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ReducingReducing Diluent Diluent Required in theRequired in theTransportation of Heavy Oils and Transportation of Heavy Oils and 

BitumenBitumen

COQA - Salt Lake City, Utah

9 June 2011

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Company highlights

JetShear ™

TechnologyThe company has developed a proprietary technology that has asignificant cost advantage over alternatives in thetransportation of extra heavy oil

Technology has been successfully piloted in Canada

Reached commercial terms on 1,000 bpd facility in June 2010with Canadian producer 

Began operating 1,000 bpd facility in first quarter 2011 on heavyoil site in eastern Alberta (Canada)

Executed Letter of Intent on 5,000 bpd facility in May 2011 with amajor oil sands producer 

Multiple tests for clients in lab and at pilot confirm technologybenefits; stability of product confirmed

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Company highlights (cont’d)

•   Experienced team with proven track record –   Joe Gasca, CEO

• 30+ years of industry experience, most recently serving as CEO of Ivanhoe Energy

• 21 years in major leadership positions at Texaco

 –   Dr. Esteban Chornet, Founder • Inventor of JetShear TM technology

• Professor of Chemical Engineering at Université de Sherbrooke (Québec, Canada),

affiliation with NREL –   Michel Chornet, VP Engineering• 12+ years of engineering and technology development experience in the oil & gas and

renewable energy sectors

• Shell and H-Power 

 –   Marcel Matte, VP-Projects/Operations• 23 years of process engineering and project management experience

• Most recently established and led Calgary office for Fransen Engineering

•   Committed investors – Rho Ventures and Braemar Energy Ventures

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•   Extra heavy oil (EHO) is very costly to transport to market•Viscosity prevents EHO from being put directly in a pipeline

•Producers purchase light oil (diluent) at premium price to blend with EHO

•Highest operating cost for EHO producer (target client)

•   JetShear - Significant reduction in viscosity•Up to 50% reduction in diluent requirement•Up to 3% net density improvement

•Improved netback – diluent & tariff savings

•   Cost effective•Small scale provides significant cost advantage

•Small “footprint”•Economies of scale with little to no “scale up” risk

•   Attractive economics•Project economics indicate 2 year payout on investment

Fractal has proprietary patentedtechnology to improve heavy oil quality

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5

Heavy oil industry – the market

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6

oil sands mine

blending terminal

refinery

truckers

integrated upgrader 

Pipeline Key

Bitumen/HO

Diluent

Upgraded oil

Heavy Oil   industry value chain

blending terminalheavy oil producer 

Integrated

producer/upgrader 

heavy oil producer 

“Upstream”   “Midstream” “Downstream”

JetShear 

application

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Lloydminster/Provost

Heavy Oil Region

Athabasca

Oil Sands Region

Cold Lake

Oil Sands Region

Peace River 

Oil Sands Region

SAGD Projects (currently 13)

Thermal Oil Sands “in-situ”

Conventional Heavy Oil (“cold”)

Mining Projects (currently 4)

E d m o n t o n  E d m o n t o n  

H ar di s ty  H ar di s ty  

F or t  F or t  

Mc Mur r ay  Mc Mur r ay  

Thermal Oil Sands “in-situ”

Conventional Heavy Oil (“cold”)

The Canadian  Heavy Oil  market

8-9° API

10° API

12+° API

10° API

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Diluent* required for transportation of  Heavy Oil  is expensive

SellDilBit

@ blend priceless tariff 

ProducedBitumen/Heavy oil

PurchaseDiluent@ C5+  priceplus tariff 

*   Diluent is a light hydrocarbon (typically a natural gas liquid or condensate in Canada) that is used to “dilute” the heavy oil in order to improve its transportation characteristics (lower viscosity)

• Bitumen & Heavy Oils are dense (<12 °API) and highly viscous(100,000+ cSt) requiring significant diluent to meet transportation

quality specifications; often as much as 30% blend ratio• Netback to the producer is highly volatile

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 Achieves viscosity spec

using ~half the diluent

Using JetShear™, a heavy oil producer can meet pipelineviscosity requirement with substantially less diluent

350 cP

Results from Fractal – Sherbrooke labs

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10

DHO INTEGRATION

Thermal facility application

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11

JetShear™ – the technology and its

application

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A very simple system!Pilot Facility Diagram

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Small footprint

Fast Deployment

Low Engineering Risk

1,000 bpd JetShear™ FacilitySystem layout

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South View of Skid

North View of Skid

1,000 bpd FacilityBlending Skid

Novel,  patented technology 

in this box! 

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JetShear ™ 1,000 bpd Site

JetShear Pump Building

MCC

Heater 

Cooler 

Process Tank

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Heavy Oil

Heavy Oil Processed with JetShear 

JetShear™ processUsing complex technology

* Solvation

* Temperature -   facilitates molecular mobility

* Cavitation -   liberates kinetic energy to chemical energy

* Near sonic velocities

* High shear forces

Conventional Blend

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Pilot Results

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300 bpd Pilot Facility

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16.5

17

17.5

18

18.5

19

19.5

20

20.5

21

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Results from Pilot Facility – heavy oil

0

100

200

300

400

500

600

700

800

900

1000

Without Jetshear   With JetShear

°API GravityViscosity

Pipeline

Specifications

 August 2009 Monthly Average Results

cS

density (inverse)

11.6 °API feedstock, 80 °API 14.5% blending ratio

~2.7 °APIincrease~90%

reduction

We have successf ul l y scal ed up our pr ocess i n t he f i el d!  W e h a v e s u c c e s s fu l l y s c a l ed u p o u r p r o c e s s i n t h e f i el d !  

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16.5

17

17.5

18

18.5

19

19.5

20

20.5

0

200

400

600

800

1000

1200

Without Jetshear   With JetShear

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Results from Pilot Facility - bitumen

°API GravityViscosity

Pipeline

Specifications

May 2010 Monthly Average Results

cS

density (inverse)

7.5 °API feedstock, 70 °API ~25% blending ratio

~2.5 °API

increase~91%

reduction

B i t u m e n  B i t u m e n -  -Di luent  D il u e n t b l en d p r o v i d e d b y a S A G D p r o d u c e r  b l e n d p r o v i d e d b y a SA G D p r o d u c e r  

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Maxxam Analytics Preliminary Assays Results

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Discussion with COQA

• What are implications of the (relativelyminor) changes in the assay for the dilbitprocessed using JetShear?

• What actions should Fractal undertake toaddress any concerns with the JetSheardilbit?

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Visit our website: www.fractalsys.com

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Appendix

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Protecting and enhancing value

• Two patents have been filed:

– US20080217211 – patent pending

• Process for treating heavy oils

– US20080314796 – issued May 17, 2011

• Treated oils having reduced densities and viscosities

• Filing countries:

– Canada and USA

– National Filings

• Brazil, Ecuador, Colombia, Mexico, EU, Oman, China

– PCT application

• Work underway for new patent(s)

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Dilbit #2