • Sampling and neighbour issues • Assessment of low cost options • Business and Regulatory • Costs vs. Size • Safety and Operability Issues • Business Issues • Odour emissions philosophy • Proactive or reactive

42. Flowchart Options • New Paradigm and sub-contractors • Lay-out options in a flowchart(s) • Show: • Interactions • Synergies • Relative Value (starting assumptions on payout) • Application Based • Lease types – single, multi-well • Back-up energy type – gas, propane, power, other • Pumping equipment • Energy Demand Ranges • Casing Gas Ranges • Sub-charts by technology issues

43. Technical Option Summary Sheets • Standard format summaries for each option • One Page Descriptions of Options(NPEL) • Typical Site Layout, • Costs vs. Capacity, • Energy Efficiency or Other Benefits • Utilities or Maintenance Support, • Pumper Issues, • Environmental impacts, • Implementation/Regulatory Issues • Potential synergies • List of Vendors

44. Technology Assessment Tools • Flow Charts, Decision Trees and Scoping Economics • Inputs: • Site characteristics – layout, volumes, proximity to power lines, pipelines, residences, other factors • Budget Constraints • Outputs: • Technically viable options • Economic Indicators • Option: Potential to build a spreadsheet tool (Enhanced)

45. Contract Deliverables • Interim Report on Options to Displace Purchased Energy • Analysis; Powerpoint Summary; One Page option sheets • Draft Report • Powerpoint format and workshop to review • Draft Option Assessment Tools • Draft Option summary sheets • Main Report • Full Document (2 copies) • Powerpoint format (paper and electronic) • Tools (paper minimum) • Options (cost recovery basis) • Field presentations, extra reports

46. Interim Reporting • All contractors will progress invoice New Paradigm and report progress • One page status reports will be e-mailed to participant contacts on a monthly basis, including: • Progress Status • Project Cost Status • Decision items for participants

47. Funding Proposed • Open to any organization on similar terms • Reports to participants only • Current basis $15,000 + GST per participant • Can proceed with more or less but depth of analysis varies • Need to decide on piloting • After study 60% complete, new participants pay a premium (20%) • Funding used to monitor developments or pilots • Option for pilot management • Option to expand to thermal heavy oil venting

48. Agreement Terms • Purchase/service order basis • New Paradigm invoice for fee plus GST. Options: • One invoice for $15,000 (June) • Progress Invoicing • June 1 - $5,000; August 1 - $8,500; Final Report Issue - $1,500 • One page statement of deliverables and Memorandum of Understanding (MOU), principles: • No confidential information to be communicated • Participants will only distribute reports internally • Participants to respond to surveys or requests for information • NPEL to ensure work is completed on a timely basis • Arbitration for dispute resolution

49. Optional Items • Piloting • Separate Agreements/MOU’s for vendors contributing in kind • Review plans and budgets with participants • Site Selection from Participant Wells • Separate deliverables • Thermal Venting • Separate Agreements/MOU’s • Discount for participants in both • To be determined

50. Summary as of June 20, 2000 • Project has been launched • Agreements in Place: • Ranger Oil • Husky Oil • Obtaining Approvals: • Mobil Oil • CanOxy/Wascana • AEC Oil and Gas • Open to more participants. Prefer decision as soon as possible to assist with project planning. • Obtain copy of one page agreement from New Paradigm.