Oil Shale Development Economics

October 17, 2007

Khosrow BiglarbigiHitesh MohanINTEK, INC.

INTEK

27th Oil Shale SymposiumThe Colorado Energy Research Institute & The Colorado School of Mines

October 15 – 17, 2007

2

Economic DiscussionEconomic Discussion

Part I - Project Economics

– Project costs

– Economic price

– Cash flow

Part II – A new oil shale industry

– Potential size

– Economic hurdles/solutions

– Benefits on U.S. economy

$$

3

National Oil Shale ModelNational Oil Shale Model

Resource

Screen

Resource

Economic Options

Production

Reserves

Revenues & Costs

Technology

SurfaceU/G

MISIn-Situ Economics

4

Resource Base AnalyzedResource Base Analyzed

• Industry nominated tracts

• 79 Billion Barrels of resource in place

• Detailed geologic & petrophysical data

Western Oil Shale

5

43Step 1

Create Void by MiningStep 2

Rublize shale by explosionsStep 3

Initiate combustion

Virgin

Shale

Free oil movement

Combustion Front

Retorted Shale

Mined Shale

Mined Shale to surface retorts

Shale oil to refinery

Step 1Create Void by Mining

Step 2Rublize shale by explosions

Step 3Initiate combustion

Virgin

Shale

Free oil movement

Combustion Front

Retorted Shale

Mined Shale

Mined Shale to surface retorts

Shale oil to refinery

Modified In-Situ

Technologies ConsideredTechnologies Considered

1 2

Conveyer Retort Plant

Mining

Partial Upgrading

To Market

Conveyer Crusher

Waste Disposal

Shovel Trucks

Oil Shale

Overburden

Oil Shale

Overburden

Surface Mining / Surface RetortCrusher Conveyer Retort Plant

Mining

Partial Upgrading

To Market

ConveyerSlope Mine Crusher

Oil ShaleOil ShaleOil ShaleOil Shale

Waste Disposal

Underground Mining / Surface Retort

True In-Situ

6

Project CostsProject Costs

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

1981 1984 1994 1998 1999 2001 2003 2005

Pro

du

ctio

n C

ost

, 20

04 U

S $

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Alb

erta

Oil

San

ds

Pro

du

ctio

n,

MM

Bb

l/D

ay

Production Costs: Oil & Gas Journal, July 14, 2003, V. 101.27Production Volumes: Canadian Association of Petroleum Producers, Historical Statistics

O & M Costs

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

1981 1984 1994 1998 1999 2001 2003 2005

Pro

du

ctio

n C

ost

, 20

04 U

S $

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Alb

erta

Oil

San

ds

Pro

du

ctio

n,

MM

Bb

l/D

ay

Production Costs: Oil & Gas Journal, July 14, 2003, V. 101.27Production Volumes: Canadian Association of Petroleum Producers, Historical Statistics

O & M Costs

Canadian Oil Sands

First Generation Projects

*Inclusive of mining, retort, & upgrading

*

*

Item Unit Range

Capital Cost K$/SDB 40-55

O&M Cost $/Bbl 12-20

7

However, the Capital Costs are IncreasingHowever, the Capital Costs are Increasing(Source: CAPP, March 2007)*(Source: CAPP, March 2007)*

0

20 000

40 000

60 000

80 000

100 000

120 000

Suncor -Millenium

Albian Syncrude- Aurora 2& UE 1 *

Nexen-OPTI

CNRL -Horizon

Shell -Muskeg &Scotford

Cap

ital

$ p

er b

bl/

day

ProductionStart Date 2001 2003 2006 2007 2008 2010

Capital Cost of 100,000 bbl/ day project$3.3 billion $10 billion

*Presented at the 2007 EIA conference, Washington. D.C.

8

Economic Price for Oil Shale TechnologyEconomic Price for Oil Shale Technology

Generic Projects (Price: $/Bbl)

TrueIn-Situ

SurfaceMining

UndergroundMining

ModifiedIn-Situ

$35.00$43.00

$52.00$57.00

0

10

20

30

40

50

60

70

2004

Dol

lars

Rate of Return – 15%

9

Breakdown of Economic Price for Breakdown of Economic Price for Generic Surface ProjectGeneric Surface Project

$43/Bbl

Cost of Capital$8

Operating Costs$17

Risk Premium$4

Transfer Payments$6

Taxes$8

10

Cashflow of a Generic Oil Shale ProjectCashflow of a Generic Oil Shale Project

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

1200

5 10 15 20 25 30 35 40

After Tax

Before Tax

Year

Cu

mu

lati

ve D

isco

un

ted

Aft

er T

ax C

ash

flow

(M

M$)

Room for Government Action

11

Impact of Incentives on Generic CashflowImpact of Incentives on Generic Cashflow

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

1200

5 10 15 20 25 30 35 40

After Tax

Before Tax

Year

Cu

mu

lati

ve D

isco

un

ted

Aft

er T

ax C

ash

flow

(M

M$)

$10/Bbl Production Credit$5/Bbl Production Credit15% investment Credit10% Investment CreditAccelerated Depreciation

12

Projected Production Potential (BOE)Projected Production Potential (BOE)(Shale Oil in the U.S.)(Shale Oil in the U.S.)

Base

Tax Incentives

RD&D

Measured

Accelerated

* ** ** *

13

0

100

200

300

400

500

600

700

800

900

1,000

2005 2010 2015 2020 2025 2030 2035Year

Bil

lion

200

4 D

olla

rs

Base Measured Accelerated

Savings to U.S. ConsumersSavings to U.S. Consumers

(Cumulative)$200 to $900 Billion

14

0

200

400

600

800

1,000

1,200

1,400

2005 2010 2015 2020 2025 2030 2035

Year

Bil

lion

200

4 D

olla

rs

Base Measured Accelerated

Contribution to GDPContribution to GDP

(Cumulative)Up to $1.2 Trillion

15

0

50

100

150

200

250

300

350

2005 2010 2015 2020 2025 2030 2035Year

Tho

usan

d L

abor

Yea

rs

Base Measured Accelerated

New JobsNew Jobs

Up to 250,000

16

0

50

100

150

200

250

300

350

2005 2010 2015 2020 2025 2030 2035

Year

Bil

lion

200

4 D

olla

rs

0

500

1000

1500

2000

2500

Oil

Sha

le P

rodu

ctio

n (M

BO

E/D

ay)

Base Measured Accelerated

Savings on Foreign ImportsSavings on Foreign Imports

Up to $325 Billion

17

0

10

20

30

40

50

60

70

80

90

2005 2010 2015 2020 2025 2030 2035Year

Bil

lion

200

4 D

olla

rs

0

500

1000

1500

2000

2500

Oil

Sha

le D

aily

Pro

duct

ion

(MB

OE

/Day

)

Base Measured Accelerated

Direct Local, State, And Federal Revenues Will Direct Local, State, And Federal Revenues Will Increase by $25 to $85 Billion by 2035Increase by $25 to $85 Billion by 2035

(Cumulative)

18

For More InformationFor More Information

http://www.unconventionalfuels.orghttp://www.unconventionalfuels.org

19

AppendixAppendix

20

Potential Influence of Oil Shale Potential Influence of Oil Shale DevelopmentDevelopment

Oil Shale Direct and Indirect Jobs

Effects on Consumer Spending

Drilling Rigs

Skilled Labor

Steel Pipes

Power

Heaters

World Demand

OPEC

World Supply

Local, State,Federal

Treasuries

Contribution toGDP

ReducesImports

Reduces Call on OPEC

Impact on National Economy

Shale OilProduction

Oil ShaleDevelopment

Oil Shale Investments

Change In Oil Price

21

Favorable Fuel Prices Will Increase Consumer Favorable Fuel Prices Will Increase Consumer Discretionary Spending, Non-Petroleum Jobs, And Discretionary Spending, Non-Petroleum Jobs, And

GDPGDPOil Price

Fuel Price

ReducesImports

Reduces Call on OPEC

Change In Oil Price

Oil Shale Investments

Oil ShaleDevelopment

Shale OilProduction

Local, State,Federal

Treasuries

Drilling Rigs

Skilled Labor

Steel Pipes

Power

Heaters

Oil Shale Direct and Indirect Jobs

Effects on Consumer Spending

Impact on National Economy

World Demand

OPEC

World Supply

Contribution toGDP

ReducesImports

Reduces Call on OPEC

Change In Oil Price

Oil Shale Investments

Oil ShaleDevelopment

Shale OilProduction

Local, State,Federal

Treasuries

Drilling Rigs

Skilled Labor

Steel Pipes

Power

Heaters

Oil Shale Direct and Indirect Jobs

Effects on Consumer Spending

Impact on National Economy

World Demand

OPEC

World Supply

Contribution toGDP

Non PetroleumContribution

to GDP

Non PetroleumDrivenJobs

ConsumerDiscretionary

Spending

IndustrialEnergy

Spending