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

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

The Target for Change Oil & Gas Methane Emissions Ref: CAPP Pub # Heavy Oil Venting 29%

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 Canadas GHG emissions GHG, Flaring and Odour Issues affecting our ability to develop new leases

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

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 CO 2 Tank vent treatment to eliminate odours

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

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

About New Paradigm Engineering Ltd. Independent consulting company, Inc 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)

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

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)

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

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

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 ( )

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.

Proposal Overview - Objectives Evaluate options to utilize casing gas Assess criteria for successful application Pros and Cons 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.

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 CO 2 – 10% Mitigation of tank odours - 5%

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

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

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

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

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

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

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

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

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)

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

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

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

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

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

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)

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

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)

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

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

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

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

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

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

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

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

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)

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

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

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

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

Optional Items Piloting Separate Agreements/MOUs for vendors contributing in kind Review plans and budgets with participants Site Selection from Participant Wells Separate deliverables Thermal Venting Separate Agreements/MOUs Discount for participants in both »To be determined

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.

Contact Information Advanced Technology Centre Avenue Edmonton, Alberta Canada T6N 1G1 tel: fax: web: